Has Gold Bottomed? Has Bitcoin Topped?

by JDH on April 17, 2021

Good questions.  I have no idea, but allow me to engage in some unfounded, uninformed speculation, because that is of course what you pay me to do.

Let’s start with gold.  Gold had a great run, topping out well over $2,000 an ounce in August 2020, before starting a long slide to well under $1,700 in March, 2021.  It could be argued that a double bottom was formed around $1,675 in late March/early April, and the bottom is in, and now it will go higher.

Perhaps.

I’ll be more convinced when gold breaks the down trend line decisively above $1,900, but at least, so far this month, it appears to be moving in the right direction.

The technicals are improving, and perhaps the fundamentals will also improve, with reports that China is buying a lot of gold:

Since February 2020, the country has on average imported gold worth around $600 million a month, or roughly 10 tonnes, Chinese customs data show.

In 2019 its imports ran at about $3.5 billion a month, or roughly 75 tonnes.

Is this just the next stage in China seeing the writing on the wall for the USDollar as global reserve currency…

That buying could account for the increase in price, and if China is preparing for a gold-backed yuan, that could have a big impact on the price of gold.

For now, I’m holding my high quality gold stocks, and waiting to see what happens.  I’ve held this long; I see no point in liquidating at these levels, and I did do a small amount of buying this week.  (For context, gold is trading at the same level it was at in both July and December, 2020, so it’s not as though we are at multi-year lows).

Bitcoin

It appears obvious to me that Bitcoin is doing well, and that strength is likely because many investors have bought into the narrative that Bitcoin is a “store of value”.  I agree. Bitcoin is not a “currency” in the sense that we will use it to go out and buy a jug of milk.  It’s too cumbersome for that.  There will be other cryptocurrencies that will fill that void.

But as a store of value, Bitcoin is ideal.  There is a limited supply, so the government can’t inflate it, and it’s a lot easier to store than gold.

It’s chart is a thing of beauty.  So far this year it’s had four new all-time highs, followed by a pullback.  We may or may not be in one of those pullback phases now, but here’s my prediction:

I don’t expect to see $30,000 again, and a drop to $40,000 would surprise me.  For context, $40,000 was last touched on February 8.

As of today, Bitcoin is up 121% year to date, and I fully expect to see Bitcoin hit $100,000 in 2021 (and likely before the end of the summer).

Yes, Bitcoin is risky.  So is everything.  Do you want to hold bonds that pay zero interest and have constantly depreciating purchasing power?  Or do you want a shot at something better.

The prudent investor already has at least a small portion of their portfolio in Bitcoin.  Even if you only had 10% of your portfolio in Bitcoin, and 90% in cash, your portfolio is up over 10% so far this year.  If Bitcoin crashes to zero your portfolio declines by 10%.  There is no chance that Bitcoin goes to zero, so even if it has a substantial correction your portfolio is perhaps flat on the year.  That seems like a great asymmetric bet to me.  Massive upside, with less downside.

There will of course come a time when you will want to rotate out of Bitcoin, or reduce your exposure, and that’s fine.  I also hold Ethereum, the number 2 ranked crypto, and I have tiny holdings in two other “alt coins” for some diversification.

It’s a fast-moving space, with constant changes, so you have to watch it closely, but if you aren’t in the game, you are missing out.

That’s my report.  Thanks for reading.  More next week.

 

 

 

The Cash Accumulation Phase Begins

by JDH on April 10, 2021

The S&P 500 is at 4,127, an all-time high.  The DOW is also at an all-time high.  The Toronto Stock Exchange was down on Friday, but it too is just under an all-time high.

Will the markets continue to make all-time highs, forever?

No, that’s not the way math works.

Historically, the saying is “sell in May and go away”.  With continued fed money printing there will likely be continued cash flowing in to the market, so I’m not predicting a crash tomorrow.  But, it is also likely that some profit taking happens at some point, so I am slowly raising cash.

