One of the most important investing decisions of 2021 is how to position against a growing influx of fiat currency injected into the monetary system. Of all the US currency in circulation, 25% was added in 2020 with 2021 shaping up to raise the bar even higher. With more and more dollars competing for the same amount of fixed goods, each dollar loses its purchasing power. 2021 requires a strategy to compensate for this dollar depreciation. There are three assets that we believe are up to the task: Bitcoin, gold and silver.
I want to draw an analogy here that will help explain the importance of these advantageous assets as we move deeper into 2021. In 59 BC Rome, three opportunistic figures, Caesar, Crassus and Pompey, decided to align themselves politically for mutual benefit and to gain control over the Republic. Just as this First Triumvirate strengthened the Republic for a time, we believe Bitcoin, gold and silver can fortify a portfolio in 2021. One may emerge above the others as the true winner, but the partnership will benefit all.
Bitcoin = Caesar
Bitcoin is the Caesar of this alliance. It has the most upside and is currently enjoying an unprecedented winning streak. It also has the most to gain if the entire monetary system collapses as it functions as well, if not better, outside of the current system. This is not a likely event but in the case of a monetary collapse or reset, Bitcoin would be left standing in the ashes in a much more dominant place. As it expands rapidly and becomes entrenched, it carries an increased risk of current monetary powers and authorities acting against it. If this happens, in theory it could drop to zero, erased from history. Caesar was not a sure bet early in the alliance and was consistently on the brink of defeat during his early campaigns. He was detested and dismissed by many of the wealthy stake holders and politicians of the Roman Republic. Bitcoin, too, struggles for legitimacy with institutional investors just starting to add Bitcoin to large portfolios.
We think it’s unwise to miss out on the upside of Bitcoin, but it is not an all in as it could still get struck down if the current monetary system senses the threat early enough.
Gold = Pompey
Gold represents Pompey; it has been around a long time, is understood, and feels like a safe choice. It doesn’t have the exponential potential of Bitcoin, but it is far less likely to plummet in value as well. Gold is highly regarded and held by nations, central banks and wealthy individuals. Pompey was beloved by the average citizen and the powerful alike as a military figure for his consistency and stability. Currently many more people have a stake in gold performing well than in Bitcoin or silver. It is seen as the default play when times get tough just like Pompey the Great was a hedge or insurance against the worst-case scenarios in Rome. Gold has for centuries been a hedge against government and societal collapse. It is also seen to be in competition with Bitcoin not unlike Caesar and Pompey who were bitter military rivals.
We think gold is a safe bet, but it lacks the exciting upside of the others.
Silver = Crassus
Silver is Crassus in the triumvirate; it moves up and down and no one truly understands what sector it is in; it is both an industrial metal as well as a financial asset. It shows up in commodity bull runs or panics as a currency and as an industrial metal when the economy is roaring. With the Green New Deal and an inflation of fiat currency, it seems perfectly poised to win as both. Crassus had a fairly prominent military career but was more seen as a businessperson, toted as the “Wealthiest Man in Rome”. Just like Crassus’s role in the Triumvirate, the importance of silver as a counterbalance gets forgotten about when hedging a portfolio or betting on commodities. Silver will succeed if the economy starts doing well and if everything gets much worse, it will do well as a currency.
Silver historically trails gold then explodes to the upside near the end of a commodity cycle. If this happens in an inflationary backdrop, it could be game changing.
How We Have Been Trading
Our base case is that the monetary pressures will continue to cause scarce assets like commodities to rise. Bitcoin has been on fire leading us to continually rebalance by taking 1/3 off the table every time our position doubles. If this continues, we will keep feeding the spoils to gold and silver mining ETFs. Provided we are correct, these ETFs are going to start moving early springtime alongside changing policy. If our thesis continues to hold, the overall goal is to keep the positions relatively equal as they
should all be moving in the same direction. If we got it wrong and are met with huge deflationary pressures, we will redeploy the capital elsewhere.
Just like the First Triumvirate it is likely there will be a clear winner left standing after the fray, but this will only be decided in time and currently all three should benefit. This might just be what we want to happen given our current portfolio construction. Even Caesar said, “Men willingly believe what they wish”. Only time will tell for sure but we will continue to keep score.
Thanks for reading and let us know what you think!