At the Money: Gold, Bitcoin & Other Thematic Investments (June 12, 2024)
How should you think about thematic investing? What place does Gold or Bitcoin, or countries like India and Japan have in your portfolio? Jan van Eck is CEO of Van Eck Funds, which oversees $75 billion in ETFs, discusses how to add an additional thematic investment to your core holdings.
Full transcript below.
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About this week’s guest:
Jan van Eck, CEO of Van Eck Funds. For more info, see:
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TRANSCRIPT: ATM Gold, Bitcoin & Other Thematic Investments
Barry Ritholtz: It seems that every year, a different investment theme bubbles to the surface. This year, it’s artificial intelligence. Last year, it was the metaverse. Before that, it was fracking in oil, gold, bitcoin, work your way back through history. Every now and again, a different idea catches investors’ attention because of the performance of the underlying assets.
I’m Barry Ritholtz, and on today’s edition of At The Money, We’re going to discuss how to engage with thematic investing. To help us unpack all of this and what it means for your portfolio, let’s bring in Jan Van Eck. He is the CEO of Van Eck Funds, which manages about 100 billion in client assets.
So, let’s start out with the basics. What is thematic investing?
Jan Van Eck: I would say it’s really a specialized part of the market, right? It could be a group of stocks, it could be a group of, uh, it could be a country, it could be an industry, a very, very focused part of the market.
Barry Ritholtz: So let me give you a great example of thematic investing. Back in 1968, your dad began one of the very first gold funds in the United States. Right before that 1970s boom. Tell us a little bit about gold as a thematic investment.
Jan Van Eck: We call ourselves macro investors because we like to look outside of the context of the financial markets. Look at politics, economics and technology and say, okay, what’s, The opportunity that’s going to come along that might not be priced in or the risk.
So yes, the emblematic thing, uh, for our firm was, uh, the starting of a gold fund, even though gold had been fixed against the dollar for the entirety of U. S. history.
Barry Ritholtz: You were guaranteed until the decoupling that your return was going to be exactly zero.
Jan Van Eck: Exactly zero, right, no upside.
Barry Ritholtz: So your father obviously was anticipating Nixon eventually going off the gold standard and severing that fixed rate for gold.
Jan Van Eck: Just, like, maybe spending today. Back then, spending on social programs, the war, the Vietnam War.
Barry Ritholtz: You had the War on Poverty, the great program under Johnson, and then Vietnam spending was pretty substantial. Yeah
Jan Van Eck: Exactly. And so the idea is, all right, what’s, again, a multi-year theme, right – It seems very hard to pick quarter to quarter – that is in there if you look at the bigger world, but it’s not priced into the financial markets. And he said, listen, in history, gold has been the hedge. It’s been the way to play inflation.
So if I’m right, and you never know what the future is, but you pick your scenarios and, That’s the way to go. And the beauty of that, you know, that it’s hard to forget, but in the 70s, gold shares, and gold companies went up like Bitcoin does today because the costs of production didn’t go up in the 70s for oil, metals, and, and gold.
So that was the, and the stocks were like options.
Barry Ritholtz: So the theme in the 70s was the decoupling going off the gold standard and all this excess spending. for gold. What is the theme in the 2020s for gold?
Jan Van Eck: Well, I think it’s a question of the, are we returned to irresponsible government policies? And there’s also another overlay, which is that it was really big for the United States to seize Russian reserves after their invasion of Ukraine.
Because the reaction has been other countries are worried that the United States does the same thing. So they’ve been buying gold in their foreign central banks at a rate that you really haven’t seen for decades.
Barry Ritholtz: I know China has been a huge buyer of gold recently. Is China anticipating the U. S. seizing their assets? That would be an act of war.
Jan Van Eck: If they invade Taiwan, I mean, they’ve stopped buying government bonds and they’ve been increased gold. They haven’t been sort of the biggest buyers, but –
Barry Ritholtz: Who has been?
Jan Van Eck: You know, you have countries, uh, India has been a consistent buyer, um, a lot of central banks like Eastern European banks. So it’s, it’s a little bit of a mishmash, but, but. But the point is, you know, your question, is gold sort of something that you want to have as a thematic investment today? I would say absolutely yes, because of the U. S. government spending at 7 percent of GDP. If we inflate our way out of it, right, if we buy all that debt, then people are not going to like the dollar and gold’s going to go up.
