The Gold and Bitcoin Myth: Why Stocks Win

The real hedge against inflation and fiat risk isn’t what you think.

Source: Grok

The Push Toward Fixed-Supply Alternatives

Escalating government deficits, rising debt levels, and sustained spending have prompted many investors to seek assets perceived as immune to monetary dilution—chief among them gold and Bitcoin. Both are touted as finite-supply “safe havens” to escape fiat’s potential collapse. However, a deeper historical and structural analysis of these assets reveals inherent flaws that may diminish their protective appeal. Meanwhile, select stocks (i.e., carefully chosen companies) have consistently shown resilience, adaptability, and superior returns across myriad economic backdrops.

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Gold’s Performance: Rare Periods of Outperformance vs. Long-Term Underperformance

Gold’s reputation as a safe haven often hinges on certain timeframes in which it either matches or outperforms the S&P 500 Total Return Index (SPX). However, closer scrutiny (using data from Damodaran) suggests these intervals tend to be cherry-picked:

1. 2005–2024 Comparison:

   • Gold delivered a 9.37% CAGR versus 10.26% for the SPX.

   • A roughly 0.90% annual underperformance by gold may not seem drastic, but the data period conveniently captures the lead-up to the Great Financial Crisis (GFC) and subsequent monetary interventions—an environment favoring gold.

   • It still underperformed equities overall.

2. Historically Unique Gold Outperformance Windows:

   • 1928–1932 (Great Depression): Gold outperformed the SPX by 12.76% CAGR, but this period ended with U.S. government price controls in 1933/1934.

   • 1971–1976 (End of Bretton Woods): Gold outperformed by 17.26% CAGR largely due to the abrupt lifting of decades-long official price controls on gold. By 1976—after the Jamaica Accords—true price discovery had only just emerged.

   • 1999–2009 (Dotcom Bust to GFC): Gold exceeded the SPX by 11.99% CAGR, amid the “Lost Decade” that spanned two major crashes.

   • 2005–2014 (Pre-GFC to Early Recovery): Gold’s outperformance was 3.11% CAGR over the SPX.

Despite these extraordinary pockets, gold generally lags the SPX over longer horizons.

• 1975–present (50 years): With price controls fully removed, the SPX returned 12.26% vs. 5.42% for gold.

• This era included stagflation, double recessions, the 1987 crash, the Dotcom bubble, the GFC, multiple rounds of QE, and the COVID crisis—yet gold still underperformed by a wide margin.

• Even during high-inflation spells (e.g., late 1970s to early 1980s), the SPX sometimes outpaced gold (9.46% CAGR advantage from 1975–1984).

• Just the last 10 years (2015-2024) SPX returned a 12.98% CAGR to gold’s 8.03%.

Inflation vs. Deflation/Recession Hedge

One crucial insight is that gold’s strong runs often align with recessionary or deflationary environments, providing a shorter-term safe haven. Yet in periods of higher inflation, gold’s track record as an inflation hedge is mixed. The historical evidence over the last 96 years does not strongly support gold as a long-term solution to inflationary pressures.

Source: Data from Damodaran, calculations by author, Returns are CAGR

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Bitcoin: Decentralized Technology, Centralized Ownership?

Introduced in 2009, Bitcoin promised a fixed supply of 21 million coins, enforced by a decentralized ledger (the blockchain), ostensibly to protect against “reckless” government money printing. Despite this compelling origin story, several risks challenge the idea that Bitcoin is a stable, democratized replacement for fiat:

1. Ownership Concentration

   • Bitcoin’s ledger is decentralized, but its economic interests are not.

   • Elementus estimates 82.69% Gini coefficient for Bitcoin wallets—where 100% would mean total inequality and 0% perfect equality.

   • Another analysis (NBER and University of Limerick, 2021) found 6,952 Bitcoin wallets control 58.21% of the circulating supply—less than 0.01% of BTC holders control nearly 60% of the market.

   • This disparity mirrors the Hunt Brothers’ infamous cornering of the silver market in the 1980s. Large whales can coordinate to influence prices or network governance, undermining the original vision of a currency free from the “heavy hand” of any centralized entity.

2. Potential for Collusion and Manipulation

   • The blockchain’s transparency does not necessarily prevent whale collusion. Pseudonymous addresses make it tough to identify major players, allowing informal “cartels” to form.

   • Derivatives markets add another layer of complexity—giant holders can indirectly impact futures or options prices, in turn shaping spot prices.

   • Significant wealth also makes it feasible for whales to influence or control miners, potentially exerting undue sway over protocol upgrades or transaction censorship.

3. Rigid Supply as a Double-Edged Sword

   • Bitcoin’s finite supply addresses the flaws of “infinite fiat,” but it also lacks moderate flexibility. A small, steady inflation rate can be healthy for a growing economy; Bitcoin’s inelastic supply may cause severe price swings.

