Holding precious metals as part of a larger portfolio with other alternative investments (such as cryptocurrency) has seen a rise in interest, particularly in an inflationary landscape. But is buying and holding gold the same as buying and holding a crypto like Bitcoin (which has been called “digital gold”)? Is one better than the other? Stephen Flood, the CEO of GoldCore, one of the leading gold brokers and storage providers in the world, joins to offer insights.
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Scott: Hello, and welcome to another episode of “Cryptogic.” Scott back with you. And thanks to Andy for taking over hosting duties for the last few episodes. I’m so excited to be back and really excited about today’s episode because we’re going to be talking about crypto and we’re going to be talking about gold and precious metals as well. And joining me to offer his unique perspective on cryptocurrencies and more is Stephen Flood, who is the CEO of GoldCore and has been part of the company for over a decade.
And GoldCore is one of the leading gold brokers and storage providers in the world. So, clearly a lot of experience when it comes to precious metals, but some great perspectives as well on cryptocurrencies. So, let’s dive right in.
Stephen, welcome to the show, and thanks for being here.
Stephen: It’s great to be here. It really is.
Scott: So, to kick things off, today we want to discuss cryptocurrencies as part of an overall portfolio strategy and maybe how they might fit alongside traditional investments as well as, you know, alternative investments like precious metals. So, to kick things off, what is your view of cryptocurrency at a high level?
Are you bullish on it as an asset or bearish on it? What’s your perspective there?
Stephen: I think it’s a really exciting time. I think there’s incredible creativity and developments and entrepreneurship shown in the crypto world. We have incredible networks that are in development. And ultimately, they’re all trying to solve a problem, and that problem is manifold and it relates to the security of money or currency that are in transactions, the reduction of fees, the reduction of latency, friction, and they’re trying to solve this problem, which is great.
I think one major stakeholder is missing from the equation so far, that is the central banks who manage the official currencies. And I do think that a lot of the entrepreneurs in the space are setting the pace and they’ve caught the attention of central banks.
And I think many of their innovations will be included in whatever new currencies come to the fore via official sanction. There’s a lot of people in this community who would have a libertarian outlook where they’re looking at cryptocurrencies as a way to free the masses from the abuse of power of traditional fiat currencies, which are being printed and people’s savings have been debased.
And they also have a lot of vested interest in terms of credit card companies and banks who feed off the flows of the public when they transact and they take, you know, 2%, and 3%, and 4%, whatever it is, and they enjoy kind of oligopolies or monopolies in some cases. And rightfully so this needs to be challenged and reinvented. And I think, you know, hats off to the people in the crypto space for taking on this challenge and I wish them absolutely all the best.
But I am a pragmatist. And I do look at this and I think that there’s a huge series of challenges ahead. I don’t at all subscribe to the Bitcoin as being the new currency for the future. I do think it has tremendous challenges. And I think ever since the futures contract for Bitcoin was launched, it has opened the door to speculators in Wall Street and hedge funds who are trading it up and down, creating huge spreads and are trading off the emotional aspect to that market.
And then you have a lot of people who are hanging on to it and they think it’s going to be the currency of the future. I don’t at all believe that myself. But I do think it’s an exciting area and especially it’s a great use case for blockchain which I do think is a 1 in 1000-year evolution and technology that will absolutely change every fabric of our day-to-day lives in the future and our children, our grandchildren.
I think it’s a wonderful technology.
Scott: Absolutely. And thank you for sharing that high-level perspective. We obviously were going to dive in a bit more to some of the things you were saying there. But first, before we do that, can you share a bit of the story behind GoldCore and, really, the case for holding precious metals?
Stephen: Yeah. Well, ultimately, we’re a specialist in the provision of gold, and silver, and platinum. And people come to that because they want a form of money, the only form of money in my view that is safe from abuse and can’t be debased and can’t be printed.
And I think when you look at it from a historical point of view, we’re at a current moment in history where all currencies are failing, fiat currencies are failing at an extraordinary rate. The dollars, the M1 has increased by 100% in the last year, year and a half. They’ve literally doubled the amount of money in the system in order to, you know, create a picture.
And they’re doing it for… I don’t know what their motivations are or if they’re right or wrong. I’m not going to get into that. But it’s debasing the value of savings in your after-tax bank accounts. That’s the fact and it’s creating inflation and inflation is theft. Absolutely, every day of the week, it’s theft.
Scott: It is.
