I strongly believe that everyone should own some physical gold. It's been the store of value, and the preferred method of asset protection for more than 5,000 years. It's irreplaceable.
But I also believe that every investor ought to own at least some of the new digital money known as bitcoin.
You see, most of the people buying bitcoin are interested in the explosive growth potential the new "currency" offers, as more and more retailers, CEOs, and governments embrace it.
But they're getting more than that.
Bitcoin comes with some unique wealth preservation properties, too. And while it will never replace the market's most popular hedge, it does have five distinct advantages over gold…
No. 1: The Supply Is Absolutely Fixed
A lot of investors look on gold as a store of wealth because of the precious metal's limited supply.
Actually, that's really only true in the short term. Yes, there are only so many mines operating at any point in time, so the immediate supply remains fixed on any given day.
However, exploration teams are scouring the planet and finding new gold reserves all the time. When the price of gold rises, those new tracts become more economical, meaning the supply of gold can in fact expand.
It's the exact opposite with bitcoin. They are created when someone discovers a new mining block on the global computer network. The number of blocks is capped at 6 per hour.
Moreover, bitcoins generated per block decrease geometrically, falling 50% every 4 years. The number of bitcoins mined will never exceed 21 million by the year 2140.
Roughly 57% of the total maximum have already been mined…
No. 2: This Is a Real Currency
It began when President Roosevelt confiscated America's gold during the Great Depression. And when President Nixon took the United States off the last vestiges of the gold standard in the early 1970s, the metal's days as a true currency were over.
Sure, you can still buy gold coins, but just try using them to pay for something at Walmart or the local convenience store. People will look at you like you're crazy.
But in the United States alone, more than 700,000 retail outlets accept bitcoin, including chains like 7-11 and Wal-Mart. And in France, workers can choose to have their salaries paid in this new digital currency.
In fact, bitcoin is already recognized around the world as a medium of exchange and is traded in roughly 90 different markets from Toronto to Singapore every single day.
No. 3: Central Banks Can't Manipulate the Price
Paul Craig Roberts can't afford to make baseless charges. A noted economist, Roberts served as Assistant Secretary of the Treasury during the Reagan administration and is a former editor of the Wall Street Journal.
So, were he to make a wild accusation, that would undermine his credibility as a market analyst and possibly ruin his career.
But Roberts is adamant that a big part of the recent rout in both gold and silver prices is a direct result of central-bank manipulation. Roberts believes the Fed led a coalition of mega-banks that sold off gold reserves and certificates to support the dollar in an era of mega-printing.
Veteran metals trader Andrew Maguire agrees.
Join the conversation. Click here to jump to comments…
About the Author
Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.
In GOD We Trust
Well …… at least some of us do. And those who don't are becoming more and more aggressive!
not so safe…
http://www.zerohedge.com/news/2013-12-21/how-steal-bitcoins-three-easy-steps
Considering the violent bitcoin price swings lately; are bitcoin merchants adjusting their prices(in bitcoins) as quickly?
I am a coin miner but was a merchant first. Great question. The fluctuations are actually not that violent and somewhat predictable AND it always follows an upward trend in value so most merchants will hold coin. It is way too early to sell coin. The future value of a Bitcoin will be WORLD ECONOMY divided by 21 million. But if you want cash liquidity and value FIAT, you can cash out in relatively real time.
Just curious:
1) Who is to say the supply is fixed? Nobody is auditing it, and nobody has supreme control over the supply, nobody even knows who exactly created it, so why are you so sure it is fixed? Soon we will have a Bitcoin hacking community who does nothing but crack the code and increase it's supply.
2) Nobody owns gold just to use it as currency, at least for now. So to argue that gold can't be use at Walmart in favour of Bitcoin is moot point.
3) Though central banks can't manipulate the price of Bitcoin, central governments surely can control it's use as already evident in some new developments in China and Europe.
4) While gold may not be as 'liquid', try using Bitcoin during a power failure, a technology failure on your pc or mobile, a communications network failure, or when the internet is hijacked by terrorists. See if Walmart prefers gold, cash or Bitcoin for a loaf of bread.
5) Unless you run a bullion business and have a vault, I don't know if anyone would ever think of having 415 ounces of physical gold, unless perhaps, the "doomsday preppers".
