I compared nominal growth in US debt and the S&P 500 index level. From June 1971 to September 2024, US debt grew at approximately 8.84% CAGR, while the S&P 500 price index (excluding dividends) grew at about 7.97% CAGR. This close alignment highlights how much of the apparent wealth creation in equities - and the rising asset values experienced by many households - has been influenced by persistent fiscal deficits, debt accumulation, monetary expansion, and the dollar’s reserve currency status, which enables the US to export inflation and sustain liquidity growth.

When including reinvested dividends (a more complete measure of investor returns), nominal total returns averaged around 10–11% CAGR over the period. Yet even this higher figure remains closely tied to the broader environment of currency debasement and liquidity expansion. Without the scale of debt and money growth we’ve seen since 1971, nominal stock gains would likely have been significantly lower, underscoring that much of the headline ‘wealth’ in markets reflects monetary dynamics more than isolated productivity gains.”

Wealth creation often hinges on timing: identifying promising opportunities before they are widely recognised, capitalising on them early, and exiting before market saturation. This principle underlies the strategies of, for example, venture capitalists and other speculative investors. However, when a significant portion of value creation is driven by monetary expansion (the “money printer”), as charted above, wealth creation risks devolving into wealth transfer - one individual’s gain comes at the expense of another’s loss.

Wealth transfers are evident with industrial disruptions, for example with the advent of internet businesses, financial technologies, aviation, and other radical innovations, where venture capitalists leverage concentrated risky bets to reap outsized returns. These bets often rely on increased consumption fuelled by monetary policy or the displacement of legacy businesses. In this context, wealth creation through wealth transfer becomes feasible when investors can outpace inflationary pressures and exit at the right time.

To foster a more sustainable model of wealth creation, it is essential to differentiate between genuine value addition and speculative redistribution, ensuring that economic growth benefits a broader base of stakeholders.

We are currently witnessing two massive speculative redistributions or wealth transfers - in gold and bitcoin.

Gold has never been as expensive before. The classic gold-to-oil ratio hit 39 in 2024. It indicates the number of barrels of crude oil required to buy an ounce of gold. This ratio has historically ranged between 6 and 40, exception being the Covid months, when oil was very cheap.

Unlike during the Covid months, now, the oil itself is very expensive, trending way above long term average.

The need for larger amounts of relatively expensive oil to buy an ounce of gold indicates the frenzy with which the world is buying gold, leading to a massive wealth transfer from existing fiat currency denominated assets (cash, stocks, bonds, etc.) to gold.

Bitcoin has also never been as expensive as before. Bitcoin was valued at $95,911 at the time of writing this post, and was valued at $108,319 at its highest.

The current Bitcoin to Gold ratio indicates how expensive Bitcoin is. It takes c.40 ounces of gold to buy a Bitcoin. Bitcoin became expensive than gold somewhere in 2017.

This suggests that the volume of fiat wealth transfer, currently, to Bitcoin might be outcompeting that to gold.

World is divided in their approaches away from fiat. In that the BRICS countries are focused on gold, while the west is focused on Bitcoin.

The top 20 owner entities of Bitcoin are dominated by the global west (North America, Europe (except Russia and Ukraine), Japan, Australia and New Zealand). Some of these entities own Bitcoins on behalf of the clients. However, it is highly unlikely that a significant number of these clients are outside of the global west, owing to major tax regulations, for example, in countries such as India, where Bitcoin is treated as a capital asset, and taxed to the tune of 30% on gains.

Apart from China, no other BRICS government figures in the top 20. In July 2024, Russia legalised use of cryptocurrencies for cross-border payments. It also enabled cryptocurrency mining. Several BRICS citizens could be owners of cryptocurrencies, but not at the magnitude that can influence their countries’ economic participation as a whole.

Cryptocurrency adoption is spreading. All continents showed significant appreciation in cryptocurrency adoption.

Although, more people are now owning cryptocurrencies, especially in high numbers in the BRICS zones of Asia and South America, the depth is missing, as indicated in the top 20 Bitcoin owner entities. Primarily due to legal restrictions in these geographies.

The depth of asset ownership has an interesting contrast in gold.

Top countries that bought gold (for central reserves) in last 10 years (ended June 2024) are dominated by the ones from the BRICS+ block.

