How to protect your wealth in a financial crisis using Bitcoin and gold


It’s too late to make contingency plans for the next financial crisis – it’s already here. And by the looks of things, it isn’t going to be abating any time soon.

It’s certainly not too late to protect your wealth though. As the world comes to terms with the economic shock caused by an epidemiological crisis-induced-recession, smart investors are putting their money to work.

Through astutely rebalancing your portfolio, you can not only protect yourself from the worst of the economic downturn, but earn yield that will grow your nest egg in the months and years to come. Panic selling and buying will not be necessary. But it is imperative to act fast to preserve your wealth and gain exposure to the greatest wealth creation opportunities that the coming years will present.

Buying Bitcoin as an Alternative Investment

Just as gold became the leading global asset due to production being a reliably small percentage of its existing supply, bitcoin’s quadrennial halvings guarantee a diminishing supply growth rate, making it an increasingly attractive speculative option for many investors.

You don’t need to be bullish or bearish on gold or bitcoin to recognize their potential as interest rates fall and the Federal Reserve risks inflation by injecting trillions of dollars of liquidity into the market. Unlike fiat currency, the supply of gold nor bitcoin cannot be wilfully increased: humans have been hunting for gold for thousands of years with ever-diminishing returns, its high stock-to-flow ratio making it the perfect hedge, and bitcoin is often dubbed digital gold due to similar properties.

Bullish on Bitcoin

The world’s best-known and most widely-used cryptocurrency has seen big growth in institutional interest: last year, crypto-focused hedge funds rose to more than $2 billion, up 100% from 2018. The average value per fund increased from $21.9 million to $44 million, with two-thirds of active crypto hedge funds having launched in the last two years. Such investment is easy to appreciate: after all, bitcoin ended the 2010s as the decade’s best-performing asset.

Bitcoin’s price recently rallied above $10,000 for the first time since late February, as anticipation mounted ahead of its third halving, when block rewards for miners fell from 12.5 to 6.25 BTC. The cryptocurrency’s supply is strictly limited, capped at 21 million coins.

As more people demand to hold it, appreciation of the existing supply occurs. And with each bitcoin divisible into 100 million satoshis, there’s enough to go around, despite bitcoin’s much-vaunted digital scarcity.

It’s much easier to acquire than gold too; bitcoin can be instantly purchased through platforms such as Skrill and sold just as easily. Skrill is known to be simple for first-time investors, allowing them to acquire bitcoin quickly and easily. Having facilitated digital payments since 2001, Skrill’s integration of cryptocurrency makes business sense, while adding utility for investors, who have more than 100 ways to buy BTC using the platform. There’s also the ability to choose between buying bitcoin directly using Skrill’s built-in changing service, or to set automated buy orders, for investors seeking a specific entry point.

Recent movements in bitcoin’s price make it the top-performing asset of the year so far, surpassing even gold, silver and crude oil. Crucially, BTC’s correlation with the S&P 500 has dropped, suggesting that it is becoming a hedge during times of economic uncertainty. No wonder Paul Tudor Jones says bitcoin reminds him of gold in the 1970s.

The crypto’s success has even caused governments around the world to explore the idea of introducing their own digital asset, with the European Central Bank actively developing a retail central bank digital currency.

Holding Gold: Physical Metal or ETF?

There are few options for buying the world’s most precious metal. One is to purchase paper gold, for example in the form of an exchange-traded fund (ETF) on a stock exchange. ETFs that track gold are liquid, cost-effective and convenient, entailing no storage costs or security risk. Annual costs to cover the fund’s expense ratio are also modest, though if you’re using the services of a broker, commissions can mount up fast.

GLD is the largest ETF that directly invests in physical gold. Pricing is derived from the LBMA PM gold price, which ensures it closely follows spot prices. As one of the most liquid ETFs on the market, the spread is tight, enabling traders to enter and exit positions at their desired price. Another popular option is the ProShares Ultra Gold ETF, which targets 2x the daily performance of the Bloomberg Gold Subindex. Daily returns are compounded.

Cash has poured into gold ETFs in Q1 of 2020, with inflows already surpassing any full year on record. Gold ETFs have topped the $11.7 billion that poured into the funds after the 2008 crash, having attracted $14.5 billion in less than five months.

Some investors, like Quantum Fund Co-founder Jim Rogers, prefer physical gold to ETFs, despite the higher storage and insurance costs. With physical gold bars or coins, the buyer should be able to store it, sell it and take delivery of the metal. Private Swiss Bank Union Bancaire Privée (UBP) recently predicted that gold would soon tackle its all-time high of $1,920 an ounce, while arguing that physical gold was preferable to “synthetic exposures” like gold-backed ETFs. UBP cited the Fed’s money-printing policy as “laying the foundation for gold.”

Gold is available to buy from government and private mints, precious metal dealers and jewelers, though it’s vital to do your research to source the best deal.

Despite countless gold-mining facilities being affected by recent lockdown measures, gold shares have easily outpaced broader stock indexes including U.S. Treasury bonds, as indicated by the above chart.

What About Cash?

Is it worth storing money under your mattress? After all, cash is useful for liquidity: if markets drop, you have funds with which to rebuild and diversify. That said, increasing chatter about a move towards state-backed digital currencies – not to mention widespread aversion to physical cash in the wake of Covid-19 – makes it a risk. The former President of the People’s Bank of China, Li Lihui, recently remarked that a Chinese digital yuan would eventually replace physical cash in the country. Even pre-coronavirus, cash use was in decline, with debit cards having overtaken all other payment methods in 2017.

Protecting your wealth amid a downturn, much less a wide-scale shutdown and growing debt bubble, isn’t rocket science. It’s a matter of putting your money to work in sound investment vehicles and avoiding volatility. Of having a low time preference by consuming less and deferring gratification. Gold and bitcoin represent two terrific options for investors keen to hedge against the continual clattering of the money-printing machines and the inflation they engender.