On Thursday (October 1), Jason Urban, the CEO of DrawBridge Lending and a former trader at Goldman Sachs, explained during an interview how both gold and Bitcoin can protect investors against increases in volatility.
According to his bio, Urban holds a BS/BA Finance and Marketing from Georgetown University and an MBA from University of Chicago Booth School of Business. Between 2000 and 2009, he “ran the Goldman Sachs equity volatility market making business.”
On Thursday, David Lin of Kitco News, spoke with the former Goldman Sachs trader about gold, Bitcoin, and stocks.
Lin started the interview by asking Urban if he had at any time during his career seen so much volatility.
“No, never, and I [was] trading through the 9/11 era, 2007-2008, MF global imploding… there were stresses but nothing like this, and this is why I take the defensive stance because what we’re currently seeing is really truly unprecedented and we haven’t gotten completely through the snake so to speak yet… we don’t know what the knock-on effects are, when rent moratoriums are or eviction moratoriums are lifted, if they’re ever lifted, how is all that going to play out and what we’re going to be the knock-on effects.”
Lin then asked Urban why is this time even worse than the Great Recession. Urban replied:
“Well, I think, because in 2008, it was a banking crisis. It was concentrated in a handful of people.
“Now, you’re seeing a broader crisis. When unemployment levels are where they’re at, when large segments of the population are out of work with no hope of going back to work, that’s going to change spending habits, that’s going to be change consumption habits, you know, all of those things are going to be different.
“In 2008, people were worried about losing their homes or their second homes or the third homes or things of that nature. Now, you have people who don’t know necessarily if the stimulus check doesn’t come, where their next meal is coming from, and I think that kind of fear changes behaviors across, you know, everything.
So what are the defensive assets that Urban likes at this time?
Urban likes traditional hedges such as silver and gold, but he also likes Bitcoin and other cryptoassets that can serve a similar purpose. According to him, gold and Bitcoin are quite similar:
“I think the the biggest thing to look at it as a fixed finite supply similar to gold. It’s scarcity is similar and so because of that there there isn’t a party or a government actively working to devalue it and so from that standpoint I look at that and say that they’re very similar…
“With the dollar, if you just held cash in your bank account, there’s always the inflationary spectre that the government starts to print more money, but there’s there is no government printing more gold and there definitely is no government printing more Bitcoin.”
As for Bitcoin’s price volatility, Urban says that although Bitcoin’s historic volatility is much higher than that of gold, it is worth remembering that the “store of wealth factor works kind of in both ways,” meaning that Bitcoin’s higher volatility could also help it go up a lot more than gold:
“And so if you normalize that and look at just the traditional characteristics of that asset in terms of a fixed finite supply, it certainly has a lot of the same characteristics as gold. Being more volatile is one of the areas where it deviates but if it was exactly like gold, there would be no need to hold both gold and Bitcoin.
Urban believes that Bitcoin, just like gold, can be used to hedge against both inflation and the U.S. dollar:
“As someone dealing in the institutional space, the same people that I see buying gold and other precious metals are also buying Bitcoin, and they’re doing it simultaneously, and they’re doing it in equal amounts currently. So from that standpoint, the people who are transacting and kind of driving price and dictating levels are looking at in a very similar way as well.”
Urban then explained what’s makinghim be more defensive than cyclical these days:
“I look at the defensive in terms of we have an election coming up. Obviously, that will impact where money is spent, not necessarily the amount of money that’s spent.
“I think it’s become pretty clear that regardless of which party is in power, there will be spending, and so from that standpoint, not really knowing where to place your bets tells me to be defensive in that in terms of what’s happening on a global stand, on a global basis, it’s a very similar concept… So given that volatility, given that uncertainty, I think it’s better to preserve wealth before you end up losing well.”
Finally, Urban said that as far as asset allocation is concerned, he would put 5-7.5% in physical gold and gold mining stocks, and 5% in Bitcoin and/or other digital assets.
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.