"Don't Sell the Matchless" or "Put a Little Bitcoin In Your Retirement Fund"

Rudolph the Red-Nosed Reindeer: (to Yukon) Uh. Mister, where are we going?

Yukon Cornelius: You're going to stay with me and we'll all be rich... with the biggest silver strike this side of Hudson Bay. Silverrrr!

Hermy: I thought you wanted gold.

Yukon: I changed my mind.

"Rudolph the Red–Nosed Reindeer " (TV special, 1964) by Rankin/Bass

In 1868 a young couple moved to Leadville, Colorado, lured by the Pike’s Peak gold rush. The exposed veins of the craggy peaks were rich in many minerals, especially silver, as it turned out. Horace and Augusta Tabor soon found that the picks and shovels business was more lucrative than mining and opened a general store which prospered. Horace (“Haw”) was out front and Augusta managed the books.

In 1878, against his wife’s advice, Haw decided to “grubstake” two miners for a one-third share of the “Little Pittsburgh” mine. As fortune would have it, the mine struck a huge lode and the Tabors were rich. With investment acumen I can only dream of, Haw sold his stake in “Little Pittsburgh” and used the proceeds to buy a stake in the “Matchless” mine This one came in vastly bigger and made Tabor one of the richest men in Colorado. He parlayed this wealth into power, becoming the lieutenant governor of the new state. Around this point his luck and judgment ran out. He acquired a taste for rich living, dubious foreign investments and a new, much younger, wife, “Baby” Doe. But the biggest factor in his fall was his dogged insistence on keeping all his wealth in silver.

From the early days of the republic, the government secured its currency by a bi-metallic standard, based on gold and silver. Each was convertible to the other by a fixed ratio. Initially 15 oz. silver to 1 oz. gold and the government stood ready to do business in either of these metals. At various times during the 19th century, this ratio was challenged by excess supplies of gold then silver. This would then drain the Treasury of whatever metal was deemed more valuable. During the Civil War, the U.S. abandoned convertibility on demand and the price of both metals soared along with general price inflation.

After the war, the U.S returned to hard money but the Coinage Act of 1873 restricted the minting of silver coins, thus dooming the bi-metallic standard. The price of silver relative to gold began a multi-decade slide.

Populists like William Jennings Bryan decried this state of affairs.? Hard money favors creditors while loose money and inflation favors debtors.? The abundance of silver drew calls to return to a bi-metallic standard and at various times during the late 1800s legislators paid token attention to the “free silver” movement, passing laws requiring the government to purchase silver and mint silver coins.? This contributed to inflation and a bubble that culminated in the panic of 1893 after the government repealed all requirements to buy silver which promptly lost half its value.

This was the final nail in the coffin of the Tabor fortune.? When he died in 1898 he left his widow, Baby Doe, penniless.? He believed the played-out Matchless mine would come in again and, on his deathbed, he exhorted his wife to never sell the Matchless. The mine never returned to production and Baby Doe lived out her last years in a tool shed at the mine, considered a madwoman.

What are the lessons here?? One, of course, is to diversify your wealth.? Haw’s first wife, Augusta, had a good head on her shoulders. She took her divorce settlement, invested it wisely and left their son a large inheritance.? The second is the fluid definition of “money.” It is whatever the government wants it to be, even when it can’t always control it.? Over the history of the U.S., legal tender has gone from gold and silver to “greenbacks'' during the Civil War (backed only by its acceptance by the government) to only gold and, after the collapse of the Bretton Woods agreement in 1972, back to paper promises only, where we stand today.

Who is to say that, some day, Bitcoin will not be the digital currency of the U.S.?? The government has been known to change their mind, as we saw.? In 1893, the government desperately needed to restore financial stability so they reaffirmed their willingness to back their obligations with gold.? It took a massive loan of gold from J.P. Morgan and the Rothschilds to do it, but it happened.? In 2009, the favor was returned and banks were bailed out (though not J.P. Morgan) by massive loans of paper.? The only thing special about gold is that the supply is somewhat fixed.? The “Bitcoin Bros” like to point out that the government can’t debase the value of Bitcoin by printing more of it.? True enough, but remember, the moneyed classes like hard money.? “The people” want loose money as the “free silver” movement showed.? Bitcoin will never be the money of the people because the people can’t clamor for the government to print more of it.? Democracy being what it is, politicians have a history of giving people what they want.? If Bitcoin is ever going to be accepted as legal currency it will be because of a crisis of confidence in the dollar that forces the government to harden the currency. Bitcoin is as valid as gold and easier to move (yes, that portability brings hackability with it). As #James Grant says, the price of gold is an “opinion” So it is for Bitcoin.??

So I don’t know if Bitcoin is going up or down. If you want to speculate a little I won’t try to dissuade you.? I can give you one bit of advice that runs contrary to the accepted wisdom. DO put your Bitcoin ETF in your retirement fund, specifically your Roth IRA.? When the cautionary voices say “Bitcoin is no place for your retirement fund” they mean don’t bet what you can’t afford to lose.? This is absolutely true.? Bitcoin could go to zero!? A capricious government might ban it.? You don’t want all or even a substantial part of your retirement nest egg at risk.? But what if you want to allocate a little “play money” on the chance Bitcoin goes to the moon but not so much that you would cry if you lost it all?? The place for a Bitcoin ETF is absolutely in your Roth IRA.? Indeed, if any investment has a chance of a many-fold increase, the Roth is where it should be.? Once the asset is in a Roth, you are done with taxes on it forever.? If it doubles, triples or whatever, you will owe no taxes on that appreciation.? Your taxable brokerage account and your other IRA’s can’t provide that complete shield.? Peter Thiel is a zillionaire due to this hack.? According to ProPublica, he put shares of his startup, Paypal, into his Roth when Paypal was worth peanuts. It was revealed in 2021 that it started with a $2,000 contribution in 1999 and grew to $5 billion in 2021.? That’s the typical tech billionaire story, but the twist is that none of that growth is taxable so long as he doesn’t touch it until he’s 59 ? years old.??

Let’s be clear, Roth assets can’t give you a tax write-off if they go down, either. That’s why assets with asymmetrical payoffs belong there. BTC today is around $40,000. If you think there is an equal chance it goes to zero or $80,000 there is not much to see here.? If you think there is a 5% chance it goes to zero and a 5% chance it goes to $800,000, the Roth is definitely where your Bitcoin ETF should go.? Just don’t end up like Baby Doe. Know when to sell.