Bitcoin vs. Novo Resources

Canada gold, junior mining companies

Epistemology is the philosophical study of knowledge. What can we know and how can we know it?

Bitcoin has dropped from its high a few days ago of nearly $20,000 to a current level of $13,300 (in the time it took to write this, back to $14,300), (if you can sell it as people head for the exits).

Novo Resources, a junior gold explorer, listed as V.NVO on the Venture has dropped from a high of $8.52 at the beginning of October to a current level of $3.50.


Out on the internet boards and at hundreds of websites offering financial commentary, the drop in Bitcoin is being heralded as everything from a necessary correction to a catastrophic collapse signaling the end of crypto-currency. Where will the slide end? At zero say the crypto-bears who have always thought Bitcoin was a scam. At $8000, say the crypto bulls, just before it resumes its ascent to $100,000.

With Novo the commentary is rather different. The stock “was ahead of itself” in October and a correction was “inevitable”. And, of course, the Novo bulls point out that $3.50 is a great entry point for the ride of the century.

Here’s where epistemology comes in.

It is pretty much impossible to come up with a piece of evidence, a fact or set of facts, which support any theory of Bitcoin price, high or low. As there is no underlying asset or revenue stream, no Bitcoin has any value other than what, at any given instant, someone is willing to pay for it. Bitcoin bulls will maintain – with no evidence either way – that there is an unlimited demand for Bitcoins. What that demand is predicated upon is unknown and, in principle, unknowable. Just before the correction, there was much speculation that the office ladies of Japan were dumping their savings in. Or that the ever feckless Millenials were maxing out their credit cards and taking out second mortgages on their condos to speculate in Bitcoin. Both statements may very well be true, but there is no way to determine if that is the case. What supports or suppresses demand for Bitcoin is unquantifiable and likely unknowable.

Developing a theory of Novo’s price is a much less imaginary enterprise. While demand for Novo shares waxes and wanes, there are underlying factors which drive that demand. Critically, there is a news stream about something other than the share price itself. There are actual people whose names – Quinton Henneigh, Eric Sprott – we can attach to the company. In time there will be a geological model of the gold bearing conglomerates in Western Australia’s Pilbara District. There will be information, if not actual assays, going to how much gold is found in a ton of conglomerate and how many tons of the stuff there are. Most basically, whether it is a huge pit mining operation or two men and a mule, there will be an attempt to mine the Pilbara gold and that attempt will be economic or uneconomic based on well understood and entirely measurable metrics.

At this point, the price of Novo shares is very uncertain because the process of reducing the uncertainties surrounding the Pilbara gold fields is just beginning. There are simply too many variables which have to be accepted as “not yet known”. However, there is no variable – from grade, to extent, to all in cash costs – which cannot, in principle, be determined. As those variables are estimated and then quantified and then reduced to hard, verified numbers, it will become far more possible to build a case for a particular share price. As that process progresses, the volatility of the Novo share price will decrease.

Between now and then, Novo’s share price is likely to swing a lot. Each news release, good or bad, will trigger investors and speculators to buy or sell. But, at the end of the day, we will know what a realistic price for Novo Resources actually is. That day may be a decade from now, but it is inevitable that we will know that price.

We will never know what a realistic price for Bitcoin is any more than we can know which number will come up on an honest roulette table. There are simply no, quantifiable, determinants for that price. Quants and technical chartists can have tons of fun with probabilistic models and incantations of “the trend is your friend” and pattern recognition, “look, I see the head, shoulders and left arm formation”. Techno utopians will have their fun explaining how Bitcoin will allow an end of government. But there will never be a hard truth, a ground truth, for the price of Bitcoin.

In mining exploration, a diamond drill, or its equivalent, is pretty much the ultimate truth machine. Either there is economically feasible gold (or other mineral) on a property or there isn’t. This is a fact, not a speculation, and while it may take some time to come to the fact of the matter, Novo, like every other gold explorer, will arrive at a final conclusion about Pilbara. That conclusion will largely determine the price at which Novo trades and will provide a floor price for any takeover attempt.

There is no truth machine for Bitcoin. Arriving at its “correct” price is the investment analog to debating the number of angels who could dance on the head of a pin.

And with that,, signs off for a few days of Holiday fun and we wish all our readers a very Merry Christmas and a brilliant New Year.


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