Yup, I did it.  I used the words “bitcoin” and “investment” in the same sentence.

I do not think of Bitcoin as an investment.  I think of it as a speculation.  Or gambling.  However, there is no doubt that we all should have put all of our money in Bitcoin a year ago, because Bitcoin was the best “investment” of 2017 (unless it has crashed to zero by the time you read this, in which case, never mind).

Is gold an investment?  Some would say “no”, because it generates no income, and for long periods generates no capital gains.  It is, however, a “store of value”, in that what you could buy with an ounce of gold in the past is about what you could buy with it today.  (The standard example is that a hundred years ago a good man’s suit cost one ounce of gold, and it’s about the same today.  The counter-example is that the dollar value of a good man’s suit is completely different than it was 100 years ago, because a dollar is not a good store of value).

So if I had $10,000 to invest today, should I put it in gold, or Bitcoin (if I only had those two choices, and I had to pick one of them).

The answer is that today I would probably leave the money in cash, but it’s an interesting question.  The problem is that the chart of gold looks terrible.

To make it look even more terrible, here is the chart of NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS, a proxy for gold, but more leveraged (3 times leveraged, so the swings are more magnified).

NUGT is trading at around $25, which is about where it was trading last December.  It then doubled in value to over $50 in February, but then, as you can see from the chart, it’s been a series of lower highs, and lower lows, so it is now back to where it ended last year.

Not good.

Do you want to buy something in a year long down-trend?

Probably not.

The alternate viewpoint is that gold is traditionally weak late in the year, and is then strong to start the year.

That’s true.

If we look at the same chart over a two year period, buying NUGT at the end of December is a solid strategy.  In December 2015 NUGT was around $20, and was over $140 by the summer.  It closed 2016 around $20, and was $50 in February.

So perhaps the low value in December is actually a buying opportunity.

Perhaps, but I would prefer not to buy until it is closer to the bottom.  The bottom last December was around $22, so let’s see if $22 holds, and if so, that may be the place to enter the market.

Bitcoin

So what about Bitcoin?

There is no point in me displaying a chart of Bitcoin, because if you read this more than 5 minutes after I post it, the chart will be so out of date as to be meaningless.

I can tell you that on December 3 Bitcoin was around $10,630, and it touched $19,680 on December 7, and on December 8 you could buy a coin for $13,770.  That’s volatility.

I like the concept of crypto-currencies.  I like that the government can’t print more and create money to pay for wars and whatever else government’s do that I don’t like.  I am satisfied that, in general, cryptos cannot be hacked.

NOTE: There is a difference between the crypto currency, like Bitcoin, and the exchange on which you can trade them, like Quadriga or Coinbase.  An exchange can be hacked, so if you are storing your coins at an exchange, they could be stolen.  That’s why, if you choose to play this game, you want to store your coins securely, probably in a wallet, such as those made by Ledger or other companies.  I do not recommend or endorse any exchange or wallet, so do your own due diligence.

What makes me nervous about Bitcoin is that it is not scale-able.  The Bitcoin blockchain is capable of processing a maximum of 7 transactions per second.  Over the Christmas season Visa will process around 60,000 transactions per second.  Clearly Bitcoin in it’s current form will never replace Visa.  Note that I said “in it’s current form”.  It’s possible, perhaps likely, that Bitcoin will do a “hard fork” and implement improvements, but at the moment Bitcoin is not the answer to all of our problems.  Perhaps another crypto will be.

Ethereum shows promise, and it is the second biggest crypto by market cap (at the moment).  Perhaps it will be the crypto that changes the world.

So here’s my advice: do not plan to buy Bitcoin and “put it away” for a few years when one coin will be worth $100,000.  It may be.  Or it may be worth zero.  If you want to play it, get it, and get out.

