tri_yoda wrote:
Klaus Daimler wrote:
The comparison to currency is false. Currency is merely a medium of exchange. Its value cannot fluctuate and it cannot be perceived to have a positive value. Why would you spend your dollars if you thought they would be worth twice as much tomorrow? For this reason the appeal of bitcoin ensures its failure as a currency.
That said, bitcoin is a good way to pull assets out of the banking system. This absolutely has value. It is a better version of art or jewelry in this regard. Nevertheless unless you have enough bet worth that 2% is meaningful it is purely a speculative asset for you.
Some good insights. But why do you say better than art or jewelry? Certainly more liquid right now, but art and jewelry have stood the test of time as a store of value. Much lower possible downside than zero for cryptocurrencies. Looking back over the past 50 years, it seems harder to find a better asset than high-grade art works. And a some level the NFTs (which in my mind have a lot in common conceptually with cryptos) seem less speculative because they are leveraging the concept of artistic or unique works which has been such a proven store of value.
To the original question, I keep my dollar hedge in physical precious metals and am sitting out cryptos. The time to speculate was five years, when the downside was small. Now the stakes are dangerously high.
I say art or jewelry because the real purpose of these is that they are non financial assets. The real value of a van goh or a da vinci is not that it is "great art." No, it is because it is a store of significant value that is outside the financial system. The fed cannot wake up tomorrow and inflate your asset away. The government cannot confiscate it by nationalizing the banks. The IRS cannot tax it out of existence. Further, it is timeless and can be sneaked around discretely unlike other non financial assets, notably land and real estate. This is the value proposition of high value art. It is a store of value that is not a financial asset.
The same is true for jewelry, gems, physical gold. Watches are my favorite: rolexes are the original bitcoin. Their value is extremely consistent and can be moved around and transacted with ease. Tell me the serial number and condition and I can tell you within 10% what a rolex is worth. You can hide a significant amount of capital in a small space with a box full of rolexes.
I say "better" because it is very liquid and can be hedged with futures. It prices instantly and transaction costs are relatively low. Provided you hold crypto in cold storage it is easier and cheaper to store. You do not run the risk of being defrauded on bitcoin.
PS: precious metals are a terrible currency hedge. Run a regression of gold vs. inflation. The correlation is 0. I suspect platinum is highly positively correlated because its greatest use is catalytic converters, the consumption of which is highly cyclical. Silver is an industrial metal. See my comment that gold is a religion not an asset. Its properties are taken on faith, not data.