Not only did Russia buy the most gold in last 10 years, but it also did so well in advance. Whereas countries such as India, UAE, Turkey, etc. paced up their gold buying in last 3 years, and China continued it at a steady pace. Poland has been a surprise large buyer of gold, and the only prominent one from the global west. It’s pertinent to note that Turkey has also been a large buyer, while being a NATO member, and having recently joined the BRICS+ block. The frenzy of gold buying in BRICS made UAE surpass UK to become the second largest gold trading hub.

One might wonder that the global west is already rich and flush with gold. Hence, they might not find a need to participate in this gold frenzy and can focus on Bitcoin. This might be partially true. Amongst the top 10 countries by officially declared central gold reserves, most countries are from the global west.

The above chart would have looked very different 10 years ago. Now it has 30% of the countries represented from the BRICS, making it look somewhat more equitable.

As per the World Gold Council, a total of 212,583 tonnes of gold has been mined and produced throughout the history. Around 59,000 tonnes is underground (not produced). The declared and undeclared gold reserves with central banks are 36,699 tonnes, amounting only to 17% of total gold.

The remaining 83% is in the form of jewellery, coins and bars, and other formats. It’s a huge number. Although, the record of ownership by country is not available for this 83%, there could be ways to ascertain it.

In March 2024, Jefferies published a report on Indian household asset ownership, stating that 15.2% of the total of $12.8 trillion assets are in gold. This was followed by cash deposits in banks at 13.3% and liquid at 3%.

As per the above chart, Indian households held $1.95 trillion worth of gold, which at February-March 2024 prices amounts to a total of 27,393 tonnes. This is 3.4x the total gold held in the US central reserve, 75% of total central bank reserves, and 13% of the total gold ever produced. It is also slightly more than the total market capitalisation of Bitcoin ($1.87 trillion as of writing this post). A report in Fortune based on World Gold Council figures validates this number. Putting these numbers into global perspective, the gold distribution looks much more equitable between the global west and the BRICS+ block.

It is therefore not surprising that the Indian central bank has been rather laggard compared to the Russian and Chinese banks in piling up its gold reserves as charted above. I wouldn’t be surprised if such huge amounts of gold is found in Chinese households as well. From the above Indian household asset ownership structure, it is clear that the Indian households are risk averse (with very low participation in equities). They trust savings, in cash and gold. Gold is culturally important in Indian and Chinese households. Indians consider it auspicious to buy gold on major festivals such as Diwali and Akshaya Tritiya. I don’t see a high magnitude cultural shift from gold to Bitcoin in India or China anytime soon. Perhaps this cultural aspect could be a reason why the global west could shift its focus to Bitcoin from gold, having amassed a significant chunk of gold during the early and mid-twentieth century.

The loss of trust in fiat currencies may be due to following 3 reasons:

First, legal restrictions on certain countries such as Russia and Iran, made cross-border payments in fiat currencies difficult, making trade impossible. These actions also prompted other countries that are closely associated with the legally restricted countries to diversify their holdings in fiat currencies, thereby leading to higher purchases of assets such as gold and Bitcoin.

Second, economic turmoil in certain smaller nations, specifically due to Covid, which led to restrictions in travel and trade, resulting in complete evaporation of fiat currency denominated foreign exchange reserves. These nations faced higher inflation and rapid devaluation of local currencies, prompting their citizens and businesses to find alternative means to trade and store wealth - gold and Bitcoin.

Third, rapid money printing has devalued wealth stored in fiat currencies such as the US dollar, Indian Rupees, Japanese Yen, Chinese Yuan, etc. The US federal government has been running budget deficits since a long time. These deficits have only gotten worse in recent times. Every time there is a budget deficit, the US Fed bails the government out by infusing cash, also called quantitative easing, colloquially referred to as money printing or money creation. This isn’t always printed cash, but in the form of electronic entries in the banking system.

US Federal budget deficits zoomed post the 1971 removal of gold standard. Except for the years in 1998 to 2001, the budgets have been in deficit. In recent years, these deficits have increased significantly. While the government tries its best to help citizens during the times of national and global crisis, adding more dollars to the economy reduces the purchasing power of the dollar.

The above chart shows the degree to which the purchasing power of the dollar has reduced vis-a-vis the gold and Bitcoin, which have strengthened. I am afraid of including other fiat currencies such as the Indian Rupee in the chart above!