Obviously the volatility is great if you want to speculate.  Wait for Bitcoin to drop by 30%, which it seems to do every day or two, and buy.  When it’s up 100%, sell.  That strategy would have worked great last week.  (Past results are no guarantee of future performance, so I’m not suggesting that 100% weekly swings will be the norm…..).

My plan?

I’m dabbling.  I own a very small quantity of Bitcoin and Ethereum.  A very small quantity.  If they both go to zero tomorrow, I won’t notice; that small.  I bought some because I need some “skin in the game” to understand how it works, so that’s how I will watch and learn.

And there is a lot to learn.

The US Dollar

Final point: Assuming the Trump Tax Plan becomes law, it is likely that a lot of money, currently held offshore, will be repatriated to the USA.  For example, Apple has $252 billion stashed outside of the USA.  To bring it back today would cost 35%, or $88 billion.  Under the new law the tax rate drops to 14.5%, for a savings of $47 billion.  It is therefore likely that big companies with money offshore will bring at least some of it back.

The government would like them to use it to create jobs.  Most likely they will do share buybacks and pay it out as dividends, but regardless, some of the money returns.

The pertinent question: what will that do to the US Dollar?

My guess is that a big demand for dollars will increase the value of the US Dollar, perhaps significantly.  That’s not good for gold, since they often, but not always, move inversely to one another.  Another reason to lessen your exposure to gold.

Perhaps some of those dollars will find their way to Bitcoin.  We shall see.

Stay tuned, and thanks for reading.  See you next week.

Is Every Damn Blog Obsessed with Bitcoin?

by JDH on December 2, 2017

Yes.  Everyone is obsessed with Bitcoin.  When something goes up 10% in a few hours, we take notice.

What should you do about Bitcoin?

Here’s my advice:

First, and most importantly, learn about it.  Do not put any money into it until you understand what it is, and how it works.  Pretend you are enrolled in a university level course in crypto-currencies; set aside 100 hours, and do your research.

Start with this bitcoin resources page (which I am not associated with in any way).  It will take you more than 100 hours to go through it, but it’s a good starting point.

Next, go buy a friend of yours a coffee, and over coffee, explain to them what “blockchain” is.  To do this, of course, you will first have to understand it yourself, and then put it into words that anyone can understand.

Next, explain to your friend the difference between “blockchain” and “bitcoin” because they are not the same thing.  Shakespeare and books are also not the same thing, so you need to fully understand how one relates to the other.

Once you have a passing understanding, in your mind, design a real-life application for blockchain technology.  I don’t actually mean write the code; I mean find areas where block chain technology could assist in real life.  How could a blockchain be used in your industry?  What industries are using it now?

Investment implications of blockchain

Remember the dot com boom?  That’s where we are now.  There will be a very limited number of companies that will use blockchain technology to make a billion dollars.  There will be a large number of companies that will raise millions of dollars from unsuspecting investors, and go bust.

I’m not saying don’t speculate in companies with the word “Blockchain” in their name.  Amazon started in the dot com bubble, and it’s doing fine.  I’m simply saying that most of them will go bust, so:

  1. Do your research.  If it is a real concept, with real management, it might work.
  2. Ride the wave.  It doesn’t matter if that company is successful 10 years from now.  Buy it now, and take profits quickly during the mania stage.

What about Bitcoin?

Bitcoin is not the only cryto-currency.  It was the first, and it has the highest market cap, but it’s not the only one. Make a list of the top ten, and follow them, and become familiar with the smaller ones as well, since that’s where the huge profits will be.

Be prepared for risk.  Bitcoin was $8,600, then $11,000, then $9,500, and that was all within a 24 hour period this week.  That’s volatility.

If you really want to roll the dice, fine, but I would not have any more than 10% of my portfolio in cryptos, and I would buy during down periods, and sell during up periods, not the other way around.  Don’t get sucked into the hype.

Personally, I do not own any bitcoin.  I have a very small “investment” in Ethereum, but if it goes to zero tomorrow I won’t notice it; that’s how small my investment is today.

