You Must Own Bitcoin and Gold

I was going to write a post detailing the precarious situation the global financial system is in, and why you need to hedge risk in this scenario. However, I finally read the following piece, which I’ve had open in a browser tab since Christmas, and it basically explains everything I wanted to say.

Sprott is an asset management company specializing in precious metals, so of course they’re pushing an allocation to gold to protect against global systemic risk, but the same message applies to Bitcoin. No portfolio is safe without real, non-financial assets that are owned outright. Meaning you need to hold physical precious metals and/or Bitcoin to hedge against looming downside risk of financial assets (ie stocks, bonds, mutual/index funds, etc).

Yes, I still recommend precious metals. This puts me at odds with many bitcoiners who deride gold. While I agree that Bitcoin is the best, hardest form of money and superior to gold as a monetary good, it is still prudent to hold gold. Ideally, you own both gold and Bitcoin to hedge against risks inherent in each other. They are wonderful complements.

Bitcoin is a nascent phenomenon. We don’t know how it will behave in a major financial crisis. While it was built to be a safe haven asset outside of the legacy financial system and reach of governments, there are many unknowns that could keep it from functioning as intended (mostly nation state interference, encumbrances). To hedge against these risks, an allocation to precious metals is your best bet. Gold, on the other hand, has its own problems (difficult to transport, can be confiscated, rehypothecation, etc). To hedge against these risks, Bitcoin is your best bet.

In the fullness of time, I believe Bitcoin will supersede gold as the global safe haven and monetary good of choice, but in the midst of a near term financial crisis, when you need safe havens to function as intended, physical gold is a more sure bet. Especially for older individuals with shorter investment horizons.

Everyone should own some Bitcoin too, regardless of age. Younger people with long investment horizons can make a larger allocation to Bitcoin. But everyone should own at least a little to be more antifragile given the massive risks lurking in the financial system. Bitcoin’s asymmetric risk/reward profile and uncensorable, unconfiscatable nature could save you from ruin.

This Tide Will Turn

The big story of 2019 for financial markets turned out to be the melt-up in U.S. equities. This big wave has not only floated broad equity averages to fresh all-time highs but has also extended the length of this bull market to the longest on record.