Therefore, it is not a surprise that private institutions, individuals and governments themselves are diversifying their assets from fiat currency denominated instruments (cash, stocks, bonds, etc.) to Bitcoin and gold.

While the BRICS+ block appears to have a clarity on their diversification strategy to gold, the global west appears confused. At one point in time the upcoming US president Donald Trump threatened the BRICS countries with tariffs for moving away from the US dollar and trying to establish a BRICS currency, something that the BRICS block has suggested several times over that they aren’t looking up to. At another point, he suggested to diversify and create a Bitcoin reserve in the US itself and attempt to payback the US national debt in Bitcoins. Wonder whether payments in Bitcoins would be acceptable to countries like Japan, China and United Kingdom, who are the highest foreign debt holders at $1.1 trillion, $760 billion and $740 billion, respectively. Several of the top US debt holders have been diversifying, especially China.

Bitcoin appears to be, at the best, a means to an end. In that, instead of becoming a unit of trade and wealth measurement for long-term use, it could serve as a transitional asset that could facilitate wealth redistribution and economic restructuring. Major countries like Japan and US, for example, have a debt crisis. The US national debt has neared 130% of the country’s GDP. Addressing the national debt typically requires generating budget surpluses through increased revenue and decreased spending. The latter part is being worked upon by the newly formed Department of Government Efficiency (DOGE), which aims to reduce the annual federal spend by up to $2 trillion. However, it is not going to be easy and certainly not enough, given that the annual interest payment on national debt has already crossed $1 trillion, which will eat away most of the savings through DOGE. One hypothesis could be that Bitcoin could be leveraged to engineer US debt. For example, if there is a reasonable wealth transfer from fiat to Bitcoins, demand for fiat currencies such as the US dollar would decline, thereby making the debt repayment cheaper and feasible. Later, there could be another wealth transfer that could be encouraged from Bitcoin to a central bank digital currency (CBDC) such as a digital dollar backed by a stablecoin. This could be achieved through attractive exchange rates and tax regulations. There are some experts who believe to have found a way in this direction. The lower value of digital dollar could make American exports attractive and can contribute to increase in revenue thereby making the national debt repayment easier as well. CBDC is a developing concept. For example, Indian government has already started an experiment with a stablecoin backed CBDC called digital rupee or e-rupee. Through the CBDC, the governments can control what this money can be spent on unlike vanilla electronic money.

Although CBDC as a concept is sound and could be the future, the way to achieve it, especially by first shifting to Bitcoin or any other cryptocurrency at a critical scale appears hard. Bitcoin is at a market capitalisation of $1.87 trillion. Gold is at a market capitalisation of $17.7 trillion. BlackRock recently suggested to allocate up to 2% of assets to Bitcoin. Assuming total wealth in the world at around $400 trillion, and everyone allocates 2% to Bitcoin, its market cap would reach $8 trillion, less than half of gold. Bitcoin won’t be equitable across the world and it won’t serve the purpose of larger trade.

Moreover, venture capitalist Chamath Palihapitiya, has suggested in the last edition of the All-in podcast, that quantum computing (with advances such as the Willow by Google) could be a 2 to 5 year window away from possibly being able to hack Bitcoin’s encryption. Irrespective of the plausibility of this suggestion, there have been concerns on security of the Bitcoin architecture and its vulnerability to advances in quantum computing. In essence, Bitcoin is more hackable than gold.

I have my bet on gold. Gold has a more equitable distribution across the world. It is more accessible, and has zero risk of being hacked. It has been the unit of global trade for centuries. The BRICS+ countries have declared creation of the BRICS Clear system. The BRICS countries are already exchanging goods and settling for the same in local currencies bilaterally. The conversion of local currencies has been an issue. This will be solved with the advent of the BRICS Clear system, which will have a unit of trade that is yet to be determined. Once determined, it will ease cross-border payment settlement multilaterally. There were false rumours of a BRICS currency followed by conjecture of a basket of fiat currencies from BRICS countries as a unit of trade. There was also a conjecture of a basket of fiat currencies and gold, in a 3:2 ratio, as a unit of trade settlement. However, I think the BRICS countries would never be able to trust each others’ fiat, given the historical and political differences. The unit of trade settlement will have to be gold. The countries seem to be preparing for that. The global west is already prepared for that with thousands of tonnes of gold in their central reserves. Those like Poland, who weren’t, are prepared for it now. Gold is a true unit. It isn’t limitless and cannot be minted at will (or lab grown maybe). It is next to impossible to be hacked (needs physical sabotage). It is accessible- anyone with purchasing power can buy, no need to have digital presence. It is most equitably distributed in the world with no one country having a veto on it. Several countries have started disclosing their gold mine discoveries. Several more will be uncovered soon.