   • If supply ever needed to be expanded—say, to stabilize prices or adapt to population growth—Bitcoin would face a contradiction: a handful of large holders might be the ones steering the change, mirroring precisely the sort of centralized decision-making it aimed to avoid.

4. “Now or Never” Mentality and Extreme Volatility

   • Bitcoin’s explosive price gains from near-zero in 2009 are indisputable, but from 2017 onward, it has shown 30–50% annualized returns coupled with extreme volatility.

   • A Sharpe ratio below 1.0 in many periods indicates the risk-adjusted returns are not as favorable as raw price charts might suggest.

   • This volatility makes Bitcoin unreliable as a stable store of value—just as hyperinflation undermines fiat’s stability, massive ups and downs undermine Bitcoin’s use for everyday commerce.

Taken together, these factors argue that Bitcoin is not necessarily the “panacea” many hope for, especially under real-world pressures like cryptographic threats, shifting consensus rules, or unstoppable human incentives to consolidate power over a valuable resource.

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Why Responsible Fiat May Still Be the Least Imperfect Option

The shortcomings of both infinite fiat creation and strictly limited supplies (e.g., Bitcoin’s 21 million coins) suggest that a balanced, managed approach might be more sustainable:

• Moderate Inflation vs. Deflation: Absolute scarcity can stifle growth if a currency becomes too valuable to spend; infinite supply leads to hyperinflation. A measured approach, if governed responsibly, can offer a stable environment for commerce.

• Adaptive Governance Over Time: Fiat currencies, for all their flaws, offer policy levers—interest rates, money supply adjustments—that can help an economy absorb shocks. Bitcoin’s inability to adapt might become its Achilles’ heel in a world of fast-evolving technology and demographics.

• Democracy and Fiscal Management: Handing the reins of monetary policy entirely to a 16-year-old technology may risk losing the checks and balances that come with representative governance. While not perfect, a democratic system can still manage expansions and contractions in the money supply—if that power is wielded with true fiscal discipline. And I believe we are seeing offshoots of that much needed discipline now.

Admittedly, modern fiscal policy has often fallen short of “responsible.” However, entrusting monetary sovereignty to a protocol susceptible to whale manipulation (or other unforeseen pitfalls) could prove just as hazardous. Human history repeatedly shows that no system—even those designed to be free from interference—is beyond the reach of human self-interest.

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The Core Advantages of Owning Select Stocks

Businesses Generate Returns

• Equities represent real economic activity—unlike gold, which is inert, or Bitcoin, which is primarily a speculative store of value.

• Companies produce cash flow, invest in growth, and can adapt their supply chains, product lines, and pricing to the prevailing currency or medium of exchange.

• Historical returns confirm this adaptability. The SPX alone has delivered around 10% annualized total returns across numerous decades, which trumps gold in most long stretches.

Ownership of Tangible and Intangible Assets

• Corporate balance sheets are not just fiat; they often hold equipment, real estate, intellectual property, and intangible capital like brand value and human expertise.

• These assets can be sold or repriced in any currency, from US dollars to future alternatives like Bitcoin or even something entirely new.

Ability to Evolve with Changing Mediums of Exchange

• If markets gradually adopt Bitcoin or another digital asset, businesses will shift to accept and pay in that currency.

• The transition cost exists—but it’s not necessarily catastrophic. Companies with pricing power can adjust prices, while those with stable margins can handle currency risk over time.

Lower Volatility and More Transparent Governance

• Stocks can be volatile, but typically less so than cryptocurrencies. Their governance structures—boards, shareholders, public disclosures—aren’t perfect, but they can be far more transparent than the behind-the-scenes concentrations in crypto markets.

• If a company holds significant Bitcoin on its balance sheet, that can be riskier for short-term working capital. Many argue any “extra” cash the firm doesn’t need should be returned to shareholders, who can then decide to buy Bitcoin on their own.

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Addressing Hyperinflation: Do Stocks Hold Up?

Hyperinflation is often presented as the ultimate argument for abandoning fiat in favor of gold or Bitcoin. However, history suggests the impact on companies and asset classes is more complex than a simple “fiat dies, hard assets win” narrative.

Hyperinflation Doesn’t Always Cause Mass Corporate Bankruptcies

Intuitively, one might assume that hyperinflation wipes out businesses alongside fiat. But historical evidence suggests a negative correlation between inflation and bankruptcies in some cases.

• Why? When inflation soars, it erodes the real value of outstanding debt.

• Result: Companies with high nominal debt burdens (fixed-interest loans) often experience relief because their debt obligations shrink in real terms, and interest payments become less burdensome.

