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With stocks taking such a huge hit over the past few months, we've seen just how important it is to have a reliable portfolio hedge in place to protect your money and add some profit.
Now, in past bear markets, investors might have been restricted to cash, gold, and other precious metals.
That's still true, of course, and it is important that every investor hold some of these assets against volatility.
But in 2016, there's an entirely new asset class to consider…
It's high-tech and extremely easy to own. It's also highly resistant to market volatility and almost completely immune to politics and central banking, which means it offers investment protection.
Even better, the technology that makes it work has the power to revolutionize our entire financial system. Some of tech and finance's biggest players are falling all over themselves to get behind it.
In fact, there's so much interest in this asset, and so many catalysts forming underneath this "hedge," that it's likely to give some of the biggest gains of the next decade – or three.
Here's what I mean…
Up from the Underground
I'm talking about Bitcoin – the encrypted digital currency that's been the talk of "underground" tech and privacy circles for years.
I've been following Bitcoin intensely during its short history.
I follow Bitcoin news both here at Money Morning and around the web. And I talk about it on my social media accounts with hundreds of cryptocurrency investors and entrepreneurs.
And because of my expertise in monetary economics and cybersecurity, I like to think I have a better grasp on it than most.
Today, I'm going to use that know-how to show you why Bitcoin's rise really is only just getting started – how it's become a true "unstoppable trend."
Besides that, I want to point to several ways to invest in Bitcoin, whether you want to invest in the cryptocurrency as a long-term hedge… or you're hoping for some of the huge gains I've seen batted about.
Now, I have to admit that some of the chat around Bitcoin is pretty negative. There are plenty of folks out there saying this innovative investment is already over – kaput.
I've lost count of how many Bitcoin "obituaries" I've read, but it's in the hundreds. And all of them – including this latest one – miss a key point: Bitcoin is a global force so massive in its reach that no one person or event can stop it.
And that leaves Bitcoin – and its underlying technology – plenty of room to cause some convulsions that would be beneficial to those invested in it.
Huge Companies Are After Bitcoin's Blockchain Backbone
The power of Bitcoin is in its backend/grid system, known as the blockchain.
The blockchain is like the "grids" that allow you to make credit card purchases, transfer money between banks, or buy stocks through online brokerages. Except its main purpose right now is for folks to buy and sell bitcoins.
The blockchain's main advantage over all those other grids is its status as a peer-to-peer system, or one computer to another.
In other words, there's absolutely no central bank or government involved whatsoever.
Plus, by employing extremely powerful cryptography and other security protocols, the blockchain's developers have made sure that everyone who accesses Bitcoin can do so through totally secure transactions.
Moreover, anyone with a computer can access the blockchain, and each transaction is listed on it in chronological order.
And so Bitcoin has become completely private, yet totally transparent. Open and accessible, while extremely secure.
That unique combination seems like a paradox, but it's become a huge lure for companies all over the world, including Microsoft Corp. (Nasdaq: MSFT)
And it's just "landed" another big fish…
Yesterday, International Business Machines Corp. (NYSE: IBM) announced a comprehensive "years-in-the-making" strategy for delivering business solutions all based on the blockchain.
"Big Blue" has made no secret of its enthusiasm for Bitcoin and its tech, and it's been hinting about a big move on the blockchain for several weeks, but this announcement is still earth-shaking for the blockchain and the digital currency it powers.
IBM's "Blockchain-as-a-Service" (BaaS) strategy will incorporate the company's existing tech, like "z Systems," which is the core IT system for the 100 biggest global banks, and the "Watson" Internet of Things platform I've spoken about.
The company has an impressive user base for its new project, with the London and Tokyo stock exchanges lining up behind it.
IBM and Microsoft aren't alone in their enthusiasm for this technology, either…
For example, Goldman Sachs Group Inc. (NYSE: GS) recently co-led a nearly $50 million investment in Bitcoin payments startup Circle Internet Financial.
And in October, Robert Greifeld, the CEO of the Nasdaq-OMX Stock Market, demonstrated Linq. That's a platform which uses blockchain technology to manage shares of private companies – that is, a Nasdaq for startups and other closely held firms.
As Silicon Valley's $1 billion-valued "unicorns" and other companies stay private longer, an easy, inexpensive way to manage asset trading is critical. Linq, powered by the blockchain, could meet that need.
