On yesterday's Faith & Finance program on American Family Radio, SMI's executive editor Mark Biller discussed growing mainstream adoption of Bitcoin and highlighted the key differences between Bitcoin and other crypto-related investment options.
To listen, click the play button below. Scroll down for the transcript.
Faith & Finance Live, hosted by Rob West, airs weekday mornings on American Family Radio. A different version airs weekday afternoons on Moody Radio.
(More radio appearances by members of the SMI team are posted on our Resources page.)
Transcript
Rob West:
We are so glad to have you with us today. We're talking about Bitcoin and cryptocurrency. Are they mainstream?
Mark Biller joins us today to unpack how crypto is moving into the mainstream — and what that means for investors trying to make wise decisions. We'll be taking your calls and questions today as well. The number: 800-525-7000.
This is Faith & Finance here on American Family Radio — biblical wisdom for your financial decisions. (opening music ends)
Well, we're always thrilled when Mark Biller joins us. He's executive editor at Sound Mind Investing, a valued underwriter of this program. Mark, it is great to have you back!
Mark Biller:
Hi, Rob. Thanks for having me back.
Rob West:
Absolutely. Looking forward to this topic. I know there's a lot in our listening audience that are interested in it, so I'm glad we're tackling Bitcoin once again, uh — in your latest article for the SMI newsletter titled Bitcoin (& Crypto) Go Mainstream: What You Need to Know. So let's dive in. What do we need to know?
Mark Biller:
Yeah, Rob, I would say there are two really big important takeaways from our conversation today, so let's hit those right up front.
The first one is I would say there's a very big distinction between Bitcoin and everything else in crypto. So as we set the stage for our conversation today, it's important that listeners understand that Bitcoin really stands apart from the rest of the crypto industry. So let's just mentally separate those in our minds as we get started.
The second point related to that first one is that Bitcoin has reached critical mass. It appears to be here to stay. And the reason that I say that is due to two major changes, really, that have happened in just the past few years. One is that the regulatory environment has completely reversed from being pretty hostile to being quite welcoming.
So as an example, Rob, the last time I wrote a deep dive on crypto for our SMI readers was about three years ago, and at that time, just three years ago, I said that regulatory risk was an existential threat to the whole crypto industry and was the biggest risk to crypto investors.
Well, now, fast forward just three years, and we've seen multiple Bitcoin ETFs now approved by the SEC. We've got the first openly pro-crypto president sitting in the Oval Office. So it's been a complete 180 on the regulatory side, which is very important because that shift in regulatory environment and the approval of these Bitcoin ETFs — which has also simplified investing in crypto dramatically — that's opened the door to institutional adoption advisors. And so that means that now we've got big players with big money and influence allocating to Bitcoin.
I don't think Bitcoin is going anywhere at this point. And so those are the big ideas. I think it's probably worth diving into those each separately.
Rob West:
Mark, I want to go deeper into something you said just a moment ago. You said there's Bitcoin and then there's everything else. Why is that distinction so important?
Mark Biller:
Yeah, well, Bitcoin is the oldest and most recognizable name. It's also the 800-pound gorilla in the space. Bitcoin's market value currently is about 60% of the total crypto universe. The other 40% of the crypto universe is fragmented across thousands of separate projects, many of which are competing with each other for prominence at some specific task or niche.
And I think it's probably worth just explaining upfront that while people often refer to cryptocurrencies — and Bitcoin does have attributes of a currency — most other cryptos are not currency like at all. A lot of crypto projects are actually a lot more like startup technology businesses. And each of these different cryptos — or a lot of these different cryptos, I should say — they're trying to fill one particular financial function and the new decentralized finance universe, one of them may be a lender, one of them may be an insurer. These different functions that they're trying to become like the leader in that thing within this decentralized finance world.
And so what you end up with, Rob, is you've got multiple competitors fighting for these niches in the new financial system. Well, what does that mean? It means that all of these projects have serious go-to-zero risk because if one of them emerges as the winner, all of the other competitors are probably going to go to zero. They're going to die off.
And so that's a huge distinction in terms of the risk of all of the other crypto projects — that Bitcoin really has gotten over that hurdle, where I think all but really the most skeptical, cynical folks would say, "Yeah, Bitcoin has kind of cleared that hurdle and is here to stay."
Rob West:
Mark, how are most investors viewing Bitcoin these days?
