Bitcoin Versus Gold & Will Silver’s Rally Continue?

Corporate Bitcoin Reserve Strategy taking flight….

As the world progresses into AI, crypto, and blockchain, gold and silver look distinctly old-fashioned. The ‘barbarous relic’, as economist Maynard Keynes pointed out a century ago, was then going out of fashion. Now, it appears the process is accelerating. Michael Saylor of Strategy (US:MSTR) would wholeheartedly agree.

For hundreds of years, however, gold was money. It still is. A transactional metal in most capital cities, a bag of high-quality gold can buy you physical comfort anywhere. A troy ounce of gold these days fetches a hefty $3,300 (around £2,400).

But Bitcoin bulls will gloat over that gold price. At $105,000 (or thereabout) per digital coin, BTC now trades at a multiple of one gold troy ounce. The Gold versus Bitcoin price differential seems to widen by the month. Bitcoin’s characteristic – divisibility, portability, and new-fangled technology – all underpin its increasing desirability.

So enamoured by Bitcoin’s seemingly unstoppable rise that more and more companies are exploring ways to surf the crypto trend. The ‘Bitcoin Treasury Reserve’ strategy is the latest fad to encroach corporate boardrooms.

The newest company to switch into a quasi-Bitcoin holding company is Metaplanet (JP:3350), a hotel management business listed in Tokyo. Its stock price soared this month when it announced a Bitcoin treasury plan. A $5.4 billion equity offering to buy 210,000 Bitcoins stunned investors and swiftly precipitated a scramble for its shares (see below).

Metaplanet’s Bitcoin reserve strategy is neither the first, nor last. Trump Media (US:DJT) recently raised $2.5 billion by way of equity and convertible notes to invest in Bitcoin. Semler Scientific (US: SMLR), a medical device company, also engaged in Bitcoin buying strategies. Even the granddaddy of MEME stock – GameStop (US:GME) – couldn’t resist the temptation. 4,710 BTC was acquired into its balance sheet.

And whenever there is a tech fad, you can be sure that SoftBank (JP: 9434) is there. Together with Tether and Cantor Equity, these backers formed Twenty-One Capital XXI (US:CEP) last month via a spac. CEP is now the third-largest BTC holding company (with 37,230).

The behemoth and leader by far in holding Bitcoin remains Strategy. The firm is sitting on an enviable 582,000 Bitcoin hoard.  Have a look at the companies holding Bitcoin below:

Source: bitcointreasuries.net/

Is the Bitcoin Reserve a speculative fad or financial prudence?

But is this so-called bitcoin reserve strategy a financially viable route? Or is this Dot-Com craze 2.0, where most companies lose their shirts investing in speculative unprofitable dot-coms?

For now, it appears that acquiring Bitcoins for their balance sheets is a financially ‘sound’ one.  Two points worth stressing here: ‘for now’ and ‘sound’.

Few know how Bitcoin will fare in the future. At the moment, most investors hold bullish views on it. The reason is simple: Bitcoin has more than quadrupled from the $16,000 low in 2022. Cast your eyes just a little further, BTC jumped 10x in 5 years. Everyone recognises a red-hot bull market.

One market principle is that an appreciating asset always attracts capital. The stronger the momentum, the more money it attracts. So the larger the crowd, the bigger the party. At $2.1 trillion in market cap, Bitcoin is hosting a rather large party.

Moreover, when CEOs notice that a ‘Bitcoin Reserve Strategy’ immediately propels its share price north, the enticement to adopt increases immeasurably. Hence, the list of corporate ‘Bitcoin Adopters’ lengthens.

The logic underpinning this reserve strategy is that ‘Bitcoin prices always go up’. Indeed, Bitcoin’s long-running bull trend has been defying gravity (and countless doomsayers). In light of the growing sovereign debt pile sitting in credit portfolios, the Hard-Cap Bitcoin appears relatively safe for capital, due to its limited supply, in the same role that gold is playing right now, as a sovereign reserve asset.

Silver Breaks Out!

While Bitcoin is attracting increasing corporate sponsorship. sadly silver is still being unappreciated – despite breaking out to its highest level in more than a decade (see below).

So far, virtually no CEOs is talking about buying silver as a strategic reserve. Silver is too analogue in today’s digital world.

But there’s money to be made in silver, though. Prices vaulted to the highest level since 2012, suggesting an imminent catch-up with gold. When stars are aligned for silver, it can produce strong returns over a short period of time.

Silver bears, however, would argue that silver is such a historical laggard that no rally will justify owning the metal long term.

Look at this undisputed fact. Silver peaked at $50 in 1980. Four-and-a-half decades later, it is still down 28 percent, in nominal terms. In real terms, the decline is even larger. Relative underperformance is a big red flag, especially one as large as this.

Even Jim Rogers, the legendary fund manager, is perplexed. In an interview last month, he suggested the following:

[Silver] has been at 50 twice in history….why is it lagging? Now, that’s an extremely good question. The only thing I can answer is because we don’t seem to have an inflation boom. We don’t have a commodity bubble or a commodity pop like we did before.

However, a trend is a trend. Long-term highs often bring momentum and trend-followers. Silver may rally in a haphazard way, but it will advance until the current momentum exhausts. Without any technical resistance near-by, the near-term target at $40 should not be too difficult to reach.

What about silver miners?

Silver miners are a different beast. To profit from silver mining stocks, a few supporting factors are required:

• Strong silver rally
• Firm stock markets
• Good earnings from mining assets

If all three forces are simultaneously aligned, miners can outperform silver many times over. During 2010-2011, many silver miners skyrocketed 10-20x when silver trebled. But as soon as one factor is eliminated, share prices of miners may decline steeply.

For example, this week Hochschild Mining (LSE:HOC), a gold miner in Latin America listed in the LSE, announced a temporary halt in one of its mines. Prices promptly collapsed 22 percent overnight. This occurred despite an ongoing bullish gold and stock markets.

Therefore, unless you know these silver miners intimately, perhaps buying an ETF of silver miners would be a better solution. Diversification reduces risks. One such ETF is the VanEck Junior Miners (GDXJ) listed in the US. Its long-term price pattern is favourable.

In the UK, the largest silver mining stock worth £10 billion is Fresnillo (LSE:FRES).