Buy The Hardest Assets
Here at Porter & Co., we take the holidays seriously. We’ll be celebrating the “12 Days of Christmas” (plus a few extra!) from December 23 through January 6. During the holiday season, we won’t be sending our regularly scheduled research and insight.
Instead, we’ve asked members of the Porter & Co. team – editorial staff, analysts, marketers, and others – to select a favorite (generally investment-related) essay, article, speech, book excerpt, or other text, and to share their reflections on how it inspired them. Expect each one daily at our usual publication time: 4 pm ET. We hope they’ll help you get to know the family at Porter & Co. a little better – and perhaps offer some fresh perspective from voices you don’t usually hear.
Today, analyst Jared Simons writes about the report we published in December 2023 about Bitcoin being the new form of gold and how it has inspired his investment philosophy.
We wish you a warm and happy holiday season, from all of us here at Porter & Co… and we’ll be back with our usual program on January 6.
John Maynard Keynes described inflation as a double edged sword.
Moderate inflation resulting from tax cuts and government spending can boost demand and stimulate an economy, which Keynes, one of the 20th century’s most influential economists, viewed as necessary during recessions. But when inflation is too high for too long, it impoverishes many and enriches only the few who can hold hard assets and not live day to day relying on the dollar.
Just look at the value of a Ford F-150 pickup truck over the last 50 years… In 1973, it took the average American 38% of his working year to buy an F-150. In 2025, it will take the average American 61% of his work year. But if you compare the price in gold, it would have cost 30 ounces in gold in 1973. Today, 30 ounces of gold is worth roughly $79,500 – almost two new F-150s. Gold has held value dramatically better than the dollar. Those who rely on currency, and not hard assets, are forced to pay the price of inflation… but those who invested in gold, well, their assets grew alongside inflation and preserved their spending power.
I (Jared Simons) recently celebrated my 26th birthday, and aging another year reminds me that money loses value over time. As a younger investor who initially focused on disruptive hyper-growth stocks, I didn’t always appreciate assets like gold or Bitcoin. However, this perspective changed thanks to a key lesson I learned from Porter: you must protect your savings against the reckless debasement of government currency.
Last December, Porter & Co. wrote about the greatest store of value of all time – gold – and the asset that could dethrone it: Bitcoin.
Gold has historically been one of the best-performing assets, maintaining its value despite currency devaluation. Since 2000, gold has increased in price by 830% – a steady 9.3% annualized return. While I appreciate gold’s role, what excites me more is Bitcoin.
Although Bitcoin adoption could take several decades, its role in global markets cannot be ignored. With institutions now able to invest through exchange-traded funds (“ETF”), Bitcoin is rapidly gaining acceptance. There’s even speculation about a U.S. Bitcoin reserve. Similar to how the U.S. has gold and oil reserves, it could next add a Bitcoin reserve to diversify and hedge against inflation in the dollar. Yet, at $1.8 trillion in market cap, Bitcoin is minuscule compared to other asset classes:
Bitcoin’s returns have been extraordinary but volatile – much like my hyper-growth stocks. Since the beginning of 2020, Bitcoin is up 1,300%, equivalent to roughly 70% per year. But there have been three years when Bitcoin fell by 65% or more – 2022, 2018, and 2014. We recently explored how Bitcoin works in a Daily Journal, and despite the volatility, I firmly believe that decentralized digital currency is here to stay. That said, Bitcoin rose more than 130% in 2024 and is trading close to an all-time high. While it’s an exciting asset, I’d advise caution buying at current levels. Bitcoin could see more 50% corrections along the way, but it’s on a trajectory to be significantly higher in 10 years from now than it is today.
Below is an excerpt of the report that we originally published on December 8, 2023.
Throughout human history, various goods have served the role of money.
Yet among them all, only gold has stood the test of time. It alone has maintained its monetary role for more than 2,500 years.
This is not happenstance. But to understand why gold has endured, let’s first review the primary roles of money.
The first – and most fundamental – role of money is to serve as a medium of exchange. A medium of exchange is an item that is acquired for the sole purpose of being traded (exchanged) for other goods, rather than consumed directly or used in the production of other goods or services.
Without a widely accepted medium of exchange, an economy must rely on barter or direct exchange, making efficient trade difficult. For any transaction to take place in a barter system, there must be a mutual need: what one party wants to trade must be precisely what another party seeks. For example, if an apple farmer wants to trade for bread, he must find a baker who wants to exchange bread for apples. This “coincidence of wants” becomes more difficult to arrange the more complex an economy grows.
The second role of money is to serve as a store of value – a means to preserve wealth and transfer purchasing power into the future. This function is critical for capital accumulation… without it, investment – and the specialized production of our modern economy that it enables – would be impossible.
Finally, the third role of money is to serve as a unit of account. Widespread acceptance of a particular good as both a medium of exchange and a store of value allows the prices of other goods to be expressed in its own uniform terms, in turn enabling the “invisible hand” of the market to work its magic. The farmer’s apple and the baker’s loaf can be expressed in a value not related to the other item.
Any number of goods could potentially serve as a medium of exchange. All that is truly required is that it has three traits.
It must be scalable – that is, able to be divided into smaller units or grouped into larger units, allowing its holder to use it in any quantity necessary. Think pennies to $100 bills. It must be portable – easily transported and transferable. That’s why we have wallets and purses. And it must be fungible – each unit is interchangeable with any other. “Give me two fives for a 10, please.”
“Hard” Versus “Easy” Money
To maintain purchasing power over time – to act both as a medium of exchange and as a store of value – a monetary good must be physically durable as well. It must be resistant to rot, corrosion, and general deterioration.
However, durability alone is not enough. Money can lose significant value even if it remains in good physical condition.
