Greg Foss Peter McCormack Peter Schiff

Podcaster Peter McCormack hosted a debate on September 10, 2021, between gold bug Peter Schiff and bitcoin strategist Greg Foss, discussing the value of bitcoin and gold, economic history, the importance of market prices, risk management and portfolio allocations. This informative and robust debate came from a clash between highly-knowledgeable combatants in the field of investing. The debate fell off the rails in areas that got technical and related to game theory. As mentioned in the debate, gold bugs and Bitcoiners likely agree on many economic issues. The clash however often comes down to the merits of gold versus bitcoin, but also the role of assets in portfolio construction.

The debate began to deteriorate once it was revealed that Peter Schiff didn’t know about the Bitcoin network difficulty adjustment, nor how it regulates mining activity. Schiff claimed that if the price of bitcoin was to double, the amount of bitcoin mined would increase because miners would devote more energy to mining bitcoin. After Peter McCormack informed him of the difficulty adjustment, Schiff pivoted to questioning what would happen if the price of bitcoin crashed. Again, Peter Schiff discovered the difficulty adjustment would stabilize any drops in hash power and mining rate.

Shortly after this revelation, he stumbled again on the supply cap discussion incorrectly claiming that miners can collude to increase the overall supply cap (addressed here). Additionally, Schiff claimed that miners tax bitcoin users, a false claim he has used in other debates and has been publicly corrected on before. After his bold proclamations crashed into the wall of reality, the pace of interruptions and ad hominem attacks accelerated. Honest debaters engage each other for the pursuit of truth. But instead of acknowledging his flawed comments, Schiff pivoted to attack elsewhere.

The liveliest part of the debate centered around portfolio construction. As a professional portfolio manager this was informative, entertaining, and filled with shocking comments. Greg Foss fired a shot across the bow claiming Peter Schiff was a horrible risk manager based on his record, to which Peter Schiff replied he “doesn’t care.” As a fiduciary, Schiff has a duty to properly manage risk, and could have also countered Foss’s claims if he had a successful track record of risk-adjusted returns. See for yourself at his website.

Often debates stall out because the definitions of terms are not predetermined, and individuals talk past each other. An example would be a commodity, which, as defined by Peter Schiff only includes analogues or raw materials. Bitcoin is dismissed by Schiff as a form of money because it is not a commodity. However, the U.S. Commodity Futures Trading Commission defines Bitcoin as a commodity.

Peter Schiff’s view is that a successful cryptocurrency can only be backed by gold or another asset. He claims this by saying that because these other assets are not volatile, don’t swing around, and aren’t dependent on someone else buying it, which means it isn’t a Ponzi scheme. Peter Schiff fails to mention that gold is highly volatile, prone to drawdowns and decade-long and more secular bear markets. Between January, 1980, and April, 2001, gold suffered a nearly 66% drawdown from its peak to trough. It took almost 30 years for investors to break even during that secular bear market. In light of the discussion of a physical asset backing a digital currency, please see the Oracle problem.

Ultimately, debaters often walk away believing they have won. In this case I believe those listening from the gold side won this debate. Why? Gold bugs may have finally caught onto the fact that Peter Schiff has a severe lack of technical knowledge on the asset he is so against!

For those scoring at home, I tracked five ad hominem attacks by Peter Schiff, and none for either Greg Foss or Peter McCormack. I counted 17 interruptions by Schiff during others’ designated talking time, but only two interruptions by Greg Foss, and five by Peter McCormack. As I noted above there was a notable shift in demeanor and respectfulness after Peter Schiff’s multiple technical blunders.