Crazy Gamble or Must Own Asset Class?

In recent years, the financial landscape has witnessed a seismic shift, none more transformative than the ascension of cryptocurrency, with Bitcoin leading the charge. Despite the volatility, including significant price corrections, the enthusiasm for Bitcoin and its crypto counterparts remains undiminished.

I encountered the unwavering interest in Bitcoin firsthand during an unexpected conversation with a peer. Their immediate inquiry about acquiring Bitcoin, without any preamble, underscored the widespread allure of cryptocurrencies—not as a mere investment but as a phenomenon.

Her approach is indicative of a broader trend: cryptocurrencies have captivated not just seasoned investors but also those outside traditional investment circles. This widespread appeal is reminiscent of historical investment frenzies, yet Bitcoin and its ilk stand apart due to their unique characteristics and the democratization of investing they represent.

The Millennial Magnet: Bitcoin’s Broad Appeal

Cryptocurrency, particularly Bitcoin, has struck a chord with younger generations. Its appeal lies in its accessibility and the minimal investment required to participate. Platforms allow purchases as low as $20, making it an attractive entry point for millennials. This generation values the immediacy and potential for cryptocurrencies’ rapid gains, challenging traditional, slow-growth investment strategies.

The launch of cryptocurrency hedge funds and investment trusts, such as the Bitcoin Investment Trust, underscores the growing institutional interest. Meanwhile, the introduction of Bitcoin futures contracts by major exchanges has further legitimized the cryptocurrency market, offering more structured vehicles for investment.

A New Era of Investment or a Fleeting Fad?

The debate around cryptocurrency’s legitimacy and longevity as an investment class continues. While its potential for high returns is undeniable, the risks associated with its volatility are significant. Governmental scrutiny and regulatory actions worldwide add layers of uncertainty.

The perspective of Warren Buffett, renowned for his investment acumen, offers a cautious viewpoint. Buffett’s skepticism about cryptocurrencies and his advice on investing within one’s areas of knowledge resonates with many who question the prudence of investing in such a volatile and unregulated market.

Buffet on Cryptos: “GENERALLY I CAN SAY ALMOST WITH CERTAINTY THAT THEY WILL COME TO A BAD ENDING…”

When asked why HE didn’t invest in Bitcoin, Buffet’s words were, as always, direct and brilliantly simple:

“THERE’S NO REASON. I GET INTO ENOUGH TROUBLE WITH THINGS I THINK I KNOW SOMETHING ABOUT. WHY IN THE WORLD SHOULD I TAKE A LONG OR SHORT POSITION ON SOMETHING I DON’T KNOW ANYTHING ABOUT? WE DON’T HAVE TO KNOW WHAT COCOA BEANS ARE GOING TO DO OR CRYPTO CURRENCIES – WE JUST HAVE TO FOCUS ON 8 OR 10 STOCKS.”

Stocks he likely knows everything about. And there you have it.

Would I trade it? Not on your life.

Why? Because I don’t know enough about Bitcoin to invest in it. To borrow almost exactly from Buffet, why should I trade bitcoin or cryptos that I know nothing about when I can trade 12 commodities like soybeans, gasoline, and (Yes, Warren) Cocoa Beans that I know a lot about after decades of research and analysis?

Bitcoin and crypto, as a whole, may end up being an excellent long-term investment, but I am not convinced yet.

To me, it also means investing in real markets that I can touch and feel. I can’t hold a Bitcoin in my hand. If financial Armageddon comes tomorrow, will anybody still want a Bitcoin? I started investing in silver when I was a teenager. And you know what? I still have some of those original coins. I can still hold them in my hand. They still have value. One hundred years from now, they will still have value. As will a pound of sugar or a bushel of wheat. Visit the Cordier Commodity Report for our most recent analysis in commodities.

Sound Investments vs Bitcoin

Kevin Costner made a lesser-known movie in the early 2000’s called “Mr. Brooks.” He plays a psychopath (Earl Brooks), but the picture contains a timeless piece of investment wisdom. “You always want to invest in things people can’t do without. Water and cemeteries… pretty safe bets,” quips the sinister Costner. It’s doubtful Mr. Brooks would have been a big fan of Bitcoin. But items like wheat, corn, oil, and cotton would have likely appealed to his stoic investment logic.

In a day and age when stock values are in the stratosphere and bitcoin rages across the investment sky like Haley’s Comet, investing in essential commodities that everyone needs may not make the evening news. But we’ll all still be eating, traveling, and dressing long after either comes crashing back to earth.

Investing in Fundamentals vs. Chasing Trends

The allure of potentially lucrative returns from cryptocurrencies can be tempting. However, the wisdom of focusing on investments grounded in tangible assets and essential commodities remains compelling. These investments, unlike cryptocurrencies, offer intrinsic value that persists through economic fluctuations.

In an era marked by speculative fervor over digital currencies, the importance of prudent, informed investment decisions cannot be overstated. While cryptocurrencies may offer unprecedented opportunities, they also pose significant risks. Balancing the allure of rapid gains with the principles of sound investment strategy remains a critical challenge for investors.

As we navigate the evolving landscape of investment opportunities, the timeless advice of focusing on what is essential, understandable, and sustainable gains relevance. Whether cryptocurrencies will endure as a staple of investment portfolios remains to be seen, but cautious, informed investing principles will always hold true.

Past performance is not necessarily indicative of future results. Futures and options trading involves risk of loss. Only risk capital should be used.

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