In my view, at the present moment, there are only 3 kinds of people who will benefit from a crypto currency like Bitcoin:
1) Those who own them when they were cheap
2) Those who sell expensive 'mining' machines to unsuspecting minds
3) Those who don't want their money to see the light of day
I totally agree with you Roy. You have covered off most of the points that I have been harping on since Robinson first started to push this scam. But let me also add:
– Who gets your money when you buy Bitcoin? Someone is profiting from this and I have not been able to find anywhere who actually gets to keep your real money.
– Not only is there no real law that governs how many bitcoin are issued, but who exactly is it who laid down these supposed rules, and what is to keep them from changing the rules.
– What happens when this whole scam comes to an end? Simple, you lose your real money and whoever started this scam walks away very rich.
– When there is another solar storm that knocks out all electrical devices, bitcoin ends. Solar storms have happened many times in history and it is inevitable that it will happen again.
Robinson must be heavily invested in this scam in order to be continually pushing it. I also cannot believe that a respected publication like Money Morning would allow this kind of scam to be posted in their publication. It certainly is tainting my opinion of what I previously considered a fine publication.
That was my main suspicion, that Robinson himself might be stuck with loads of it at elevated prices so it makes perfect sense for him to drive up the frenzy in order to liquidate quickly. The biggest issue is that there are many many people who have no clue about what exactly is Bitcoin or other virtual currencies. Trading Bitcoin is no different from trading any commodity, even Tulips! So the real question is… what is being sold and bought here?
If you peel down the onion, Bitcoin is a "computing reward" for committing computing resources to do some man-made computational work that delivers no productive value. It's actually no difference from those 'rewards' or 'tokens' you earn from playing computer games. When enough people are hooked on the game, the 'rewards' or 'tokens' becomes valuable within that community of game players as it allows them to buy stuff to boost their power or wares. So the Bitcoin agenda really is to get as many commercial entities and retailers into the 'game' to create a market that gives value to Bitcoin. Amazingly, they have been quite successful I must say despite the roller coaster ride in price.
I AGREE ROY! ALSO, WHY TAKE THE CHANCE ON HAVING YOUR BITCOINS HACKED. ONCE THERE STOLEN FROM YOUR DIDGITAL WALLET, YOUR BROKE. I KEEP READING MORE ARTICALS THAT BITCOIN IS GONE SPLAT. I'LL STICK TO ME Y GOLD AND SILVER. ALSO MY OLD PRE 1965 SILVER COINS. 90% SILVER AND CAN BE USED TO BUY PRODUCTS IF THE DOLLAR GOES SPLAT.
What intrigued me is that there are people are willing to spend tonnes of money to buy huge specialized mining machines that occupies a whole room, sitting there guzzling electricity, creating heat, and doing nothing waiting for Bitcoins to be dispensed. In this day and age of open technology and open source, what kinds of computational workload needs custom made dedicated computers to handle? I think investors really need to be more critical that just trust an illusive "Satoshi Nakamoto" who created some algorithm promising that the supply will be limited. What if some day you find out that it is actually not limited, what do you do and who do you go to redeem your faith? If money is the source of all evil, then there won't be lack of evil when it comes to digital currency. In fact, it will become easier.
I agree with you lets put our money on gold.
"Nobody is auditing it…"
Everyone who uses Bitcoin audits it. Every full Bitcoin client downloads and verifies the entire bitcoin transaction history. The combined network verifying and securing Bitcoin is hundreds of times more powerful than the top 500 supercomputers in the world combined. (Source: http://www.forbes.com/sites/reuvencohen/2013/11/28/global-bitcoin-computing-power-now-256-times-faster-than-top-500-supercomputers-combined/)
"…nobody has supreme control over the supply…"
That is the point. No one can decide on a whim to print more and hyperinflate, including the person who created it.
"…nobody even knows who exactly created it…"
That is true, but irrelevant. Bitcoin is not trusted because of who is behind it. It is trusted because of what it is. It is open source. Anyone can download and review the code, and a lot of people have and continue to do so. It has been thoroughly scoured for bugs and weaknesses.
what could ever go wrong with a virtual currency? what a joke. I have my gold in my hand, already there are more gold contracts floating around than gold to cover them. Ever heard of a ponzi scheme? Here is a potential one for the ages. Secure? my ass, limited amount made, my ass. WC Fields,"there is a sucker born every minute"
How safe is Bitcoin. I have been watching it for years and have been intrigued but haven't bought because any website can get hacked.
Plus, how many people sell Bitcoins? Is it just one company or are there several? I noticed that there are at least four different prices for Bitcoins according to bitcoin.com
Where is the best place to purchase Bitcoins?
