I suspect you’ve heard this: “Bitcoin is the new gold.”
It’s a saying — maybe even a lifestyle choice — that’s becoming more common these days. And bitcoin has certainly outperformed gold recently.
But when I started hearing this, I thought to myself, why don’t crypto folks just cut to the chase?
They should tell the world “bitcoin is the new U.S. dollar.” It’s a much larger market to disrupt.
In today’s Market Insights video, I discuss two assets you need to buy now to protect yourself against the weakening dollar.
Is Bitcoin Really the New Gold?
I suspect you’ve heard this: “Bitcoin is the new gold.”
It’s a saying — maybe even a lifestyle choice — that’s becoming more common these days.
And bitcoin has certainly outperformed gold recently.
If all press is good press, though, gold enthusiasts should be thanking the crypto folks for getting the word out. Barbarous relics need all the help they can get.
Also, to be clear, I’m not here to rain on anyone’s parade. If you’re a crypto fan … great. A gold bug … awesome. I like both of them.
But when I started hearing this, I thought to myself, why don’t crypto folks just cut to the chase? They should tell the world “bitcoin is the new U.S. dollar.” It’s a much larger market to disrupt.
And there are some inconsistencies with the saying, too…
Think about it. We’re seeing companies invest in bitcoin today.
But they’re not replacing their gold reserves with bitcoin. They’re exchanging their dollars for bitcoin.
That’s what bitcoin is for many companies and people alike. It’s a replacement for the dollar. Most crypto enthusiasts could care less about gold.
But crypto folks aren’t focusing their marketing against the dollar because they’re worried the government will come after them.
The government doesn’t like it when people do stuff like that. So, the tagline is “bitcoin is the new gold.”
It’s a strategy that’s less likely to generate as much pushback.
It’s smart.
But it’s misleading.
You see, it doesn’t have to be one or the other. I humbly suggest that would be dangerous.
The Fed is Reducing the Value of the Dollar…Intentionally?
After all, the government is doing everything it can to weaken the dollar these days:
The fed funds rate is zero.
We’ve already seen negative interest rates at banks in Europe and Japan.
The Federal Reserve says it doesn’t expect negative rates here, but few believe it.
The U.S. is doing everything it can to reduce the value of its currency.
So, it makes tremendous sense to reallocate some of your dollar exposure elsewhere.
If you want to put it all in bitcoin, just ask yourself…
Would you put your entire investment portfolio in one stock?
Would you only go to one restaurant your whole life?
Do you know any currency traders that only ever trade one currency?
Would you only use one machine at the gym? (“Oh great, Jim’s here. I guess we won’t be able to use the reverse leg curl machine for the next hour! I really wish the Y would buy another one of these.”)
I’m being funny, but I’m serious.
Financial advisers have been preaching diversification for a long time now.
I don’t know any who recommend you only buy bitcoin. Or even that you only buy cryptos.
And I get it. Some financial advisers are behind the times. They don’t know one-tenth as much about bitcoin as my colleague Ian King.
You really have to see what Ian’s doing, by the way.
His crypto letter is called Next Wave Crypto Fortunes:
He’s one of the smartest people in this space. I’m not joking.
He’s been following cryptos since before they were cool.
He closed one half of a trade a few weeks ago with a nearly 4,000% gain — 3,981%! In just three months!
It’s insane. His knowledge is insane. His contact list is extensive. He’s just a good person to rely on if you care about cryptos.
We can’t promise there are more of those kinds of gains to come. We don’t know. But come on. The crypto revolution is still in its infancy.
No doubt, crypto’s amazing. And I know you are uneasy about the financial situation.
We are in the midst of a crazy financial experiment. The Fed and central bankers around the world are printing so much that it seems they want to change the structure of the financial system.
Digital assets are part of life now. It’s a paradigm shift. We need to get used to it … and we are.
But please be careful if you are or if you aspire to be 100% invested in it. Having too much of one thing can be dangerous. Remember, bitcoin fell more than 80% after it peaked at the end of 2017.
Holding several assets that move opposite of the dollar can ensure you don’t get caught up in something like that again.
With regards to gold, it has had a rough go of it, but it is thoroughly hated right now. Crypto has played a part in that.
But gold is starting to look interesting here:
(Source: Bloomberg, internal calculations.)
It’s been moving opposite the 10-year Treasury yield.
Gold tends to rise when rates fall. And vice versa.
We’re starting to see a leveling off in the 10-year yield. It had risen steadily since August.
Since March 12 — almost a month — it has traded between 1.62% and 1.74%. And it’s currently in the lower half of that range.
It looks like it may be topping out.
If this downtrend continues, I recommend you create or add to your gold exposure as well.
Central banks are signaling this, too. Hungary just tripled its gold reserves.
Listen, central banks are recreating the financial system before our very eyes. It’s important to watch what they’re doing.
If you like gold here, gold stocks are the more turbocharged way to get exposure.
The Sprott Gold Miners ETF (NYSE: SGDM) or the Sprott Junior Gold Miners ETF (NYSE: SGDJ) are solid ways to play gold.
Both will benefit as gold moves higher. SGDJ offers a bit more upside, but will be more volatile, too.
Adding Bitcoin and Gold to Your Portfolio
In conclusion, I believe bitcoin and gold have a place in your portfolio.
They both protect you against the weakening U.S. dollar.
When I got the idea for today’s presentation, the impetus was really to talk to younger crypto investors.
But as I’ve talked about the topic with my colleagues, I realize many people wonder about this.
If bitcoin and cryptos are rising so fast, why shouldn’t I have everything in them?
I believe only owning just one is dangerous.
I hope you can use some of my thoughts to guide you on this.
And regardless of how you play this transition in the structure of the world’s financial system … good luck.
Good Investing,
Editor, Profit Line