I am raising it slowly and deliberately.  I have some stocks that are up very nicely, so I’ve put in sell orders at slightly above market, for a portion of my holdings, and my plan is to reverse DCA.

Dollar Cost Averaging is a good strategy for entering the market, where you deploy cash regularly, allowing you to catch some of the down days.  Selling is the same, in reverse.  I pick a target, and put in an order to sell 10% of my shares at that target, and then 10% more slightly higher, and so on.  The goal is to enter the month of May with more cash than I have now.  I will still have stocks, so it the market continues upward, I benefit, but if we have a correction or crash, I’ll have cash to re-deploy.

And what should one do with the cash?

Bitcoin.

And Ethereum.

And whatever alt-coins you want to speculate in.

I am not suggesting you take your entire fortune and put it in some “shit coin”. That strategy may make you a billionaire, but it is more likely to wipe you out.

In my main investment account I have approximately 10% of the portfolio in Bitcoin and Ether Funds (QBTC, QETH).  That appears to me to be an appropriate allocation, although I will likely increase it over time.

As I write this at 7:45 am on Saturday morning, both Bitcoin and Ether are at all time highs, or very close to them, so that’s the kind of speculation I like.

Stay tuned, we’ll see what transpires going forward.

Crypto on the Move

April 3, 2021

I know you come to this site to read my disjointed and rambling thoughts on real things, like the stock market and gold, and not unreal things, like the crypto market, but here’s the thing: the “real” world isn’t doing so well at the moment. While the United States appears to be “over the hump” […]

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Nothing is happening

March 22, 2021

Strange times.  Nothing much is happening.  Gold is stuck.  Cryptos are in a trading range.  The markets were higher on Friday, but they aren’t making new highs. The most interesting news is that a ship got stuck. Go figure. So, until something happens, I have nothing to say, so let’s see if by next week […]

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Tesla – Yes, I went there

March 13, 2021

Gold is fading, cryptos are doing well buy not exploding upward, so what does one do for fun? Buy TSLA – Tesla Inc. As readers of this blog will know, I am NOT a Tesla fanboy.  Quite the opposite, in fact.  I don’t think their cars are anything special and without massive government funding, they […]

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Gold, Bitcoin, and Inflation

March 6, 2021

Gold Well, gold isn’t doing well. From a peak of well over $2,000 in early August, gold has collapsed, dropping almost 19% over the last 211 days.  The chart shows an obvious downtrend, with no obvious signs of support, as gold closed on Friday under $1,700 per ounce. A drop to well under $1,600 is […]

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My QBTC Advice Last Week Was Completely Wrong

February 27, 2021

Oops. Last week I said it’s Time to Sell our Bitcoin Fund (But Not For the Reason You Think).  I said that QBTC was trading at a discount to NAV, so to prevent further erosion, it would be prudent to invest your funds in an ETF that trades closer to NAV. No. That’s completely backwards. […]

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Time to Sell our Bitcoin Fund (But Not For the Reason You Think)

February 20, 2021

Time to sell QBTC and QETH. I believe that Bitcoin, and Ethereum, and probably many other cryptocurrencies, will be great speculations in 2021.  I refer to them as speculations, not investments, because they are very volatile.  20% swings in 24 hours are not uncommon.  However, massive stimulus spending will lead to the continued devaluation of […]

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The Case Against Bitcoin

February 13, 2021

As the price of gold remains stuck in a trading range between $1,800 and $2,000, there is nothing much to discuss about gold.  I have my core gold stocks, and I’m holding them. So, over the last few weeks, I’ve commented on the crypto market: Ethereum: The Best Crypto Investment? QBTC, QETH, Bitcoin, and How […]

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Ethereum: The Best Crypto Investment?

February 6, 2021

As I write this, shortly after 7:00 am on Saturday, February 6, 2021, Ethereum is trading at $1,683, just slightly below its all-time high of $1,764 reached yesterday. On January 11, 2021, it bottomed at $905, so if you timed it well you are sitting on a very large profit.  If you didn’t time it […]

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