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A Case for Bitcoin in Your Portfolio

Jim Rickards, the author of The Death of Money and Currency Wars, in a recent interview with Reuters had this to say about the U.S. dollar, “The dollar is actually a digital currency. People look at Bitcoin and call it that, but so is the dollar. An overwhelming percentage of transactions these days are digital, starting with the trillions of dollars in the Treasury market.”

Although paper money is still widely used, in such high-tech financial centers as Singapore (where practically everything seems digital now) electronic transactions make up the bulk of the movement of money these days.

Examples of electronic money are bank deposits, electronic funds transfers, direct deposits, and payment processors. These are “centralized systems” of electronic money.

Examples of “decentralized systems?” These are the new kids on the block, and include Bitcoin, Ripple, Litecoin, and quite a few others that seem to spring up every other day.

Rickards goes on to say, “The last time people had actual paper bonds in safe deposit boxes was in the 1970s. In the old days, the government had ways of shutting things down entirely in times of crisis, like arranging bank holidays or closing stock exchanges. With a digital currency, we could all be very vulnerable during the next financial panic.”

I find this quite prophetic of Rickards, as we are living in times where government administrations everywhere are ruining the purchasing power of their centralized currencies in an attempt to supercharge their economies and empower their corporations. The United States, China, Japan, and the EU all seem trapped in this perpetual “currency war” (as Rickards coined it), which appears more like a race to the bottom than anything else.

As an example, income inequality (a hot topic these past couple years)… clearly today’s winners are the corporations, mega banks, and the extremely wealthy—those with direct access to the central banks. The losers? Well, that would be the rest of us. For those who might disagree, or think it simply hyperbole, how else would you describe it when the top 1% control almost 40% of the world’s wealth and growing?

Anyone paying even passing attention to this wealth distribution and to the distortion of prices that has taken place realizes that fiat currency is in an inevitable death spiral. We have governments like Japan, with its gross government debt as a percentage of GDP at 200% plus, stimulating its economy like no other in history. It’s almost as if the Japanese government is flying blind into a typhoon hoping for the best when they come out on the other side.

This monetary experimentation, with its new economic models, stimulation, ultra-low borrowing rates, and bloated central bank balance sheets, has never been done before.

The perils of debasing a country’s currency to support an unhealthy economy, or to superficially stimulate one, far outweigh any of the benefits we have seen so far. The central banks of the world have solved nothing, only increased the distortions.

Whether you agree with this assessment of not, the fact still remains that centralized digital currencies are being manipulated to spark economic growth and the outcomes are unpredictable at best. We have no way of knowing what the future holds for the global centralized systems of credit and money.

That said, decentralized systems of money have never been more important to your portfolio of investments and possibly your financial future. Moreover, the advent of these digital currencies has never been timelier.

Many financial professionals and economists believe we are witnessing the death of money as we know it. Some believe it is intentional, some believe unintentional, but almost all agree that it is unavoidable.

One thing is for sure, though, just like every single currency in the past, something else will replace it. Whether it’s a new centralized currency like the International Monetary Fund’s SDR, or a decentralized currency like Bitcoin, you can guarantee something will be brought in to keep trade and commerce from capitulating.

Bitcoin seems to be one of the best, if not the only, alternative hedges at this point. The popularity of Bitcoin is growing, and soon it looks to take over and become one of the prime methods of payments online. We could be witnessing the dawn of a new age in methods of payment, and a more democratized version, too, if it ends up being a decentralized currency such as Bitcoin.

Albeit, using the words “decentralized” and “democratized” in the same sentence might be a bit too much for mega banks and governments, but the fact remains that the status quo is indeed in a pickle and change is on its way.

Whether or not governments and the banks will allow a decentralized currency to even exist is the big question. Nobody knows for certain how this will play out, but it all seems par for the course in the rapidly evolving technological world we live in.

Personally, I view the risk of not owning some Bitcoin, or another decentralized digital currency, as riskier than putting your head in the sand and waiting for the central bankers to “save us all,” especially when they are the ones who helped wreck their own centralized systems to begin with.

Besides, owning a little piece of something as revolutionary as Bitcoin almost seems patriotic on some level. Not on a nationalistic level, but more like on a global platform.

The future is globalized and it’s inevitable that a currency with everyone’s best interest is put forth as a viable solution, especially something decentralized, democratized, and transparent—you know, something any world bank could never achieve.

  • Sounder

    like jim rogers says, “the dollar is a very flawed currency”