Final point: be sure you understand security.

You can buy cryptos on an exchange, like Coinbase or Quadriga.  I am not associated with any exchange, and I receive  no affiliate commissions.  An exchange is like a bank, in that they will hold your cyrptos for you, but banks can be hacked, and can go bust, so it is not safe to hold your cryptos there.

You need a wallet.  You can store them on your computer, but if your computer is hacked, or burns down when your house burns down, you’ve got a problem, unless you understand how to resurrect it.

I good alternative is a wallet, like the ones made by Ledger.  (I am not associated with any wallet company, and I receive no affiliate commissions).  You need to set it up, figure out where to store your “seed” so you can recover data if it is lost, and take other security measures.  It is more complicated than buying a stock.

The complexity is good, because 95% of the population has no idea how to do it.  When they figure it out, prices will go ballistic, so being “early” is good (early was three years ago, but we are still in early days).  With the dawn of CME futures trading and various ETFs and other funds the public will be able to participate, so this is a market you should not ignore.

 

Just be careful, and don’t get sucked into the hype.

 

Normal programming will resume next week, probably, unless Bitcoin is at $20,000, in which case I will have more thoughts.  Thanks for reading.  See you next week.

Gold Correcting, so Buy Apple

November 25, 2017

It would appear that gold is entering a correction phase. Of course I’ve been saying that for weeks, and a significant correction has not occurred, but that appears to be where we are headed. Gold is in a downward wedge, and unless it snaps out of it in the next week or two, a correction […]

Read the full article →

Random Thoughts

November 18, 2017

I realize it’s only November, and I realize gold had a good week, but today I will simply give you my random thoughts on what to look for in 2018. My guess, at the moment, is that the “go to” investments in 2018 will be, in no specific order: gold crypto currencies block chain companies […]

Read the full article →

Apple: My Play This Week

November 11, 2017

I’ll get back to talking about gold next week (and I’m guessing you want to be short, not long at the moment, but only temporarily).  Today, let’s talk Apple (the stock, not the red thing that grows on trees). I am of the view that as long as the government keeps printing money, and that […]

Read the full article →

Gold: Panic Selling Imminent?

November 4, 2017

I’m a gold bull, and I believe that five years from now gold will be considerably higher than it is now.  However, that doesn’t imply that gold will be higher tomorrow. My concern is that gold is not exactly swinging for the fences.  Yes, it is up year to date, and that’s good, but the […]

Read the full article →

Instead of Gold, I Should Have Bought Amazon

October 28, 2017

So Jeff Bezos, the Amazon guy, is now the richest dude in the world, after Amazon had blow out good earnings and blasted through $1,000, and then $1,100, on Friday.  Gold bounced back on Friday, but after a dismal few weeks, Amazon was the correct play, not gold. As I reported last week, gold is […]

Read the full article →

Is the DOW Chart Crazy?

October 21, 2017

Last week I said that the market is the best it’s ever been.  This week it’s even better.  Here’s the DOW: The DOW was up .71% on Friday alone, and more amazingly the Relative Strength Index is over 88.  That’s nosebleed territory. In the last six months the RSI has exceeded 70 on two occasions, […]

Read the full article →

The Best It’s Ever Been

October 14, 2017

The headlines tell the story: Consumer Sentiment in U.S. Unexpectedly Surges to 13-Year High Nasdaq rises to record close as Wall Street bets on strong earnings season Everything is great.  Interest rates are low, unemployment is low, the economy is great.  Granted, the feds have pumped in a trillion or two dollars to keep the […]

Read the full article →

Gold, and a Toppy Market

October 7, 2017

Before we get to gold, how about that DOW? From 13,000 five years ago to 22,730 today, that’s more than a double.  With the Feds printing money like crazy, the correct answer over the last five years was buy, and keep buying.  The double bottom in the summer of 2015 and early 2016 was a […]

Read the full article →