RE:RE:RE:Have You Got Two Hours To Listen To A Good Debate?
The value of a digital currency to an investor is similar to that offered by a precious metal like gold but it also differs.
Similarly to the other digital currencies, Bitcoin is limited to a fixed number of coins (21,000,000 for Bitcoin) and it also act as a form of legal tender.
Gold is a commodity whose availability to meet the vagaries of supply and demand is subject to the constraints of production. The amount of gold is not fixed in amount. More can be mined to meet any demand. And the storage and tranfer of large amounts are subject to possible price manipulative events. Often transfers of gold are only paper in nature as no physical transport may be involved at all. This may open illegal opportunities to those who are the masters of the hoard.
Gold is also less useful to use as a medium of exchange. Digital currencies may be held suspended in the internet cloud and transfered like fiat currency, to another party, in an instant.
Gold also has weight and is expensive to hold when properly stored in a vault. It is also less useful because small gold coins are just too valuable to carry around in your pocket.
Both gold and Bitcoin do serve as hedges against the oversupply of fiat currencies.
But the digital currency might be considered the more volitile component of the two.
It would appear that during good times of economic expansion, which the stock market suggests is still happening now, a digital currency offers the potential to outperform gold.
But during a recession, it could also be subject to an incredible loss of value, even more significant, than gold might experience during the period of such an economic collapse.
A recession is the kind of event which Harry Dent believes might occur sometime next Spring.
From an Abcourt shareholder's perspective or someone invested in a digital currency, it would be better if a major recessionary event was avoided. But most asset investors, would tend to agree!
An economic recession would hurt most every investor as they watch the value of their investment, significantly decline.
Ironically, the holding of a fiat currency (treasury bill or a long term bond) might turn out to be the better investment during the earliest time frame of such an recessionary event. ( It is always good to have cash, to buy assets, when they are priced, very low).
However, I personally have confidence that most central bankers, will continue to strive to maintain their annual inflationary rate, near their goal of 2 per cent .
Furthermore, because every nation has such significant debt levels, their quantitative easing process will continue for many years to come. The ending of any necessary bond/mortgage buying events could precipitate a governmental default crisis due to their inability to pay back any significant amount of debt. Every nation's debt, seems now, just too large.
However, as they believe that economic conditions, may someday improve, the central bankers theorize that they could sell their large security holdings back into a more demanding public market. Or they could simply let the term of their purchased bonds at maturity, simply expire. Who would care?
Perhaps the magic of the money tree will continue indefinitely. That will save us from an economic collapse.
But as long as the immediate money printing continues unabated, the market knows that the day may come, when an alternative gold standard to fiat currency, may meet a need!
Many governments now have a significant tonnage of gold, hidden away in vaults, should the need arise. In addition, many nations would like to increase their holdings. It's like having a better, but more expensive, insurance policy.
Individuals also place the golden metal on a pedestal of honor. They may choose to adorn themselves with the purity of the gold, to add significance to themselves, in the form of jewelry. That demand never declines. And population numbers, always seem to grow.
Longer term, as long as the money printing continues, the price of gold and Bitcoin, or its equivalents, will continue higher.
But when central bankers feel that the economic situation requires some tightening of the money supply, they may choose to raise rates or liquidate some or their holdings.
Such an action would be negative for the price of the precious metal and digital currency investments that act as hedges against risk. But they are reluctant to take that step because it could also impact negatively on the overall market. Excessively raising rates or causing excessive inflation would not prove to be a prudent move!
For now, the governmental need to continue spending money makes the idea of raising rates, very unlikely.
Low interest rates are here for some time to come! The hedges against risk should continue to become more valuable assets.
In the short term, volality is a part of the market when it is a little uncertain about the future. And sometimes, there may be a shift in asset classes from growth to value. No one wants to lose money or miss out on a bargain!
But everyone needs the best insurance policy!
Digital currencies may continue to outperform gold. But over time, and as long as the quantitative easing continues, both asset classes should perform, extremely well!
Abcourt shareholders, should do the same!
All the best! Java