Forget Bitcoin…Buy Commodities Instead

Everyone’s talking about cryptocurrencies. They are creating about US$121 billion of noise.

Bitcoin is worth a staggering US$23 billion.

But consider that the total value of stocks on the New York Stock Exchange and NASDAQ is US$27 billion. The US money supply is worth US$13 trillion. And consider that US national debt is at roughly $20 trillion.

It’s not surprising punters say bitcoin’s in a bubble. I understand their argument. The idea is to ‘get off the grid’, as they say. Punters want to hold money outside the regulated monetary system. Bitcoin and other cryptocurrencies provide that option. But, as we’ve seen, they are extremely volatile.

Is that something you want for your portfolio?

Not my cup of tea

Bitcoin crashed by 40% in three days last week. Market Oracle elaborated on Monday:

Even for bitcoin last week was an eventful week. The price hit a recent low of $2,980, falling 40% and recovering by nearly 25% in the space of three days.

Last week was a good example of the vulnerabilities in the cryptocurrency space to government announcements regarding the infrastructure the ecosystem.

This last year has seen unprecedented progress and development in the bitcoin and crypto arena. From the price reaching new highs to an explosion in Initial Coin Offerings.

The fall in price by over $1,000 should serve as a reminder that markets will stumble when they try to run before they can walk. As much as early adopters like to declare bitcoin the new currency and declare is true safe haven, the last week has shown that gold is a far better long-term safe haven.

As you probably know, bitcoin and other cryptos fell thanks to actions by the Chinese government. It first banned initial coin offers, or ICOs. And then it moved to close bitcoin exchanges.

The country is moving towards a ‘…broad clampdown on bitcoin trading, testing the resilience of the virtual currency as well as the idea its decentralized nature protects it from government interference’, according to the Wall Street Journal yesterday. The paper said these measures are among the most draconian any government has taken to control bitcoin.

OK, you might argue that this isn’t a big deal. Bitcoin’s bounced back to nearly US$4,000. Take a look for yourself:

Bitcoin USD Price 20-9-17

Source: CoinDesk
[Click to enlarge]

If you are happy holding your money in a ‘currency’ that moves 40% in three days, go ahead.

In truth, bitcoin and the other cryptos might survive as alternative currencies. But, at the moment, they are caught in a speculative bubble. And, as we have seen over the last few days, it doesn’t take much for the price to go ‘pop’.

Governments don’t like cryptocurrencies. At any time, they could close down the exchanges and make them illegal to trade. The saying ‘cash is for criminals’ can be applied to cryptocurrencies. That might not happen in the short term. But, during the next financial crisis, when currencies are in freefall, politicians could change their minds overnight.

Governments want control. They want to regulate everything. Cryptos aren’t special. In fact, as soon as you move your money from bitcoin into the mainstream financial system, authorities know. And will ask: How did you get that money? If you can’t prove how you attained that money, guess what? There’s a chance it will confiscate the coins for itself.

I believe it’s best to stick with private assets that have stood the test of time: precious metals and commodities. They are less volatile than cryptocurrencies. And still provide a way to go off-grid.

Stick to commodities

Of course, you don’t need to actually buy physical metals. That’s unrealistic for a lot of investors. The best option, in my view, is to buy resource shares. And as long as you hold your CHESS statements — which records shareholdings and manages the settlement of share transactions — if the system crashes, you’re still entitled to your shares. You just move them to another broker.

Historically, commodities have outperformed during all wars. With tensions rising in North Korea and the Middle East, resource stocks are a no-brainer for now in my view.

The hedge funds agree.

S&P Global Market Intelligence data shows hedge fund investments in metals and mining stocks reached US$18.52 billion on 5 September. That compares with a peak of US$28.98 billion in 2010 and a low of US$10.16 billion in 2015.

Copper and nickel have been the two hottest sectors lately. I’ve covered both at length in the past few months, and have found a way to potentially profit amid increasing global uncertainty. For more details, go here.


Jason Stevenson,
Editor, Resource Speculator

Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:

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