Stephen: You pay your taxes. Why are you being taxed again by these guys printing money and bidding up asset prices in their pensions. It’s just wrong. So, gold is a way for the individual to take personal sovereignty. They have a form of money that can’t be printed and debased. It empowers them from a financial perspective. And the key is to hold it safely.
You don’t want to buy gold as a systemic hedge, you know, so, something to protect you from… so the system start to fall apart. And you don’t want to buy it in terms of a proxy like an ETF if you’re using it as a hedge. So, our customers tend to be very well-traveled. They want to have physical gold and silver. They want it stored in a non-financial institution in a safe jurisdiction that has stable governments such as, let’s say, Zurich, Switzerland, and store it there.
So, that’s what we do. We basically allow people to buy gold as safely as possible. It’s segregated, so it’s separated from everyone else’s assets. It’s not on our balance sheet ever. We’re just the manager of that asset. And it sits there separated from everyone else’s assets and it’s ready for sale at a moment’s notice. Our technology behind GoldCore is so advanced, we can literally settle a trade in about two hours.
So, from the money hitting our accounts, our client assets accounts to the client place in the trade, we’ll have kilobars on the shelf in Zurich with serial numbers on our system and in the vaulting system as well available for you to independently log in and check and validate. So, we’re not physically storing the gold in our offices here.
Some dealers will do that. We don’t think that’s the safest way to do it. We store it in a dedicated vaulting operator such as Loomis, or Brinks, or Helveticor in Switzerland. These are the best at what they do. We have 11 vaults around the world. And that’s what we do. We buy and sell precious metals and we store precious metals for clients.
And I don’t think the case has ever been better for something like precious metals to be in a portfolio.
Scott: Absolutely. And you were touching on inflation and we are in this inflationary landscape, so I think that there’s so much interest in diversifying, you know, one’s portfolio. And, hey, gold, that’s one of the big ones to really look at first.
Bringing it back to cryptocurrency, though, and you kind of mentioned Bitcoin, specifically, at the top there, many people have referred to Bitcoin as, you know, “digital gold” the idea of, well, there’s a finite supply of these coins that need to be mined and so, therefore, it is akin to gold. I’m curious to your perspective on that.
Does that description really fit and maybe is any other cryptocurrency akin to holding gold? Why or why not?
Stephen: I’ve never understood this 21 million argument for Bitcoin as being limited and, therefore, it’s something of value. It doesn’t make any sense to me whatsoever. You and I could create a derivative contract right now splitting 21 million Bitcoins into 21 bazillion Bitcoins. And we could trade that with other people. We can just give them an interest in it.
I don’t know you can create any kind of proxy instrument to control interest into something. Most people don’t buy a specific physical share certificate. They buy an interest in some sort of product, which might, behind it, have another investment, another asset.
So, there’s massive divisibility inside Bitcoin as there is with almost any commodity, or product, or investment. So, yeah. No, I don’t buy that. In terms of gold, again, I can’t understand how people confuse the two. A gold bar sitting on a shelf in Zurich is a physical tangible piece of property. It gathers dust.
It’s physically there. It’s completely immune from the technology infrastructure that governs our economy. Whereas Bitcoin is very much part of the economy and part of the financial economy. People transact dollars for Bitcoin and Bitcoin for dollars. I think it’s there. So, I think the idea is that when you have gold you are actually investing in something, not for what it is, but what it isn’t.
It’s not connected. It’s off-grid. You might say Bitcoin on a USB stick might be similar to gold, but Bitcoin on a wallet digitally controlled by some big exchange somewhere is just like any other investment that you could make. It’s all in on the system. So, I don’t think it’s anything like gold. And I don’t think it has a history of gold.
I don’t think it’s… there’s a lot of competition for Bitcoin. There’s like 11,000 other or more cryptocurrencies that could do the exact same thing. You and I could create a bitcoin ledger today that does exactly the same as the ledger does, maybe even add some bells and whistles to it. I think, to me, an investment is based on an asset’s utility and its future cash flows and how valuable those cash flows are today relative to other options that are on the table.
That is ultimately the capital market. Do I buy a bond or an equity? Do I buy a growth stock or, you know, some other type of stock? So, I don’t see Bitcoin having any cash flow. I don’t see it having any utility in terms of currency because people don’t trade it as a currency. I don’t think they’re using it to buy pizzas like that first guy did, I think, with 10,000 Bitcoin all those years ago.
