Traditional financial markets and institutional portfolios are faced with new challenges in the light of progressively greater central banking interventions since the 2008 Global Financial Crises.
These interventions, especially in the US Dollar, begin to undermine the status of fiat currency as money; after all, money must be a store of value and a store of value must have limited supply. Between record low interest rates, negative yield fixed interest assets in Euro and their potential in US Dollars, inflated risk asset prices and the strength of Gold and Bitcoin relative to the US Dollar, we can see US Dollars lose status as a suitable store of value in favour of these (soon to be no longer) alternative assets.
In the context of today’s systematic risk it is worth comparing and contrasting forms of money to see what suits investors. Of assets with monetary value we identify Bitcoin and Gold – the main stores of value moving forward and the two most accessible monies for investors.
Although Gold had fallen from grace the last couple of decades, Gold is the more established traditional asset class with a track record in acceptance and use.
So in spite of a 2015 Bloomberg article labelling it ‘pet rock’, Gold is 41% higher today than it was at the start of 2019 and central banks have added around 4% to global reserves since 2016 while US Dollars have dropped 5% in central banking reserves 2016 through to 2019.
In 2020, Central Banks have found it necessary to bid back into USD amongst the mayhem of the year. But even with this bid, US Dollars have been weak and look set to continue a path lower.
Over the same period, Gold has been a top performing asset.
Gold’s disadvantages are its physical nature, it being hard to transport, hard to divide and although it has use in electronics it is limited in developing an intrinsic value.
Overall, Gold has been a strong asset in 2019 and so far in 2020. We expect it to continue appreciating due to the monetary and fiscal economic policy decisions forced onto nations and their central bankers.
Investors looking at purchasing Gold are invited to contact Mine Digital’s OTC Desk where we can arrange transactions for gold-backed digital tokens redeemable at Australia’s Perth Mint for the underlying physical gold asset.
Bitcoin by comparison is a new form of digital money, proposed as recently as 2008 and developed in 2009. Like Gold, Bitcoin depends on miners to source Bitcoin, who secure the network and constantly prove the asset to maintain its integrity.
Investors who are forward looking will be encouraged by the the label of legendary macro-investor Paul Tudor-Jones, who calls Bitcoin ‘the fastest horse in the race’ in a letter to investors named ‘The Great Monetary Inflation’. That letter discusses ‘an unprecedented expansion of every form of money unlike anything the developed world has ever seen’. He compares a wider range of assets, including Gold, shares, Bitcoin and Tips amongst others to conclude on Bitcoin being amongst the most interesting. His letter to investors may be found here.
Although we do not contradict Paul Tudor-Jones lightly, we suggest that given the extraordinary events since 2008 that we should delineate currency from money. As mentioned above, US Dollars with low (or negative) interest rates is not money but rather currency.
Bitcoin as money is part of the digital technology revolution that we have seen in the 20th and 21st century and its ascent should not be ignored by serious investors. For more information on Bitcoin as money, find our article here.
Bitcoin also has some positive credentials of currency, it is highly divisible, easy to transport or send and has significant scope in developing intrinsic value.
Bitcoin and the protocol outlined by Satoshi Nakamoto are being built into a new, de-centralised financial system and the monetary value of Bitcoin underwrites this cutting-edge technology. Bitcoin is also a reference rate to, and gives access to these exciting projects. Overall it is the foundation of a new financial universe that it underwrites.
We have seen a significant increase in interest for such assets with concerns over fiat currency and systematic risk spreading.
What to choose to diversify a portfolio?
An individual’s choice will depend on their own personal characteristics. We have found that Bitcoin does not have a dominant age-group and is more accessible; opening an account at Mine is easier than opening a bank account.
Once investors hold Bitcoin, they can invest in other projects, including gold-backed cryptocurrencies. Gold ETFs are another easy way to gain exposure to the asset class.
At Mine we have developed high security solutions to store cryptocurrencies, including the option of custody and insurance. We look forward to the opportunity to onboard you and assist with your need to hedge for systematic risk.