Once a year, Miami becomes a global mecca for bitcoin enthusiasts when the city hosts the Titanium conference, celebrating the largest digital asset by market value. With a $525 billion market cap, bitcoin is currently the 12th largest asset in the world, behind Tesla ($550 billion) and ahead of Visa ($485 billion). As I told the audience during my keynote address, it is remarkable that bitcoin has managed to do this because it has no CEO, no marketing budget and no board of directors.
Although attendance was lower this year than last year—mostly because the price of bitcoin is still well below its all-time high of nearly $69,000, set for November 2021—investors of all ages, industry leaders , an impressive turnout of policy makers and more.
It should tell you something about bitcoin’s mainstream prominence that this year’s convention featured not one but two presidential candidates (Robert Kennedy Jr. and Vivek Ramaswamy), a former presidential candidate (Tulsi Gabbard), a US senator (Cynthia) Lummis of Wyoming) and a sitting US Representative (Patrick McHenry of North Carolina). Both Kennedy and Ramaswamy made history by announcing that their campaigns would accept donations in the form of bitcoin.
As you might expect, two of the most pressing topics of conversation at Bitcoin 2023 were the US banking crisis and the looming debt ceiling crisis. In both cases, bitcoin has been held up as an asset that, like gold, could potentially help individuals and households shield their wealth in the event of a financial or economic downturn.
But these are bitcoin evangelists, so surely they’d take up the position, right? What about more ordinary investors?
Here too, bitcoin comes in with very high marks. Bloomberg recently asked some 640 investors which assets they would prefer if the US reached the debt limit and defaulted on its obligations. Bitcoin was the number three asset on the list, with 7.8% of institutional investors and 11.3% of retail investors naming the digital currency. This was enough to put it ahead of traditional safe-haven currencies such as the dollar, Japanese yen and Swiss franc.
Gold has much less correlation with the market than bitcoin
Perhaps unsurprisingly, gold topped Bloomberg’s survey list, with more than half of institutional investors and nearly half of retail investors backing the yellow metal in the potential event of a US default. I have written many times about the similarities between gold and its digital cousin bitcoin, the most important being that they are decentralized. Unlike fiat currencies, gold and bitcoin have a limited supply that cannot be manipulated by a central banker or finance minister, making them attractive diversifiers.
Gold has a huge premium compared to bitcoin, as I see it, it has very little correlation with the market. For the five-year period through May 2023, gold and the S&P 500 shared a correlation coefficient of 0.04, meaning that both were almost completely agnostic of what the other was doing.
Bitcoin, on the other hand, has traded much like stocks and other risk-based assets. During the same period, the digital currency and the market had a very strong positive correlation of 0.88, which means that it often moves in the same direction.
The mountain of debt continues to grow with American households now owing $17 trillion
I believe that one of the biggest investment cases for bitcoin and gold right now is the news that debt is continuing to expand at both the government and household levels. According to the Federal Reserve Bank of New York, the amount of debt owed by American households exceeded $17 trillion for the first time in the first quarter.
In the chart above, I’ve added the federal funds rate — now in the 5.00% to 5.25% range — to show that higher lending rates have had little effect on Americans’ borrowing habits so far. Since March 2022, when the Fed first tightened, consumers have added more than $860 billion in total mortgage balances, $145 billion in credit card debt, $93 billion in auto loans and $14 billion in student loans.
Credit card debt was the only measured component that did not increase much between the end of 2022 and the end of March 2023, but at nearly $1 trillion, it is at its highest point ever.
With an average interest rate of 20.9% in February, it’s the most expensive ever to carry a balance on your credit card.
In short, it’s a dangerous amount of debt with high interest rates, in uncertain times when many are worrying about a possible recession in the coming months. As I see it, this makes gold and bitcoin very attractive as diversified assets.