Scott: Yeah. That pizza keeps getting more expensive.
Stephen: Exactly. I mean, if you’re the guy selling, you know, that pizza and suddenly it goes up in value X amount or drops in value Y amount, you know, that introduces risk into your system. I mean, so by virtue, its volatility makes it, you know, not very, very palatable for anybody in the industrial system.
You can’t pay your suppliers and it doesn’t happen. So, I do think it’s the preserve or speculators and libertarians who are noble, but…the Libertarians are anyway, not to speculate it, but they’re noble in their outlook, but I think they’re a little bit naive, and that it’s not going to become a currency of the future, not without official sanction. And no government is ever going to give up power over the currency because all political power comes from the management of the currency.
And that’s how they tax. That’s how they control you. That’s how they get truckers to stop, you know, protesting on a bridge because they block their bank accounts. So, who’s going to give up that power? So, no. I don’t see it. Anyway, they are like…
Scott: I think you raised a number of interesting points there. I think that a lot of the counterpoints…I think what’s interesting is you mentioned the exchanges versus, you know, cold storage. I think that’s something that especially a lot of folks that are holding Bitcoin they’re really adamant about it. Yeah. I actually don’t necessarily like an exchange having control over this. I like having my cold storage here and my hardware with my Bitcoin on it.
So, that’s interesting. I think that the divisibility of Bitcoin and, really, the challenge of having it be a true currency is something that’s yet to be solved. And there’s a lot of interest in doing that, but I think you’re right in the sense that it’s certainly not there yet.
There’s so much value in it. Why would you want to say, “How many millions did I pay for that pizza?” And I think that’s one of the functional challenges that have yet to be solved. I come from the payments world previously and that’s something constantly in conversations I’ve had with processors and the like and merchants.
There’s just this, “Yeah, but how is this really going to work? And am I going to sell this product and then all of a sudden, you know, I take the loss on it because, you know, something happens to the cryptocurrency?” That said, you did mention, you’ve talked about this kind of growing interest in cryptocurrencies.
And, you know, institutional interest in cryptocurrency is continuing to increase with large players making, you know, crypto holdings a part of their portfolios. Do you think this is a strong signal for the future of crypto that, well, hey, these traditional institutions are at least now saying, “You know what? Let’s take this seriously. Let’s go get some Bitcoin. Let’s hold this.”
Is that maybe a positive signal?
Stephen: I desperately want to tell you yes, but, again, the skeptic in me looks at that news flow and I’ve heard those arguments. You’ve heard the bonds portfolio, 60/40 in, you know, bonds versus equities. Yeah. I look at that and I think if all these bonds are yielding negative returns, and even more so now with inflation, 7%, 8%, which is probably more like 10%, 12% in reality.
So, these bonds are liabilities now. They’re losing money. All these pension funds have huge amounts of bond exposure. And their actuarial studies going forward show them probably bombing out, you know, for the generations that they need to support with investment flows. So, fixed income, as it was known bonds, is now more like fixed expense.
It’s a liability to hold a piece of paper from a government that’s going to pay you back less buying power in the future. That creates what’s called there is no alternative kind of mindset to investments. So, anything that looks anyway less negative than the bond market suddenly looks attractive. And I do think a lot of alternative investments are picking up money and flow from desperate investors seeking a yield.
So, yield starvation is driving an awful lot of speculation. Some of that is overflowing into the crypto markets. And if you’re an analyst sitting at Fidelity or somewhere like that and you’re going, “Oh, my God, we need to get some sort of yield here because we’re looking really, really bad. And people are paying us and we’re not going to justify our fees,” then you can probably justify more private equity, you can justify more commodity exposure, you can justify more crypto exposure as a kind of a subset of that alternative slice.
So, alternatives are increasing, but I think it’s probably more of a story because there’s a yield starvation happening right around the world. And you’re seeing it in junk bonds. I mean, junk bond spreads over treasuries have narrowed tremendously, whereas before they were junk. I mean, that’s why they were junk bonds. You had to pay somebody a huge amount of extra in terms of returns on those bonds over treasuries because of the risk you were taking.
And now that risk is, I’d argue, it’s increased, but the actual yields you get has decreased. It’s desperation. This is all Fed manufactured. The Federal Reserve and central banks around the world have manufactured a highly speculative environment, and that’s flowing in. Gold has picked up interest because of this as well. Silver has too.