Mark Biller:
Yeah, I think, Rob, the easiest way to understand Bitcoin as an investment is to think of it as "digital gold." To back up, for the first decade or so of Bitcoin's life, I think a lot of Bitcoin users hoped that it was going to become an independent currency. People would be able to use it to buy and sell and use it for payments outside the normal government system. And that view of Bitcoin is mostly dead at this point as a payment vehicle.
Ironically, right now in the news, there's a lot of talk about stable coins, and stable coins are kind of targeted now to that same original argument as a form of payment and a stable — the name stable coin refers to the fact that the value of that isn't fluctuating. Well, that's definitely not the case with Bitcoin where there is a lot of volatility.
But what has replaced the current view for most investors, what's replaced that payment idea in most investors' minds, is that Bitcoin like gold is a store of value that can protect a person's purchasing power against the constant debasement of government currencies.
Now, I realize it may sound crazy to be talking about "store of value" in the context of Bitcoin, which routinely has these 50 to 75% selloffs every few years. But the main thing is that Bitcoin has scarcity built right into its DNA. There's the strict limit of 21 million bitcoins that will ever be produced, and that scarcity gives it appeal to investors who are watching their fiat currencies continually be debased by global governments and central banks.
And so today's Bitcoin investors like it for a lot of the same reasons that older investors have always liked gold. And that is namely that it's a separate asset class — it can resist that currency debasement and hold its value while other forms of money become less valuable over time.
Rob West:
What about the generational tilt to this discussion? Is that a part of this?
Mark Biller:
Oh, absolutely, Rob. When you start to think about Bitcoin through that "digital gold" lens, then you can really start to see how Bitcoin appeals more to younger investors for the same reasons that gold appeals to older investors. Both groups really see the same setup, the same potential dangers of currency debasement. They're both looking for ways to ensure against it.
The main difference is that younger investors are more comfortable with digital assets. They've grown up on the internet, they've been transacting within video games and app stores their whole lives. So it's not an uncomfortable leap for them to do the same thing within an online investing account. And of course, we can't ignore the fact that there's still a speculative aspect to Bitcoin — the big gains that have come from it — that appeals more to younger investors.
Now, one thing that's really interesting to me, Rob, is that the correlation between Bitcoin and gold has dramatically increased over the last three years. So I think that that kind of confirms the shifting "store of value" use case. And I think it also is a hint that institutional investors are becoming bigger players in the Bitcoin space.
Rob West:
Do you anticipate that will continue or do you think there could be departures from that correlation over time?
Mark Biller:
I definitely think there will be departures. I think that it's still fair to view Bitcoin as more of a "market up" kind of asset. So I would expect that in big "market down" type of environments that gold will hold up quite a bit better than Bitcoin.
But it's kind of that longer-range view. You're going to have bigger ups and downs with Bitcoin, but they're increasingly starting to move in the same direction and arguably for the same reasons.
Rob West:
Yeah, that's helpful. Check out the article that SMI is featuring on their website — soundmindinvesting.org — if you want to go deeper on this. It's called Bitcoin (& Crypto) Go Mainstream. You'll find it, again, available for you at soundmindinvesting.org.
A lot more on Bitcoin, including its place in your portfolio, right after this. Stay with us.
Rob West:
Great to have you with us today on Faith & Finance here on American Family Radio. I'm Rob West. With me today, Mark Biller, executive editor at soundmindinvesting.org.
In terms of how we think about this, you make the point in this article — and this is fascinating — that this is not just individual investors that are driving these dynamics. There's really a shift happening in the global reserve system. Break that down for us.
Mark Biller:
Yeah, and it really gets back to this gold and Bitcoin running along parallel tracks at this point. At the same time that we've had inflation really pushing this currency debasement issue to the forefront of individuals' minds, the 2022 Ukraine invasion, and then the subsequent freezing and then us confiscating those Russian reserve assets, that really sharpened the focus of foreign governments regarding the safety and the wisdom of continuing to rely on U.S. Treasury bonds as their primary global reserve asset — or, really simply put Rob, as their main savings tool for these sovereign nations. And a lot of governments had already been gradually shifting their reserves away from dollars and U.S. Treasuries.
But that 2022 point marked a real fork in the road where there was a real sense of urgency to get away from that for a lot of countries. So this voting with their feet dynamic has really shown up vividly in the price of gold, which has doubled since late 2022. And that's really the context in which this Bitcoin's growing acceptance by global, especially younger investors, as digital gold is really important.