To serve as a dependable store of value, the supply of a monetary good must also remain relatively stable over time.
One of the best ways to assess a particular money’s hardness is through a metric called the stock-to-flow ratio.
This ratio compares the existing supply (or stock) of a monetary good – which includes all that has been produced in the past, less any amount that has been consumed or destroyed – to how much new supply (or flow) can be produced in a given period (typically a year).
The higher the stock-to-flow ratio, the harder the money and the more likely it is to maintain its value over time.
This dynamic implies that the hardest money – and the best store of value – would be one that not only has a relatively low flow, but also a relatively high stock. When viewed through this lens, gold’s advantage over other historical forms of money becomes clear.
Why Gold Continues To Win
Again, most monetary goods – including gold – were relatively difficult or energy-intensive to obtain at the time of their adoption. Their flow was relatively low.
However, gold’s physical durability is unique. The metal is so chemically stable that it is virtually impossible to destroy. And unlike many other commodities, only a relatively small proportion (about 3%) of gold production is consumed in industrial uses.
This combination of traits means most of the gold that has ever been mined is still owned today, giving it an extremely high stock compared to other monetary goods.
This vast and ever-growing existing stock means producers can only “inflate” the gold supply by an average of around 1.5% a year, despite ongoing technological improvements that make mining ever more efficient. And this figure has been remarkably stable over time, regardless of fluctuations in the price of gold.
The total amount of existing gold is estimated to be around 200,000 metric tonnes today. At the current annual production rate of around 3,100 metric tonnes, this represents a little more than 65 years’ worth of supply – giving gold a stock-to-flow ratio of around 65.
The stock-to-flow ratio for fiat currencies is theoretically zero, as there is technically no limit to how much new currency can be created. In practice, the U.S. money supply has increased by about 10% annually since the dollar was officially severed from gold in 1971. That equates to a stock-to-flow ratio of roughly 10, though this number is likely to plummet in the years ahead as the government has no choice but to paper over its soaring debts.
By comparison, the stock-to-flow ratio for most commodities other than gold and silver is generally around one, indicating that new production roughly equals or exceeds existing global stocks that are constantly being consumed.
When savers choose to store their wealth in one of these “easy” forms of money, a predictable cycle emerges.
First, the increased demand for the commodity causes the value of the money to rise… Rising prices then incentivize producers to invest in increased production… This increased production then greatly expands the supply of the commodity… And finally, soaring supply causes the value of the money to crash – effectively transferring the wealth of those savers to the producers of the commodity they bought.
This was exactly what happened to early savers who continued to hold their wealth in primitive monies like salt, seashells, or fei after technology caused their stock-to-flow ratios to plummet. And a similar dynamic has impoverished countless others who saved in modern fiat currencies in the centuries since.
But gold’s unique properties make it immune to this cycle.
Because so much gold already exists, even if new gold production were to double overnight, it would result in only a 3% annual increase in total supply. Meanwhile, the simultaneous growth in gold’s existing stock would make each additional annual increase less significant, even if that rate of production is maintained.
In other words, unlike most other monetary goods, it is practically impossible to create enough new supply to suppress the price of gold significantly.
Why “Digital Gold” Is the Future
No current discussion of hard money would be complete without mentioning Bitcoin.
We’ve detailed many of the reasons for owning Bitcoin previously. This decentralized, digital currency allows seamless monetary transfers to anyone around the globe with the click of a button. And its peer-to-peer transfer arrangement means it exists outside the scope of governments and central banks.
However, Bitcoin is also the first money in history whose stock-to-flow ratio rivals – and could eventually, exceed – that of gold… suggesting Bitcoin could ultimately become an even better long-term store of value than the time-tested precious metal. Bitcoin’s big advantage is that both its total stock and flow are mathematically predetermined via software.
As decided by its creator, there will only ever be 21 million Bitcoin – of which a little over 19 million have already been mined.
Meanwhile, we know Bitcoin miners are currently awarded 6.25 new Bitcoin per “block.” With a new block being mined roughly every 10 minutes, this equates to an annual “flow” of around 328,000 new Bitcoin.
Dividing the current stock of around 19 million by this figure gives us a stock-to-flow ratio of a little less than 60. This is closer to gold’s ratio of 65 than any other commodity.
However, this won’t be the case forever.
Bitcoin undergoes a halving after every 210,000 blocks are mined (roughly every four years). Each time this occurs, the amount of new Bitcoin miners receive per block is cut in half.
The next halving is expected to occur in early 2024. When it does, the block reward will drop from 6.25 Bitcoin to just 3.125. As Bitcoin’s flow drops by 50%, its stock-to-flow ratio should double to over 100.
This process will continue roughly every four years until all 21 million Bitcoin are mined and its stock-to-flow ratio effectively reaches infinity.
Of course, Bitcoin has only been around for about 15 years. It hasn’t yet weathered even a recession, let alone centuries of crises like gold. So, we certainly don’t recommend holding all your savings in Bitcoin.
But this mathematical certainty tells us that if Bitcoin does survive, it is likely to become the hardest money in history… and could ultimately become a global reserve currency, supplanting the U.S. dollar and potentially even gold.
For now we recommend all investors hold at least a small portion of their wealth in both gold and Bitcoin. Paid-up Big Secret subscribers can review our favorite ways to own gold here, and learn more about the benefits of owning Bitcoin here.
If you’re not yet a subscriber, you can get instant access to these special reports by signing up for the Big Secret on Wall Street today. Or you can call Lance James, our Director of Customer Care, and his team at 888-610-8895, or +1 443-815-4447 internationally.
Porter & Co.
Stevenson, MD
P.S. Donald Trump’s pro-crypto announcements are part of the reason the price of Bitcoin has risen so high recently. What else will benefit from the policies of the Trump administration?
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