It’s attracted buyers because of the abuse of our fixed income markets.
Scott: Right. And what I might say is kind of to tack on to that is maybe at the very least one could think that this environment we’re seeing is not necessarily going to change over the next few months and, certainly, maybe not even over the next year.
I might argue that many governments have gotten used to this and central banks. And so when making the case for crypto, I might say, “Okay. Well, the short-term, does that pressure continue?” I’m curious to hear your perspective on that.
Stephen: Short term, I don’t think that there is…I think what we have…I think Jim Rickards spoke about it as competitive currency devaluations right across the globe where money is being printed nonstop now. And the politics of everyday has changed. So, as long as politicians can just hit the Print button via their servants in the central bank and drop helicopter money into your bank account in order to win the election or build that school or hospital with printed money, where is the incentive for them to…
Scott: And they allow checks to everybody.
Stephen: They allow checks to everybody, yeah. Where’s the incentive for them to stop? This gets ugly before it gets better. And I don’t know. Maybe in that kind of environment, then sometimes in a terrifying situation where the system starts to crumble, you know, where people don’t want anything to do with official currencies anymore or fiat currencies, then maybe cryptos absolutely explode in value because they become the only alternative for people.
And, you know, you see it in some economies such as India and China, in Russia as well where there’s actually a fight now whether they allow Bitcoin to be officially sanctioned and supported and regulated versus…and inside that government, the Russian government, they’re actually arguing over this right now.
I just read there today. I think that’s a really interesting story. These are signs of the official system crumbling. I’m not going to put a bet on who’s going to win that. I don’t know what happens. I would probably…if I was to take a punt on it, I would probably back commodity-backed currencies such as, you know, the Norwegian krone, the Aussie dollar.
These are currencies from economies that have strong commodity industries and resources, maybe even the Canadian dollar, although I think Canada’s reputation has been absolutely pummeled in the last month or two with the awful stories coming out of there and how their governments have behaved. But I do think commodity-backed currencies and maybe cryptos will benefit from this story, this competitive devaluation happening right across the globe.
Scott: It’s going to be interesting to see where it all goes. I think there’s lots of concerns that are valid concerns about the kind of behaviors we’re seeing, not only stateside, but around the world.
Scott: Kind of shifting gears a little bit. At the top, you talked about the underlying technologies when we talk about cryptocurrencies. And that’s something for me personally that really does excite me about crypto, about blockchain, you know, distributed ledgers. So, there’s also excitement for investors around this just to gain exposure to companies developing these technologies.
I remember a few years back, it was just, you know, any company that could have a press release that said, “We’re doing blockchain,” and then all of a sudden their stock would start moving.
Stephen: Yeah. Put a BIT before your name and they’re like bam.
Scott: Exactly. And there it is to the moon. Right? So, I’m curious on your perspective of assuming it’s not just a little press release, but the companies that are legitimately, you know, investing in these technologies, the technologies themselves. What is the potential for the underlying technology and your thoughts on just the desire from investors to gain exposure to that technology and the opportunities there?
Stephen: Yeah. Now, I’m not a portfolio manager. This is my own personal opinion in terms of… I’m a nerd when it comes to financial technology. I love that.
Scott: Of course, yes. Yeah. Legal disclaimer, not investment advice.
Stephen: It’s not investment advice. It’s just really kind of…I think we’re at a huge junction right now when… And I’ve said this before. If you think about this, just from a first-principles basis, if you think about the information protocol that’s used to drive the world’s economy, it’s based on characters on a page whether they be numbers or letters in a language. That protocol for encoding information, words on the page, was used on the banks of the Nile, you know, thousands of years ago on papyrus and tablets even before then.
And they were sent all over whatever kingdoms and they managed their kingdom through taxes and whatever it was and surpluses. That exact same protocol is used today on digital screens. We encode and decode data via characters on a page, read it, process it, make a decision, pass it on to the next person.
And we manage the world’s resources and requirements on this using the exact same protocol. So, words on a page are like characters on a tablet. Spreadsheets are the same as an abacus. We’re just counting things up, numbers. Databases are just like an index card system. An SQL database, a website, whatever it is, and information service is just like, you know, an index card like used in the library.
The protocol hasn’t shifted. We’re just faster and more fancy in terms of how we present the information on the tablet or whatever it is. But what blockchain does, it takes that data and it creates a protocol which is mathematically rigorous, a ledger that is designed for a computer system to use. Now, forget about the GUI, the graphical user interface for slow humans to be able to absorb information off the screen.