Barry Ritholtz: You mentioned Bitcoin. Let’s talk about cryptocurrencies and DeFi. As a theme, with Bitcoin at 50, 000, 60, 000, how much upside is in Bitcoin? And what other aspects of crypto are or are not appealing?
Jan Van Eck: Let’s focus on Bitcoin. Like I said before, there’s two technology trends of our lifetime, right? The Internet and AI. Internet finally came up with an asset. Right? It didn’t have an asset. It didn’t have its own gold. So I just look at Bitcoin as its own gold for the Internet. Internet gold.
Barry Ritholtz: It’s Internet gold.
Jan Van Eck: A question is, is something else going to leapfrog Bitcoin’s popularity? I mean, it’s extremely unlikely.
Three hundred million people own it. About, you know, Close to a million people use the Bitcoin network every month. So I, I just don’t see that happening. So if that’s the case, I say, listen, in the long term, bitcoin’s gonna be half the value of gold. I dunno, young people like it, right? They buy it rather than gold. If you look at, the activity in developed markets, it’s Bitcoin more than gold. Southeast Asia is more gold.
So I just say, look, we’re in the middle of a multi-year trend where this thing, at some point, Bitcoin is going to be boring. I want like people to really understand that. Then in five years, Bitcoin is going to be boring. It will have done its thing. It will have emerged as an alternative. It’s kind of like silver today. It’s an accompaniment to gold.
Barry Ritholtz: There are literally thousands of other. Coins to quote Businessweek, “rhymes with bitcoins” – of all the rest of the coins out there, the only one that seemed to have had any real staying power is Ethereum. How do you look at ETH relative to Bitcoin? Is that a one two? Are those the two winners? Or what else should we be thinking about in the crypto space?
Jan Van Eck: I mean separate Bitcoin as I said. The rest of this stuff is software investing. I think it’s, you know, mystifying to call it crypto and all this other stuff. It’s software.
And then the question is, is any of this software, which is open source, so you and I could copy it instantly, is, does any of it have any value? Are people paying to use this software? If you ask that question, there are only about 30 to 50 software protocols where people are actually paying.
It’s like you’re saying, it’s a next digital assets exchange, uh, or it’s a social network or the bunch of different things for none of them is the usage above the 10 million person number. It’s, it’s a big option as to whether any of that stuff will be of value. I will fully grant that.
Barry Ritholtz: It’s a solution in search of a problem, but the upside is if a problem is identified that crypto solves, it’s potentially a multi-trillion dollar sector of the economy.
Jan Van Eck: I have two, two things. Number one, last year was super important because the costs of using blockchains became predictable. Like, you know, how the Bitcoin that became more and less expensive, gas fees on Ethereum. That’s like the worst thing. That’s like filling up your car. It costs 50 a week, and then you have to pay $600. You’re like, I’m never going to use that. No real business is going to use that. Right. That was fixed in 2023.
Barry Ritholtz: Do to the last coin being mined or the halving, Or something else entirely.
Jan Van Eck: It’s either Solana or Avalanche, which are fixed in terms of very low fees, or what they call Layer 2s. Don’t worry about the technology, but the point is, this database software solution now became price predictable.
And the second point I would make to investors that are maybe skeptical, there’s something called stablecoins. Which, right, these are tokens that track the value of the dollar. The velocity of trading of stable coins last year was 10 trillion dollars. The same as the Visa network. Now, that’s a curiosity, but I ask you to think, what if that goes up 5x? What if people constantly are on your phone start using stable coins as opposed to dollars? It’s potential. It may not matter to most people, but I’m just saying if you follow that space, that is a reasonable scenario for 24 and 25.
Barry Ritholtz: And I know a number of people have said, “Why are you paying fees to MasterCard or Visa?” And my answer is, because if it gets stolen, they cover me for everything over 50 bucks. I don’t have to worry about my password being hacked to my Bitcoin. So there are still some growing pains on the crypto side. But eventually disintermediating the big banks and the big financial players that’s the potential upside for crypto and DeFi.
Jan Van Eck: A hundred percent. A multi-year thematic, if you will, kind of development.
Barry Ritholtz: So to sum up, look to add themes that are complementary to your core portfolio. You can consider AI or India or gold or even Bitcoin as an add on to your long term investment. I’m Barry Ritholtz.
You’ve been listening to Bloomberg’s At The Money.
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