We are just years or maybe months away from a new unit for measurement of trade settlement and wealth - gold (the old!).

In my next analysis, I will evaluate the impact of geoeconomics on the healthcare industry.

While economics is an area of interest for me, my skills are analytics, corporate finance and strategy. I have been a tech entrepreneur turned venture capital investment professional. I help investors find game-changing investment opportunities, startups with their capital raise, business model optimisation and GTM, and established companies with M&A. My sphere of experience is MedTech, FMCG and tech/SaaS industries.

You could schedule a short conversation with me here or write to me.

The concept itself isn’t new and doesn't sound counter-intuitive either. A McKinsey pharmacy consumer survey of 2021 pointed out that two main pharmacy selection criteria for patients were insurance payment availability and proximity to home or office. Home delivery of healthcare, paid or out-of-pocket, should be on everyone's radar. One-stop-shop, better! And Lilly is doing exactly that!

What excites me about this move is the potential benefits for Lilly and patients:

🗒️ Data and customer centricity – Patient data acquisition hasn’t been easy for drug makers. LillyDirect could provide access to information on sales, and longitudinal data on patient's therapeutic journey, the two important factors that could enable efficiency in marketing efforts and bring precision in therapies making the products patient-centric.

⛓️ Control – Vertical integration enables better control over the supply chain, hence improved access to medication for the patient and very efficient planning of manufacturing and inventory for the company, a win-win.

💲 Value consolidation – Cutting out middlemen could expand margins, potentially leading to cost savings for patients. The extent of this is to be seen as third-party services would still need their fair share.

⚖️ Neutrality – Third-party doctors on fixed payment (incentivized against over-prescription) would enable Lilly overcome charges of profit prioritization over patient needs.

🔌 Platform effect – As LillyDirect scales, it will create a platform effect in the industry, bring standardization in healthcare delivery, and enable other products and innovative therapies of the company to plug’n’play.

🌏 Global potential – If successful in the US, LillyDirect's model could expand to Europe and digitally advanced parts of Asia.

Such initiatives are not going to come without their own risks and challenges:

🔥 High cost implications – It costs more to deliver at home! Worldwide, last mile delivery costs have made online business unviable, irrespective of the industry. Large basket size, order volume density or high value products make last mile viable. Will Lilly play on price? Will payers accept? or Will it shift burden on OOPE?

🏭 Operational challenges – Reliance on third party services could lead to challenges to maintain the standard of service as it scales. Provisioning of products till homes of patients, in affordable and timely manner, and at a scale, bears significant operational challenge. Companies like Amazon and Apple have mastered this kind of operation through years of experience. Execution in a sensitive industry like healthcare will be prone to a high level of scrutiny.

🟰 Distributor relationships – Managing relationships with traditional distribution channels is not going to be easy. Establishment of the direct-to-patient channel could cannibalize the traditional channel. The traditional distribution market is consolidated with 3 companies controlling >50% of market share. The traditional distributors might subtly block out Lilly and provide easier access to GLP-1 competition.

It's a bold move! It sounds fascinating! It makes healthcare sound simple!

Could this be the beginning of a regime wherein life science companies position themselves as end-to-end care providers for certain therapeutic areas, consolidating complete wallet share for a disease condition across screening, diagnosis, therapy and follow-up? Will regulators allow such a regime? Too early to say.

I truly believe if Lilly plays it right, it will become that patient-centric Apple of the healthcare world, albeit, hopefully, without the hefty price tag!

This article was published by Pradyumna Murhar on Linkedin in Jan, 2024.

About the author:

Pradyumna runs independent management consulting office, with a focus on capital raise strategy, capital structuring, GTM, pricing and international expansion. His field of experience spans Healthcare, MedTech, FMCG, enterprise software and deep tech.

Pradyumna is available for a virtual meeting on Bookings and can be contacted directly on pradyumna@murhar.co

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