So you've got both individual interests, you have — well, central banks and governments aren't, as far as we know, buying Bitcoin directly, they're obviously moving that direction with gold. And so as these younger investors grow older, become more prominent, start managing more of the pie of assets, it just makes sense that we want to "skate to where the puck is going." And more and more younger investors want Bitcoin, want crypto in their portfolios.
And so that's I think a big part, Rob, of why advisors also are becoming more interested because they're just responding to what clients want, and a lot more clients at least want to have the option to be invested in this space.
Rob West:
Yeah. Well, we're going to dive into the phones here in just a second, but Mark, let's just get really practical. Given everything we've said to this point, who in your view, what investors, should consider having Bitcoin in their portfolio and who should stay away?
Mark Biller:
Yeah. Well, I think the first point, Rob, is nobody needs to have Bitcoin in their portfolio. If it gives you the heebie-jeebies and you're just fine with your current allocation, there's no need to move in that direction.
Big picture, I think that this really comes down to a person's risk tolerance and then the position-sizing. So as we've been discussing looking at this through that gold lens is a good starting point. And if a person finds the arguments for gold appealing — and we certainly do at Sound Mind Investing, we've been invested in gold now for quite a while, pretty big amounts — then it might make sense to just consider peeling a little bit of that gold allocation off and diversifying that small portion into Bitcoin.
But I keep stressing this, Rob, you want to keep that sizing small because the volatility of Bitcoin is so much higher than gold and other traditional investments. So you have to be prepared for those big price swings. You have to know going in that you're going to have to hold the Bitcoin through those big price swings.
But all of that is to say, if you've got, say, 5% of your portfolio in gold, maybe you take 1% of that and put it into Bitcoin. Or if you're 10% gold, maybe 1-to-2% in Bitcoin — a much smaller proportion than your gold proportion.
Rob West:
All right, let's head to the phones. We've got time for your questions today — investing related questions and questions related to today's topic, Bitcoin and crypto. 800-525-7000. Call right now.
Let's go to Texas. Hi, Brett! Go ahead.
Caller:
Hey, how you doing?
Rob West:
Doing great
Caller:
Good subject. Very interesting. Hey, I was wondering about with the strength of computing, quantum computing and all that coming up. And I worked for DOD contractors, they're upping the minimum strength of encryption algorithms because of this.
I'm wondering if you know anything about the susceptibility to the Bitcoin algorithms and so forth, whether they, too, are potentially in a vulnerable state 5, 10, 20 years down the road from this.
Rob West:
Yeah, it's a great question, Brett. I've actually done a little bit of reading on this. Mark, nothing like a softball right down the middle on quantum computing. Do you have any thoughts?
Mark Biller:
Yeah, I'm definitely interested to hear what you've heard, Rob. But I would say, Brett, it is always difficult to say, especially 5, 10, 20 years down the road because we're in this exponential tech world.
But I would say that the main safety from the Bitcoin process computing process is that you have all of these distributed ledgers and you need to have the ability — it's not cracking a password, which those are certainly vulnerable. I'd say there's more vulnerability from that side of things. You're more likely to have your account get hacked — and that's not Bitcoin specific, that would be any investment account — than it is for the entire Bitcoin network to succumb to an attack, because you really have to have the ability to overwrite almost simultaneously more than 50% of these individual bitcoin nodes.
And I know that at this point, half the people listening have just had their eyes roll back in their head. But it is a very complicated technical issue. The things that I have read, Brett, don't make that seem like that's an enormous threat, at least in the short term. But, of course, everything in this space needs to be continually monitored as new technologies arise and things move forward.
Rob, what have you seen?
Rob West:
Yeah. I mean, I think it's very similar, is that the vulnerability here to quantum computing at this point is theoretical, but that could be a reality down the road. Could quantum computers in theory derive private keys from public keys and have theft of funds or forged digital signatures? Yes. But I think the Bitcoin communities already researching quantum-resistant cryptography, and we're going to see a lot more to come.
And I think what we're talking about is still years, perhaps even more than a decade away. Something to think about, though. It's a great question.
We'll be right back
Rob West:
To the phones — to North Carolina. Hi John, go ahead.
Caller:
Hey, can you hear me?
Rob West:
Yes sir.
Caller:
Hi, thank you for taking my call. I really appreciate your ministry and listen to you regularly. Gold, I've been interested in and have looked into it. For example, Birch Gold, trying to find out how to invest there. They say you should [have a] minimum [of] $10,000.
And so one question I had was, is there a percentage that someone should be looking at getting into it? And then a couple other questions would be as I've looked into it. For example, if I had a Charles Schwab account, am I looking to invest in gold as an industry such as the mining side of it, or am I looking to invest in the hard asset itself? How does that work? Or for example, even just a mutual fund that has gold in it somehow.
