vor 2 Monaten
Summary I now view crypto, especially Bitcoin, as a reasonable portfolio allocation given institutional buy-in and current price levels. Current crypto prices offer an attractive entry point, with the potential for Bitcoin to reach new all-time highs by late summer. Gold and silver have outperformed due to a weakening dollar, inflation fears, and ballooning U.S. debt, supporting their store-of-value status. Prudent position sizing and selectivity are essential in crypto, given its volatility and potential for sharp drawdowns. If I Had To Own Crypto In the world of "ifs", if I had a client tell me he/she wanted to allocate some X% of their portfolio to crypto, I wouldn't say no. I would say, "Yes, sir or madam, I will go along with your wishes." But, there's a little more going on here. I truly don't mind that the client wants to invest in an asset that I was formerly dead set against. Now I'm not. In fact, I have been a small buyer of crypto on weakness for the past few weeks. Why am I suddenly a buyer when I've been a seller from the start? Because sentiment has changed. There has been some serious buy-in from corporate America, for example. Firms like Microsoft, Goldman Sachs, and Coinbase are all supporting and enabling crypto as a payment option in their businesses. Another sign of acceptance, support, and enabling of crypto can be found in the ETF universe. As of this writing, there are no fewer than 150 active ETFs whose entire existence depends on the sustainability of the crypto market. Lastly, we have the Trump administration. From the president, to his 2 eldest sons, and to megatrend followers throughout the world, the message is clear: crypto is real, it's legit, and it's going to keep gaining in price over time. All of these tailwinds, plus my aversion to fighting the tape, have incentivized me to reevaluate my stance on crypto. Here's how I would state my position: If I had to own crypto, and I think it's only prudent to have some exposure to the asset class, current prices are a good entry point. The crypto craze has been going on for longer than the AI craze, and I don't see it fading away anytime soon. When these coins, or tokens, have their market prices cut in half. as they sometimes do, it looks to me like the big money (and retail money) is champing at the bit to buy the dip - no matter how far down the price has fallen. I would not be surprised to see Bitcoin move back up and make a new all-time-high by the end of summer. Maybe even sooner than that. Yahoo Finance Bitcoin (and a few other cryptos) is a buy here It's been a roller-coaster year for aficionados, but the round trip is now looking like it's completed, and prices could be headed back up again. I would much rather buy these assets when they're having a half-off sale than at any other time. It seems to happen at irregular intervals, but it does tend to repeat eventually. Gold and Silver Traditional precious metals like gold and silver may do a better job of providing a "store of value" and a "safe haven" when geopolitical events begin to heat up than the volatile cryptos. You can buy stablecoins, but who knows how good the implied warranty is on them? It's good to know that the asset you own is either the metal itself, or some kind of receipt for a specified weight of it. Gold and silver have had a generational run of good fortune over the last couple of years. Silver even more than gold. Stock Rover This 2-year chart of gold and silver shows the dramatic run-up in the price of both metals, but especially for silver. Crypto, on the other hand, has been effectively flat in price for the past 2 years. If we look at Bitcoin as the representative for the entire crypto space, we see that it trades today at ~71,000 per coin. The price two years ago was ~70,000 per coin. So, I'm not suggesting that you use crypto as an inflation hedge. I'm suggesting that an investor who wants to improve the diversification of their portfolio should at least consider investing a small amount - say, 2% or so - in either the coin itself or an ETF that tracks the price movement of the coin fairly closely. The iShares Bitcoin Trust (IBIT) is liquid, has a very small tracking error, and is cheap to own. Silver cracked $110 just a few weeks ago, and gold is close to its ATH. Why this outsized run-up in price? A cheap dollar is one factor. The dollar doesn't seem to be finding a bottom yet, so precious metals can continue to go up. Gold and silver have shown that they are an effective hedge against inflation, at least over the last couple of years. You can't say that for crypto. What you can say is that crypto could act as a "currency of last resort" if the U.S. dollar continues its slide. What would cause a crisis in the U.S. dollar? I think the #1 issue is the huge mountain of debt the U.S. is carrying, with more being piled on every time you turn around. Our debt is now more than 120% of GDP, which represents all of the goods and services that we produce, consume, and sell abroad. Massive Debt Growing Fast And let's not forget that our national debt isn't just large; it's also growing at a fast clip. We have had one single year out of the last 30 where we balanced the budget. But it didn't last. macrotrends.com Supply and Demand It's no mystery why crypto, gold, silver, and other important metals like copper and lithium are riding high right now. Our global economy runs on the dual-principles of expansion and scarcity. Every year we need to produce more goods, and spend more on buying them. When this trend in ever-expanding demand slows down, we get recessions. Nobody likes recessions, which is why governments do everything in their power to keep their economies growing. But crypto is designed to have limited, or capped, growth. This creates a situation where you have supply scarcity combined with demand growth - the perfect recipe for higher prices. Cryptos have a built-in limit on how much supply can come to market. That's why I now say that it's o.k. to own some crypto. But you have to be careful about which ones you choose, and how much you pay for them. And keep the position size down to a reasonable level so you won't blow yourself up by holding too much when the next 50% drop comes. It's Not Different This Time Bitcoin is just now recovering from a 50% drawdown, and many investors are understandably worried about buying this dip. What if the price keeps going down? It could keep going down, and it's even possible that it could go all the way to zero. But I doubt that this would happen, given the large and growing infrastructure that supports crypto transactions. I argue that this time is not different. Did you know that, according to The Motley Fool, Bitcoin has had 7 declines of 50% or more since its inception? Each time, it found a bottom, traded sideways for a while, then took off again to reach a new all-time-high. I'm looking to cash in on the Bitcoin Crash and Recovery #8. The Cryptos That I Like My preferred cryptos right now include Bitcoin, Litecoin, and Binance because they all have capped supply at an absolute maximum number of coins or tokens on the market. Then there are the coins that periodically "burn" some predetermined amount of coins and take them out of circulation. These coins include Ethereum, Shiba Inu, and Terra Classic. This supply control is the one feature that pushed me over the edge regarding crypto. Without rigorous supply control, crypto would just be another commodity with an unknown supply. That is very hard to value, but a crypto with a controlled supply is much easier. Cryptocurrency is not money Real money must have three features or characteristics. 1. It must act as a store of value. The U.S. dollar does this part well. Crypto struggles with it because of the price volatility. 2. It must act as a medium of exchange. Crypto does this, but the success rate is spotty. There are still many places of business where crypto is not recognized as currency. 3. It must be the unit of account. That means major commodities like oil and gas are priced in U.S. dollars, not in Bitcoin or any other crypto. If crypto is not money, why am I buying it? I'm buying crypto, selectively and lightly, because I have come to believe that there is a large enough entrenched ecosystem to handle transactions and storage. The missing link - the unit of account - is not likely to change for the foreseeable future. For that reason, I consider myself a speculator in crypto, rather than an investor. I am a buyer today, but at a price of $100,000 for Bitcoin, I will turn into a happy seller. Rinse and repeat.