You never want to store precious metals in a bank safety deposit box. The Dept. of Homeland Security can go in and confiscate gold, silver, and other metals if a national emergency is declared. I believe Bitcoin to be a far superior investment that gold or silver due to its liquidity.
I suspect you gentlemen simply don't understand the nature of Bitcoin.
Bitcoin is like a software installed on many machines, that are permanently connected to the internet all over the world. These machines permanently talk to each other. At any moment new machines can join this club or leave it. Every machine part of this club has the history of all the transactions that occured between all these machines.
Can Bitcoin get hacked? The highly cryptographic nature of Bitcoin makes it extremely robust against hacker attacks as when you browser uses a secure connection to a payment system. In fact, hackers perfectly understand that hacking bitcoin itself is impossible at this stage. However hacking into sites that trade bitcoin or users bitcoin wallets is feasible. This is what is happening often.
Excellent article, but there are a couple things that need clarified:
"But in the United States alone, more than 700,000 retail outlets accept bitcoin, including chains like 7-11 and Wal-Mart."
7-11 and Wal-Mart don't accept Bitcoin directly, but using Gyft you can buy gift cards with Bitcoin.
"For instance, on the Camp BX exchange, you can divide a bitcoin down to 12 decimal points, which might look like this amount – 0.011111111111. At $550 a bitcoin, that gets down to $6.20, including commissions."
Bitcoins are divisible to eight decimal points. 0.00000001 BTC, called a Satoshi, is the smallest possible amount of Bitcoin. At $550 a bitcoin that would be worth $0.0000055.
I never "invest" in currencies, primarily because they don't generate revenues. I have speculated in gold and silver from time to time, and I consider the bitcoin to be a speculative asset at best. I only use currency (as either cash in my pocket or as the value of my bank account) for paying the bills and buying assets. I never use it for anything other than a temporary store of value…a medium of exchange. The only thing important to me is that the value of the currency is relatively stable (low inflation). Trying to use a bitcoin for those purposes would not be wise since I get paid in dollars and would incur unnecessary transaction fees when converting currencies as I make my purchases. I have had to pay transaction fees when ordering from companies across the pond, but it is something I try to avoid. Any savings I have will always be invested in companies as shares of stock or funds, or in my home. Obviously I'm in disagreement with Mr. Robinson's belief "that every investor ought to own at least some of the new digital money."
I am pretty sure that htis bitcoin story will turn out to be as big a scam as Enron was. Those so called issue limits are going to be broken to the profit of some "miners" and the foolish investor will be left out in the cold.
I am also highly disappointed that moneymorning should pump up this scam as they are doing it.
The Fed is doing the same with the USD and we know where that is leading to. Mind you, I dont hold any more Dollars than bitcoins, i.e. none!
Come on, moneymorning, you credibility is not enhanced by this "information".
Werner, thanks for reading Money Morning.
I'd like to clarify a few things here. Bitcoin may be an experimental currency, with all the risks that come with that, but it is definitely not a scam. We believe that Bitcoin is an exciting new form of currency with vast potential going forward, and something our readers could make money from. We also believe digital currencies will become commonplace and widely used, with Bitcoin leading the way.
To your specific objections, no individual or company (or country, for that matter) controls it. The miners cannot choose to create more Bitcoin on a whim; the speed of Bitcoin creation and the ultimate number of Bitcoins is controlled by the software. The software is open source, and has been examined by a lot of smart programmers around the world since it appeared in 2009. They haven't found the kind of flaws that would make the scenario you describe possible. In any event, the 21 million Bitcoin limit won't be reached until 2040, so it is not an immediate concern.
I hope this helps.
Thank you for your explanations and precisions. It wont alter my lack of trust in this artificial creation. It is not backed by anything tangible, so I'll keep my fingers off.
Quite obviously a whole lot of people are nearly dead wrong concerning bitcoins. Just who they are is not presently clear. As far as not being backed by anything, I see little merit in that argument, least as far as a criticism is concerned, since the whole of present human financial activities are are backed by precious little.
Gold and silver coins are primarily for use in the event of dollar collapse. If there is no dollar collapse then perhaps that could be viewed as a mistake. Bitcoins are backed by many being willing to exchange their goods and services for bitcoins. If that does not happen then perhaps owning bitcoins could be viewed as a mistake. The former significantly bets on catastrophic events whereas the latter is betting upon there being no serious catastrophe which disrupts electrical power grids. Hmm. Perhaps a gambler would choose one over the other and perhaps a wise person would do both.