• This effect helped many German businesses avoid bankruptcy during the Weimar hyperinflation (1921–1923). Instead of collapsing under debt, some companies saw increased hiring and investment as their real debt burdens disappeared.

However, not all businesses benefit equally. Those that lack pricing power, hold fixed-income assets, or rely on long-term contracts in local currency often collapse in hyperinflationary scenarios.

Interestingly, the Princeton paper linked above, which studied the Weimar inflation, suggests a better equity performance for higher levered non-financial firms than others.

Would Gold or Bitcoin Save Investors?

While hard assets like gold and Bitcoin are often positioned as hyperinflation hedges, they come with their own challenges:

• Gold’s value can be politically compromised. In Weimar Germany, gold surged in value relative to the Mark—but shortly after, the government instituted wealth and capital controls, taxing or outright seizing gold holdings. The U.S. did the same in 1933.

• Bitcoin’s liquidity risk in hyperinflationary economies. While Bitcoin has seen some adoption in countries like Venezuela and Argentina, access to it remains limited under capital controls. Governments can restrict exchanges, and transactional liquidity is often insufficient for daily commerce.

• Government intervention is always a risk. In times of extreme monetary collapse, governments tend to assert control over assets that challenge their authority—whether that’s gold in the 1930s or Bitcoin in modern autocratic regimes.

In short, gold and Bitcoin may provide theoretical protection, but in practice, liquidity issues, taxation, or outright confiscation can undermine their effectiveness.

Why Select Stocks May Be the Best Hedge

The businesses that tend to survive or even benefit during hyperinflation share common traits:

✅ Pricing power: Companies that can adjust prices quickly (e.g., consumer staples, energy, agriculture, industrials) can maintain revenue in real terms.
✅ Nominal debt advantages: Firms with high fixed-interest debt may see real obligations shrink as inflation erodes their liability burden.
✅ Hard assets: Real estate, commodities, and infrastructure-heavy companies often retain intrinsic value, even if currency collapses.
✅ Global revenue streams: Companies with significant foreign sales can earn in stronger currencies while expenses are denominated in weaker local currency.

Industries with fixed-cost structures, long-term contracts, or reliance on fiat-denominated fixed income (e.g., many insurance companies, pension funds) are at greater risk.

Even in extreme hyperinflation, well-positioned companies can maintain value or even appreciate in real terms—not because they’re immune, but because they produce essential goods and services that retain demand, regardless of the medium of exchange.

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Balancing the Argument: Scarcity vs. Abundance

There is an intrinsic irony in comparing gold/Bitcoin (scarce) to fiat (potentially infinite). Both extremes can trigger instability:

• Infinite supply undermines trust in the currency and can lead to hyperinflation.

• Absolute scarcity can result in rapid price swings that stifle its reliability as a store of value or medium of exchange.

Somewhere in between is the notion of improved fiat governance—not discarding an entire system that supports global commerce, but refining it to avoid reckless expansions of the money supply.

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Conclusion: Why “Select Stocks” May Be the Best Bet

1. Stable Commerce Is More Important Than Any Single Store of Value

   • Neither gold nor Bitcoin functions seamlessly as a medium of exchange across various economic climates.

   • Commerce thrives best under a flexible but responsibly managed currency—one where businesses can plan, invest, and grow.

2. Long-Term Outperformance

   • Equities, especially in well-run firms, have outperformed gold by a wide margin over extended periods and shown lower net volatility compared to Bitcoin in many timeframes.

   • Stocks provide dividends or earnings that can compound, rather than relying solely on price appreciation or scarcity.

3. Adaptive to Shifting Monetary Landscapes

   • As the global economy continues to evolve—whether that means adopting new technologies, new currencies, or facing fiscal reforms—companies have the structural ability to adjust.

   • In contrast, a static-supply asset like Bitcoin may struggle if its rigidity clashes with future economic requirements, just as infinite fiat fails when mismanaged.

4. Mitigating Risk vs. “Cornering”

   • Major holders cannot easily “corner” a diversified stock market the way whales could a single cryptocurrency.

   • Large corporations and ETFs offer deeper liquidity and governance transparency, plus regulatory oversight to mitigate extreme manipulation.

Ultimately, while there is no absolute guarantee against hyperinflation or fiat mismanagement, select stocks remain a strong option to preserve and enhance purchasing power. Their inherent productivity, operational flexibility, and historical track record through deflationary spells, inflationary cycles, and multiple recessions highlight why they may outperform pure store-of-value assets like gold or Bitcoin in the long run.

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Disclosure: This information is provided for informational purposes only and should not be considered a solicitation or recommendation to buy or sell any securities. The author or entity providing this information may hold positions in the securities discussed. This is not investment advice.