That translates into rising inflation, which in turn dilutes the value of a currency. With unemployment above 6%, we are not at, or even near, that point yet. But wait a few years and the risk of inflation could become a real threat to the American dollar. At that point, owning Bitcoin instead of dollars could make a lot of sense. That's because Bitcoin is not a fiat currency. It is not issued by any country and it is not backed by a commodity such as gold. Instead, Bitcoin is a finite resource that has value because people agree that it has value. As long as that remains the case, Bitcoin will be a viable alternative to the dollar and other global currencies. If the threat of future inflation is the primary reason for Bitcoin's rapid rise, then that has profound implications for the stock and bond markets. Earlier this week, I commented on the recent surge of commodity stocks, which are widely viewed as a harbinger of inflation. When viewed through the prism of monetary policy, the recent behavior of Bitcoin (and commodity stocks) makes perfect sense. Too Few Goods The problem for most investors is that Bitcoin is expensive and difficult to obtain. At the moment, it is mostly the province of wealthy individual investors and hedge funds. Unfortunately, there is not yet an exchange-traded fund (ETF) that owns Bitcoin. In theory, such a fund could be structured similarly to the SPDR Gold Shares (GLD) ETF, which only owns gold bullion. That may soon change, at which time small investors can get in on the Bitcoin boom. The U.S. Securities and Exchange Commission (SEC) is currently reviewing an application for a Bitcoin ETF. Until then, there is a publicly traded security that owns Bitcoin but its minimum investment requirement is $50,000. The Grayscale Bitcoin Trust (OTC: GBTC) holds only Bitcoin in its $8 billion portfolio. This fund is restricted to accredited investors, so not everyone is eligible to buy it. However, it can be held in qualified retirement plans such as Individual Retirement Accounts, which is not the case with Bitcoin. Conceptually, I am warming up the idea of cryptocurrency as an alternative asset class. However, it is not yet clear to me why one cryptocurrency is preferable to another since they share the same attributes. That's why I do not own Bitcoin. Its future value is dependent on variables that cannot be predicted. Instead, I prefer investment strategies that have a proven history of living up to expectations. As my above article makes clear, risks still lurk around the corner. More than ever, you need to be selective with your investments. That's why our investment team has put together a special report: "5 Red Hot Stocks to Own in 2021." In this report, we provide the names and ticker symbols of the highest-quality stocks to own for the new year. Click here for your copy. |
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