One of the biggest factors in success in a field is to identify the underlying principles and to spot trends so that you can, if at all possible, get ahead of the curve and make the most of the situation.
Now, that doesn’t mean that everyone who sees the trends and recognizes the principles will come to the same conclusions as to what actions to take to make the most of a situation.
But when very different people come to the same conclusion, that can mean that the trend is important to pay attention to.
Before we elaborate on that, let’s step back a moment and talk about…
Who tends to invest in cryptocurrencies
Or, at least, who people tend to think of as the primary investors in cryptocurrencies: young adults.
Some people view anything new as risky, and, to be fair, anything that has the opportunity for a return on investment has risk. Risk and reward go hand-in-hand.
Some people, especially those not so young, view the new technology as riskier than more traditional investment options.
But that tide may be starting to change because of who is investing in cryptocurrencies besides younger people now.
Now, make no mistake, younger people are investing in crypto. Gordon Gottsegen with MarketWatch writes,
Among retail investors, 58% have recently invested more into gold and crypto or plan to do so in the near future, according to a recent survey by brokerage eToro.
58% is a solid majority of those surveys, but why gold and crypto? Those aren’t assets that most people think of together.
The answer?
According to the survey, 28% of U.S. investors said inflation was the biggest threat to their portfolio, making it the most commonly cited threat.
Sure, most people are concerned about inflation, but what does that have to do with gold and crypto both?
“Gold is a risk-off asset – a flight to safety – and bitcoin is very much a risk-on asset. But if you overlap the two, you could argue both are good for fighting inflation,” Bret Kenwell, U.S. investment analyst at eToro, told MarketWatch. “If you were worried about inflation chewing away your assets, those are two you would consider.”
Folks, this is how diversification works!
Kenwell is pointing out that, in the universe of asset classes, gold and bitcoin are at opposite ends of the spectrum. In finance jargon we say they’re “negatively correlated.” Which means that they tend to move in opposite directions. The primary benefit of a diversified portfolio is that, no matter what happens in the world or in the markets, some of your assets benefit.
Turns out that gold and crypto are a great example of this phenomenon. And it’s not just Gen Z who’s catching on…
“Buy bitcoin,” suggests BBVA’s billionaire wealth managers
This gets to the unexpected bedfellows mentioned earlier.
See, gold is classically considered the “safe haven” asset for wealth preservation.
And along with that, some advisors are telling their wealthy clients to think like the young investors that I mentioned earlier.
Reuters tells us about an unusual move at billionaire wealth manager BBVA:
…is advising wealthy clients to invest up to 7% of their portfolio into cryptocurrencies, an executive said on Tuesday, in the latest sign some banks are warming to a sector long avoided by mainstream finance because of its risks.
Does this mean that large institutional investors (banks, etc.) are throwing caution to the wind and telling people to take unnecessary risks?
Absolutely not. You don’t get billionaire clients (and especially don’t keep them!) by telling them to take unnecessary risks. You instead counsel them on necessary risks.
I keep talking about the younger vs. older investors for a reason (the median age of billionaires is 67). They aren’t just older, they have a very different outlook on investing…
So, what’s the billionaire case for crypto?
It’s the same one I make just about every week:
“If you look at a balanced portfolio, if you introduce 3% you already boost the performance,” Meyer said. “At 3% you are not taking a huge risk.”
That’s right, if you have a balanced portfolio, just a 3% diversification into crypto can have huge benefits. The specific allocation depends on one’s risk tolerance, obviously (this is not advice about how you should diversify your savings).
What is going on here is what I’d call cautious speculation. A recognition of the upside potential of cryptocurrencies that any wealth manager would be foolish to ignore.
After all, billionaires don’t get that way by losing money…
Crypto and gold are both “trustless” assets
Inflation concerns, the global dedollarization trend and distrust in traditional financial systems are certainly driving some of this investor interest. And it’s not just because both gold and crypto have shown incredible performance this year.
It’s because both gold and crypto are “trustless” assets.
Most financial assets are really IOUs, someone else’s liabilities. They’re promises to pay (money, profits and so on) at some future point. This means most financial assets are subject to counterparty risk.
“Counterparty risk” is easy to understand. When your cousin Frank begs you for $50 just till payday, you already know (based on your shared history) how likely he is to pay you back. THAT is counterparty risk. Some counterparties are extremely risky (cousin Frank, Argentina) and some are considered extremely safe (grandparents, Germany and the U.S. government). But even the safest counterparties might still run into a crisis and fail to meet their obligations.
Gold, crypto and only a very few other assets (real estate and livestock come to mind) can be owned outright. In your own name. When you buy bitcoin with a Digital IRA or open a Gold IRA with our sister company Birch Gold Group, you own these assets outright! There’s no counterparty risk because there’s no IOU. You choose the crypto or coins you buy, you transact and that’s it! You own them. Not because someone changed a spreadsheet over at the Depository Trust Company, but because the assets are under your control.
And for many investors whose faith in the financial system has been shaken (by the mid-2000s Great Financial Crisis, or the more recent pandemic panic or the even more recent Liberation Day), this lack of counterparty risk is a good thing. Both gold and crypto are assets outside of “traditional” investment options. And both offer more personal control over your investments.
So when both those who focus on the bleeding edge of opportunities (typically those who are younger) and those who focus on making sound business decisions (often the older and more experienced) both agree that investing in cryptocurrencies is a good idea…
Could they possibly be wrong?
That kind of unity of focus, especially with bedfellows as different as these two groups, indicates the expectation of big and positive movements for those who are smart enough to get in on this trend now.
- Strong upside potential
- Powerful diversification benefits
- Privacy and control well beyond those offered by other asset classes
- Outright ownership of your assets
- The freedom to make your own choices (instead of being dictated what you can and can’t do)
There’s no ONE reason people diversify their savings with cryptocurrencies. There are MANY reasons. And when you understand that, you can also understand why both the young and the wealthy are diversifying with cryptocurrencies.
The young, because they hope to retire one day. And only crypto offers the growth potential they need, while gold offers the inflation protection they want.
The billionaires, because they understand the concept of wealth preservation. Both gold and crypto offer “non-traditional” stores of value more or less disconnected from broad financial markets.
Best of all, the growth potential of cryptocurrencies goes great within a tax-advantaged IRA. You can start your due diligence by finding out more about cryptocurrencies in IRAs and the advantages of a digital IRA.
Gold and crypto. Two very different, but very powerful allies in your personal quest for financial freedom.
