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How are investors reacting to the devaluation of the dollar, and how does digital currency like Bitcoin compare to owning physical gold?

January 6, 2014
Video Transcript

People do see what's happening, If you ask me, that's the whole reason behind Bitcoin. Bitcoin to me is like grasping at tulip bulbs. It's a grasp people realize there's something wrong and they want to grasp for something different, but I don't think they necessarily know what to grasp for. An electronic blip, to me, is just complete and utter nonsense. It's funny, I was teaching a class and I had a young man in the room he had several PhD degrees. He was a defender of Bitcoin. We had started a conversation and I said, "What's the attraction for Bitcoin for you?" He said, "Well, based on the computer algorithm it's based on, you can only have so much of it and since there's only so much of it that really limits it's value. Meaning the ability to inflate away its value, governments can't do that." I said, "Well, that's true, for the algorithm for Bitcoin, but that doesn't stop anybody from starting Tripcoin and Quadcoin and a thousand different electronic currencies. That's where the inflation in electronic currencies will come from." So if it's an electronic blip, we can create an unlimited number of them.

Again, the thing about gold is... it's limited in supply. If you look into the total amount that's been mined since the beginning of time, or recorded time, and man has been looking for it everywhere they've gone. You have between 1 and 2 ounces per person. That's how much gold that exists. The reason the range is so wide between 1 and 2 ounces, so many people transfer gold privately, from one generation to the next as a security blanket. So when you have 1-2 ounces per person, that's very limited in supply. The mining activity can only add about 2% a year. The population is growing at around 3% a year. So the reality is that the population is increasing faster than the gold supply and by its very nature limited.

I don't know how many people watching this have seen some of the gold shows, but between "Gold Rush" and "Bering Sea Gold", what people go through in order to get gold. I mean going into the Guyana Rainforest--It's 110 degrees with 99% humidity and full of poisonous snakes or diving in sub-freezing waters up in the Bering Sea. You're lucky, all you have to do is write a check and you can get gold. It's so much easier way to get it. People go to great lengths to get it. Again, it's one of those things that the day will come when you'll either have it or you don't. Now I don't mean gold is your only source. There's also farmland as far as answers, there's other hard assets, but they're not portable. You can buy farmland, but you can't take it with you. They can raise the taxes on that farm until it simply becomes unprofitable. You just never can be sure what's going to happen in a particular country and when you're going to want at some point leave and take your wealth with you. You can't take land with you; you can't take forests with you. Mike Bloomberg, the Mayor of New York, summed it up pretty well. The New York legislature was planning on putting a tax on hedge funds. He said, "What are you crazy? If you put a tax on hedge funds, they'll just move across the river to New Jersey. You have to tax things that can't move." That's why around the world today; mines are being shut down right and left, because a company will invest sometimes billions of dollars. Then the government in that country will come around and say, "We're raising our royalty to double or triple what we originally told you." That's their profit margin and they end up shutting it down.

So, I think we're going to see less and less gold coming into the market, a greater and greater demand. Supply and demand is the first law of economics, at some point the price will explode. Again when that happens, it's too late, you won't be able to get it, and no one is going to sell it to you.

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