Michael Saylor, the founder of MicroStrategy, made headlines in 2020 when he invested $425 million in Bitcoin after reading a pivotal book. The volume, titled The Bitcoin Standard and authored by Saifedean Ammous, was published in 2018 and has sold over a million copies globally, attaining the status of a “Bible” for Bitcoin advocates.
Key Insights from The Bitcoin Standard
Ammous, who holds a Ph.D. in Economics from Columbia University, argues that Bitcoin represents a superior form of “hard money” compared to gold. Interestingly, one chapter of his book discusses the shortcomings of silver as a viable hard money alternative.
At the time the book was written, silver was priced at about $15 per ounce. Now, it has skyrocketed to an all-time high of $117, igniting an investment boom in precious metals. Amidst this rise, industry leaders are cautioning investors about the potential risks associated with silver.
Historical Context of Silver Market Behavior
A key argument presented in Ammous’s book is centered on the concept of stock-to-flow, which denotes the supply dynamics of financial assets. Unlike gold, whose supply is tightly controlled, silver exhibits significant production elasticity. This means that when capital enters the silver market, miners can swiftly increase output, leading to price declines that can erode savings for investors.
- In the late 1970s, the Hunt brothers sought to dominate the silver market, causing prices to surge from $6 to $50.
- Subsequent overproduction by miners led to a substantial price collapse, and the Hunt brothers ultimately incurred over $1 billion in losses.
Ammous concludes that silver’s high supply elasticity makes it a poor store of value. Essentially, the more someone tries to hoard silver, the more miners respond by increasing their production, which can destabilize prices.
Current Silver Market Trends
Despite previous forecasts that suggested rising silver prices would lead to increased production, recent trends tell a different story. Global silver mine production peaked at 900 million ounces in 2016 but is projected to decline to 835 million ounces by 2025. This decline highlights an ongoing supply deficit, highlighting issues in the silver market.
The Silver Institute estimates that from 2021 to 2025, the global silver deficit will reach approximately 820 million ounces. Deliverable inventories at the London Bullion Market Association are diminishing too, now at only 155 million ounces.
Emerging Variables in the Silver Market
Starting January 1, 2026, China will enforce export restrictions on refined silver, which could further constrain global supply. These restrictions will only permit state-owned enterprises producing over 80 tons annually to obtain export licenses, excluding many small and medium-sized exporters.
- The photovoltaic industry has emerged as the largest industrial buyer of silver, accounting for over 60% of demand.
- Electric vehicles require significant amounts of silver, further heightening demand.
- The inelastic nature of industrial demand suggests silver prices may remain elevated in the near future.
Market Dynamics: Bitcoin vs. Silver
This surge in silver is juxtaposed against Bitcoin’s stagnation. Market participants have described the current financial climate as a “Debasement Trade,” where declining dollar strength and rising inflation pressures have propelled investments into hard assets like gold and silver.
Many Bitcoin advocates are left defending their digital currency’s long-term potential despite silver’s success, alleging a bubble in the silver market that they believe will soon burst.
Despite the arguments presented in The Bitcoin Standard, the evolving reality of silver’s market dynamics continues to challenge longstanding perceptions of Bitcoin’s superiority over traditional precious metals. As such, investors are urged to carefully consider these shifting trends.