Also getting behind the blockchain is UBS Financial Services. The Swiss firm, in partnership with Clearmatics in London, is rolling out a blockchain-based "settlement coin" that banks can use to settle transactions involving stocks and bonds.
Some blockchain experts estimate banks could save $20 billion dollars by using Bitcoin's backbone in this way.
There are also real estate companies that see blockchain as a great way to buy and sell property with reduced costs and fees – and fewer governmental regulations. And manufacturing firms (including the big biopharmaceutical companies we follow here) like the blockchain's potential for tracking production.
There's no pure play on blockchain technology right now. But this tech is growing so quickly that I expect to see some solid investments in the near future.
As far as "right now" goes, let's examine three of the best ways to invest in Bitcoin.
How to Invest in Bitcoin the Right Way
If you choose to invest in Bitcoin, you could think of it as "the gold of tech."
That means using it as insurance – a hedge – against today's volatile market. Like gold, Bitcoin won't plunge along with stocks. And if the blockchain truly disrupts the payments sector, then the cryptocurrency's value will soar over time.
Also, I'd advocate allocating just a small portion of a portfolio to Bitcoin – like you would gold – no more than 5%.
Trading around $375 a "coin," the price movement in the past two years has been volatile, to be sure – at point it traded for more than $1,100.
But Bitcoin's "Wild West" days are coming to an end, and we are entering an era of price stability for the currency as it gains financial and political acceptance. In October, the European Union declared Bitcoin a currency and, as such, tax-free. The move paves the way for Bitcoin acceptance throughout Europe.
Right now, there are two ways to invest in Bitcoin – and one more to put in your "watch" file.
For now, the best way to invest in Bitcoin is buying the cryptocurrency itself. You can always buy and sell bitcoins through exchanges like Coinbase. It's an online "wallet" that connects to your bank account so you can buy and sell bitcoin. Coinbase recently launched the first Bitcoin-based debit card for the U.S. market. The Shift Card it allows people to spend bitcoins anywhere that accepts Visa.
A brand-new exchange option is Gemini. It was developed by Cameron and Tyler Winklevoss – the ostensible creators of Facebook. The twins call Gemini, where you can buy and sell bitcoins (or fractions thereof), "the Nasdaq of Bitcoin." Gemini is now the No. 11 Bitcoin exchange – but it's growing quickly. Gemini launched on Oct. 8 with just 31 trades. By early November, it had 11,600 trades under its belt and about 2,000 daily.
There are even Bitcoin shares now.
If you don't want to buy Bitcoin directly, take a look at the ARK Web x.0 ETF (NYSE Arca: ARKW). It's a "next-generation Internet" exchange-traded fund (ETF) focused on the cloud, Big Data, the Internet of Everything, e-commerce, and social media. It's also invested in Bitcoin Investment Trust NPV (OTCMKTS: GBTC), an ETF that tracks the price of the cryptocurrency – but is only open to hedge funds and wealthy accredited investors. Its largest holdings include Netflix Inc. (Nasdaq: NFLX), Amazon.com Inc. (Nasdaq: AMZN), and Facebook Inc. (Nasdaq: FB). In other words, ARKW is a "twofer" that gives you limited exposure to Bitcoin and a stake in several leading web giants.
While GBTC is closed to most of us, the Winklevoss twins are working to launch the first Bitcoin ETF, which will track the price of the currency. The Winklevoss Bitcoin Trust (the pending Nasdaq ticker is COIN) is awaiting approval from federal regulators. Like ARKW, COIN will be a good choice for investors who want exposure to Bitcoin but don't want to hold the currency itself.
In markets like these, investors need to stay as objective as possible. And one way to do that is to always have some portfolio insurance on hand. Consider making "the gold of tech" your hedge.
Moreover, we're still in the early stages of a global shift toward Bitcoin and its underlying technology… the blockchain. That means this is a trend with many years of growth ahead.
And that makes Bitcoin good long-term insurance – with the potential for huge gains in the years to come.
About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top technology financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
Michael is 100% independent and receives absolutely no compensation from companies he writes about. His ideas are completely his own.
So, it probably goes without saying that you won't ever be left in the dark about breaking innovations, ahead-of-their-time technologies, and breakout companies on the cusp of changing the world once you join this world.