Bitcoin is suddenly everywhere in the news.
While not widely understood by the general public, this pioneering crypto-currency has just seen an exponential leap in value, resulting in all the news headlines.
The lure of seemingly easy money, even if that money is denominated in an experimental currency, is a powerful one. But Stephen Roach, Yale economist (and former Morgan Stanley chief economist), has a stern warning for investors who might consider chasing these returns.
“This is a dangerous speculative bubble by any shadow or stretch of the imagination,” he said on CNBC’s “The Rundown” this week. “I’ve never seen a chart of a security where the price really has a vertical pattern to it. And bitcoin is the most vertical of any pattern I’ve ever seen in my career.”
Cryptocurrencies like bitcoin are new speculative digital currencies backed not by any bank or central government. They are made as secure as possible by the power of their encryption schemes alone.
That security limits the amount of currency in circulation, confirms who owns it and allows for transfer between parties, for example. These new “altcurrencies” can, in some cases, be used in a limited way for trading goods and services.
We have been monitoring bitcoin for some time now and will continue to do so. But if Stephen Roach is right and it is in a bubble, a lot of investors could get hurt if there is a hack or sudden change in sentiment or legal status for the currency.
You can make your own decisions, but be sure to talk first to your investment advisor if you are curious about bitcoin.
Regardless of where you stand on the future of bitcoin, now is the perfect time to review the advantages gold has over bitcoin in some everyday yet vital ways.
CONSIDER THESE 5 POINTS:
First, the basics… To start, gold is a lustrously beautiful yellow precious metal used for 5,000 years as a long-term store of value and unit of commerce. Egyptian kings wore it on their crowns and we still carry it every day in our cell phones. As a safe haven asset and as a coveted decorative item, gold has literally never gone out of fashion.
Bitcoin has been around… how long? Only eight years!
During the last financial crisis, buying and selling gold was effortless as usual. Bitcoin has not been tested by any black swan event.
You can convert gold to cash and back again practically anywhere in the world. You can exchange gold for any local currency. And the global market for gold is massive, owned by average American Gold IRA holders as well as powerful central banks alike.
Bitcoins have little liquidity and who knows what the future will bring? In the meantime, try using them at your grocery store! Now, I wouldn’t suggest using a $20 gold piece at the grocery store, but in a pinch, I’d bet that gold coin would be recognized as valuable and accepted.
3. Physical Asset Safety
Gold is arguably physically safer than Bitcoins. The heavy and easily-identifiable nature of gold makes stealing/transporting a lot of it difficult. You store it in your safe or a depository for your Gold IRA and there it sits, as a physical asset.
Gold is not vulnerable to electronic hacking or theft. You don’t need Internet access to buy or sell your gold coins.
On the other hand, a recent client poll we did found that most of our retirement investors believe that it is simply impossible to keep hackers at bay forever. It is not hard to think that hackers could eventually overcome any bitcoin encryption. What is to stop them if they are already hacking into military-grade computers!
A gold coin in your hand will always be a gold coin in your hand. A bitcoin in your computer might not always be there.
4. Utility to Humankind
Gold is a superb electric conductor, which is why every cell phone has a small amount inside that is carefully extracted later through advanced recycling. Of course it can be used as jewelry as well, as a uniquely malleable and polishable substance that the human eye cannot resist. Gold is also thought to provide some protection from radiation.
On the other hand, bitcoins have no physical utility to humans; they are a pure instrument of finance and digital store of value. Roach agrees, saying there is a “lack of intrinsic underlying economic value to the concept.” Even fiat currencies like the dollar, which are rarely expected to last more than a century or two, are backed by governments with considerable power to pay their debts by taxing citizens.
5. Unproven Idea versus Established Market
Bitcoins are basically unregulated.
It could also face possible regulatory challenges that could limit or change the nature of cryptocurrencies in ways no one could expect.
Gold, in comparison, is traded as it has for centuries on a solid global network of exchanges with central banks and large financial institutions playing a major role.
GOLDMAN SACHS: GOLD REMAINS A RELEVANT ASSET CLASS
Goldman Sachs analysts Jeffrey Currey and Michael Hinds say that gold wins over bitcoins when assessed on the majority of the key characteristics of “real” money. In their view, bullion remains a relevant asset class in modern portfolios because of its durability and intrinsic value. They also note that when uncertainty rises, gold tends to rise over the short- and medium-term.
Goldman sees growth of gold demand in emerging markets such as China supporting prices over the long haul.
IGNORE THE BITCOIN HEADLINES, FOCUS ON TIME-TESTED ASSETS
Bitcoin has snagged the headlines this year more than gold. It is natural to be curious. You may or may not believe Stephen Roach when he says that the hip cryptocurrency is in a “dangerous speculative bubble.”
Either way, these are troubled times: times when astute investors consider ways to make sure they protect what they have earned. The CBOE Volatility Index (VIX), widely thought to be the best gauge of fear in the market, has risen to its highest level since August 2017.
Exploring diversification with real physical safe haven assets should clearly be on every holiday “honey do” list.
The bitcoin debate has not changed bullion’s inherent advantages over crypto currencies as a physical store of value with a proven history as a diversification tool and safe-haven asset.
Ray Dalio, manager of the $160 billion dollar hedge fund Bridgewater, advocates that investors should maintain a portion of their assets in gold as a hedge. Commodities expert Dennis Gartman thinks gold could go up to $1,400 an ounce in 2018, because the stock market is trading at nosebleed levels and the political dysfunction in Washington shows no signs of ending.
Market risks are growing as greed wins out over simple common sense. What happens to your future if the tax bill is delayed, the stock market cracks, another Great Recession takes place or if war with North Korea breaks out?
If you believe that these have at least a 25%+ chance of happening, then you owe it to yourself to take action.