So I don't know. Any guidance would be appreciated.
Rob West:
Yeah, very good. Mark, your thoughts?
Mark Biller:
Yeah, those are great questions, John. First of all, to the allocation — that will vary from person to person. We have often at SMI said that a 5% or so allocation to physical gold makes a lot of sense for a lot of people who want the have it on hand aspect of gold's appeal.
And then what we do at SMI is we have trend-following systems that tell us when we think gold is a particularly good investment. And so what we do for our members is — on top of that static physical allocation that they may have — then we will ramp up their allocation at certain times through financial instruments — like you mentioned your Schwab account.
What we'll do is say, "Okay, now is a good time to add gold to your investment account through..." — and what we use are the gold ETFs. So there are a couple different ones. We tend to use PHYS and GLD. And that's a very easy way to get exposure through your brokerage account to actual physical gold, not the miners, not the producer's gold itself. So you're just riding up and down with the gold price that way.
And the advantage of that for us as active managers is then when we get trend-following signals that say, it's no longer a good particularly good time to be in gold, we can just sell those ETFs and the person goes back down to their physical allocation that they hold themselves. And not all of our members even have a physical allocation, but that's how we split it between a physical allocation and then investible gold.
When you start talking about the miners, John — I'm not opposed to the miners at all — but your risk goes way up. And that's because now you're talking about businesses and so things that really have nothing to do with the price of gold itself — like let's say the price of energy, which is the main cost of these miners. You have an energy spike and all of a sudden the costs of these miners soar and they can actually lose a bunch of money while the price of gold even continues to go up. And so you're dealing with a second derivative with the miners.
Now you can get a lot of leverage to the gold price. So sometimes you'll be in the miners and the miners will go up much more than the price of gold, but it's a different risk/return profile. So we generally don't advise people to buy the miners.
Again, I'm not against it. It just is another whole layer of variability that you introduce there.
Rob West:
John, is that helpful?
Caller:
It's very helpful. One quick question. The 5% to physical gold, do you have a recommended source to go to for that? I'm new at this, so I don't even know where to go.
Mark Biller:
Yeah, we have written from time to time on that. I don't have a source that I would want to just put out there here. At this point, John, you can actually buy gold directly through Costco.
The main thing you want to look for is a low markup to the spot price. So some places will charge you a lot more than the spot price of gold, which you can just look up on Google. That's the advantage of a place like Costco where they're really not trying to make a lot of money on that sale. So that spread, that markup over the spot price, will be relatively low.
Rob West:
Hey, John, if you want to hang on the line, our team can give you some thoughts on a recommendation there as well. I love the Costco option. A lot of people have been doing that. They're having trouble keeping 'em in stock. But if you want to do a bigger allocation and you need a reputable dealer, we can help with that. So stay on the line, we'll get your information and get somebody in touch with you.
To Alabama. Hi Gary! Go ahead.
Caller:
Hi, Rob. Appreciate you taking my call. A question about the mainstreaming of Bitcoin and potentially being a good way to put money. [Are] there vulnerabilities when it comes to the power grid and electricity? In the event there's no power, is the Bitcoin is going to be lost to the ether and you can't access it, or what? Speak to that, please.
Rob West:
Yeah, electricity is obviously essential to Bitcoin. It's powered by a process called mining, where computers solve complex problems to verify these transactions, so that requires a lot of electricity. So there is some risk there in terms of if costs go up or there's a power outage, but it's decentralized, so it keeps running as long as there's enough miners to stay connected.
But Mark, any final thoughts on that?
Mark Biller:
If there's electricity somewhere, the Bitcoin network should be okay, but if we lose it all, we've got big problems. That's for sure!
Rob West:
Much bigger than maybe your Bitcoin wallet. But it's a good question, Gary. We appreciate you asking it. Thank you, sir.
Mark, I guess, final thoughts here. We've got just a few seconds left, but this is something worth looking at for the right investor, right?
Mark Biller:
Yeah. I think people have maybe thought this is going to go away, and maybe the big takeaway today is it's not going away, so it's worth getting familiar and trying to get comfortable with it.
Rob West:
Yeah, very good. And this article could be a great way for you to do just that. It's called Bitcoin (& Crypto) Go Mainstream. You'll find it available for reading right now. SoundMindInvesting.org. Mark, thanks for your partnership, my friend.
God bless you. Bye-bye!