Imagine putting in a rule-type system using artificial intelligence that can read data and process it with rules that can drive better decisions and optimization. So, blockchain overlaid into an industry segment will drive huge efficiencies, and speed, and reducing risk. And I think it’s going to be massively deflationary, but value-driven and deliver exactly what you need, when you need it, in the exact quantity you needed it before you even knew you needed it.
And any industry that takes on and re-designs its own ledger across the players, it can’t be… It’s not an individual player, by the way. I think it has to be kind of within major industry players, they come together, they build a ledger that they can use in that industry and they drive decisions and Providence-based information.
In my own industry, in the gold industry, I think it’s massively opportunistic in terms of the opportunity that’s there or to come. And so I’m working and have worked on for a few years on how can we as an industry improve the providence information and the fulfillment of product for our own customers? And so if you think about it, if you have a kilobar available for sale and I’m able to show you that kilobar and a digital twin that can then link it to a live insurance contract at the Lloyd’s of London, a live vault report from Zurich that says it’s there actually right now, information that says that everyone has ever owned it before is not a criminal and it isn’t sanctioned or any non-SDN sanctions list, and that it’s being produced by a refiner that meets LBMA refinement requirements.
And you have that opportunity to buy that particular product versus a product that’s just based on faith, “I’m telling you it’s a kilobar and just trust me it’s okay.”
Stephen: Which product are you going to buy? So, data can enrich the transaction and empower the end customer. And I think if you look at that concept and compare it to every industry out there from car rental to financial services to professional services, audit, everything, they all massively get turned on their head. And what comes out the other side is going to be unbelievable services that are just far more dynamic and value-driven than anything we see today.
And I think, yeah, it’s going to change the world in every way. It’s unbelievably empowering.
Scott: Absolutely. Absolutely.
Scott: So, as we are winding down here, I always like to sort of turn my attention to the future. So, what exciting trends or potential new developments might you see in the precious metal landscape beyond maybe the integration of blockchain technology?
Stephen: Wow. In terms of exciting, well, you know, I think very few people own metals today, precious metals. We’ve been… I think a lot of investors don’t know what they are, or what their use is, or where they fit in a portfolio. And I do think that…I think it’s probably maybe 1.5% of the population all investable assets are in, you know, precious metals.
I think that’s going to grow a lot. I think it could travel over the next few years as people realize that currencies are literally not worth even the digital paper they’re written on. So, I think gold demand will increase, silver demand will increase a lot as a global de facto form of money that empowers the individual.
And that really excites me. In terms of our own business, we’ve opened up vaulting in North America this year. And we have a website we actually built for a lot of our North American customers called goldintheusa.com. And that has a guide.
There’s five points on it that you need to read if you’re going to go into the gold market, if you’re one of those new people who are going to come in because there’s an awful lot of unsavory, shark-like characters that you need to be careful of and steer your path around. So, we’ve put this guide together to help you make better decisions in terms of how you look at gold as an investment. So, I do think blockchain will really drive gold, empower customers.
We’re looking to do that at GoldCore. We’re all about empowering our customers and trying to reduce that, what we call legal proximity between the customer, and the beneficiary, and the actual physical bar on the shelf as much as possible. So, we’re working with our partners on that. And, you know, this year or next year we’re going to be bringing out some really cool blockchain technology along the lines of what I said before.
So, that’s what really kind of excites me.
Scott: That’s fantastic, Stephen. And I’m excited as well just hearing you describe all of that. It’s going to be so interesting to see where it all goes. And, you know, as we’ve said multiple times we are in this inflationary landscape. So, whether it’s precious metals or maybe cryptocurrency, certainly, you know, alternative investments are something to certainly consider as part of your portfolio.
And Stephen, before I let you go, once again, if folks want to connect, find out a bit more, where can they do that? Where should they go?
Stephen: So, yeah, you can go into goldcore.com, our website, and you can contact us there. We live chat. And you can open up an account if you so wish. But to research, I’ll just mention that website, again, goldintheusa.com. It’s a new one we’ve put together. And that’s a really cool guide. But I promise there’s no cheesy sales or anything like that in there.
And I think people will find that very informative. But it’s been great to be on the show with you. And thank you so much for the opportunity.
Scott: Absolutely. Have a good one.
Stephen: Thank you so much.