[Desk Column] The Hunt Brothers and Bitcoin

Kim Hyun-seok, Head of Global Markets

During the gold surge, silver has also quickly jumped past $50 per ounce. This is the first time silver has broken $50 since 1980. Despite massive monetary inflation, silver remained below $50 for the past 45 years because of the Hunt brothers' silver speculation incident.

Nelson Hunt and Herbert Hunt, brothers who amassed wealth from Texas oilfield development in the 1970s, began buying silver. They attempted to accumulate holdings beyond simple investment. They purchased physical silver bars and coins and stored them in warehouses. They even chartered a Boeing jet to transport silver to Swiss vaults. In the relatively small silver futures market, they signed large contracts and took up a significant portion of supply. Because silver mostly emerges as a byproduct of copper, lead, and zinc mining, even if prices rise, production cannot easily increase quickly.

Limited silver, accumulation and surge

The Hunt brothers exploited these structural constraints. They began accumulating silver because they expected the dollar to fall and tangible assets to rise amid 1970s inflation. Their strategy succeeded for a considerable period. Silver, which was in the $1-per-ounce range in the early 1970s, rose to around $5 by early 1979 and surged to $49 by early 1980. The Hunt brothers bought silver using massive leverage (borrowings). They repeatedly borrowed money using silver as collateral to buy more. By the end of 1979, the Hunt brothers were estimated to hold more than one-third of the world's silver (100 million ounces). And in that year alone they realized valuation gains of $2 billion to $4 billion.

March 27, 1980, is known as 'Silver Thursday.' The U.S. central bank (Fed) and the Commodity Futures Trading Commission (CFTC) intervened over concerns about market distortion.

The Fed reduced credit supply related to silver, exchanges raised margin requirements, and regulations restricting physical delivery were also implemented. Silver prices plunged and the Hunt brothers could not repay loans borrowed using silver as collateral. When the brothers, hit with margin calls, failed to meet them, silver prices fell to the low $10s. They filed for bankruptcy in the mid-1980s. Silver then remained around $5 from the mid-1980s until 2003, for more than 20 years.

The cycle of greed and fear repeats

The background to the recent surge in gold and silver resembles the 1970s. Inflation concerns and distrust of the dollar have increased the value of precious metals. Speculation is rampant, including concentrated leverage. The same is true of cryptocurrencies that have surged in this way. As the Donald Trump administration relaxed regulations, cryptocurrencies rose severalfold over several years. Bitcoin was below $10,000 in 2020 but now easily exceeds $100,000. The argument that 'supply is limited,' as with silver, also supports Bitcoin's rise. However, some on Wall Street point out that considering the entire cryptocurrency ecosystem, where new tokens such as Ethereum, Ripple, and Solana continue to be issued, it is difficult to view it as limited. Invoking the Hunt brothers after 45 years recalls the market truth that when speculation surges, asset prices can rise endlessly, but when leverage breaks, they can collapse quickly. Whether the asset is gold, silver, Bitcoin, or artificial intelligence (AI), the cycle of greed and fear repeats in the same way.