Bitcoin Won't Replace Gold... Here's Why You Should Still Own It

Editor's note: If you're like most Americans, you still probably don't own any bitcoin.

In fact, despite our repeated urges for everyone to at least educate themselves on the topic, we know that many of you become intimidated whenever you merely see the word "bitcoin."

That's why in this weekend's Masters Series, we're featuring some basics from our friend Tama Churchouse. Tama edits Stansberry Churchouse Research's excellent Crypto Capital newsletter. And around our offices, he's our go-to cryptocurrency expert.

Yesterday, Tama explained why bitcoin is "real money" and addressed some of the fallacies surrounding the fast-growing cryptocurrency.

In today's Masters Series essay – originally published earlier this year in his free Asia Wealth Investment Daily e-letter – Tama explains why everyone should own both bitcoin and gold... shares the major advantage you have over institutional investors... and offers three tips for anyone looking to buy bitcoin today...

Bitcoin Won't Replace Gold... Here's Why You Should Still Own It
By Tama Churchouse, editor, Crypto Capital

Bitcoin is frequently compared to gold. But it's not an either/or proposition... And I'll tell you why.

Gold and bitcoin are the only two widely distributed, decentralized methods of exchanging value as currency. They have no central authority issuance, unlike U.S. dollars or any other fiat currency.

Likewise, neither bitcoin nor gold can just be "printed" at the push of a button by an anxious central banker. You have to either earn your gold by mining it, or you can pay cash for it. The same is true of bitcoin (although bitcoin miners use computers instead of picks and shovels).

But there's one big difference between the two...

Gold is the very opposite of new technology.

Gold is a physical, tangible, and real asset. You can pick it up and feel its satisfying weight in your hand. It can't be altered. Gold is gold. Once I own it, that's it. I don't need to rely on a functioning Internet. I don't need a computer. It has pure, tangible value.

And gold has unquestionably been money for thousands of years. A gold coin can still sit in my pocket, even while I might be fending off mobs, zombies, hordes of cockroaches, or a nuclear winter.

On the other hand, bitcoin is nothing more than a code that exists somewhere on the Internet. You can't pick it up and put it in your pocket. If you lose that code... you lose your bitcoin.

Not only that, but unlike gold, bitcoin isn't easy to explain to the average guy on the street. The fundamentals of blockchain, and the distributed ledger systems upon which bitcoin is built, are not straightforward. It usually takes time and effort for people to understand just how much of an innovation bitcoin really is as a "trustless" mechanism for exchanging value.

(By "trustless," I mean we don't need to trust an intermediary to settle our transaction – we can exchange value directly and securely with one another, thanks to blockchain technology.)

Despite its benefits, most people simply can't comprehend bitcoin and blockchain.

Gold, however, is easy to understand. Its value has stood the test of time. As a friend of mine once put it: "I prefer a currency that has survived 5,000-plus years of wars, empires, the rise and fall of countries, cold spells, hot spells, and has been universally accepted in every country of the world."

I can't argue with that.

No matter how big bitcoin gets, it will never be gold.

If you were to ask me which I think is more likely to be around a hundred years from now, my answer is gold... every time. Nothing has usurped it for millennia as a globally accepted medium of exchange or store of value, and I don't think bitcoin will do so either.

But... you should still own bitcoin. Let me tell you why...

Bitcoin is the ultimate in freedom of asset ownership. The government can't confiscate it, as the U.S. government did with gold under Executive Order 6102 in 1933.

You can cross national borders with bitcoin in your possession on a USB thumb drive... or, if you can memorize your private key, with no physical object in your possession of any kind.

Whether your bitcoin is worth $100 or $100 million, it makes no difference to how you move and store it (which is clearly not the same with gold). You don't need a trusted middleman to send it. And you can move it around the world, securely, in a matter of minutes.

And if you're looking for gains... bitcoin is a lot likelier than gold to be up 1,000% three years from now. Even though its price has soared over the past few years, it's still nowhere near mainstream yet.

So gold and bitcoin both deserve a place in your portfolio.

Gold has stood the test of time and is a medium of storing value. Bitcoin's time, on the other hand, is just beginning. Blockchain technology is the future, and when you have an opportunity to buy the future and tuck it away, you should take it.

The Big Advantage You Have Over Institutional Investors

How can an individual compete against the big, institutional asset managers who dominate the financial markets?

These folks have trillions of dollars of assets under management, multimillion-dollar compensation packages for the world's best traders and analysts, and massive budgets for technology and trading systems. And their relationships with investment banks usually give them first pick for a hot initial public offering (IPO), along with access to all the research that Wall Street has to offer.

It's not often that individual investors get the upper hand on the big, institutional asset managers. But there's one frontier asset class where you truly hold the advantage over the bigger guys. And that's in cryptocurrencies.

Let me explain...

Recently, a friend of mine named Lewis Fellas launched a cryptocurrency hedge fund called Bletchley Park Asset Management. Anyone can launch a fund, but Lewis isn't just anyone. He's a world-class trader who's worked for top U.S. investment banks, one of Asia's most successful hedge funds, and, most recently, for the $35 billion Harvard University endowment.

When talking with Lewis recently, what I found particularly noteworthy was this: His fund has generated a massive amount of interest from institutional investors.

After an article mentioning the launch of his firm appeared in Bloomberg, he told me he was "blown away" by the number of institutional inquiries he received... from sovereign wealth funds, endowments, funds of funds, family offices... you name it.

This tells me a few things...

First, big institutions are obviously interested in cryptocurrencies as a new financial asset class. But right now, there aren't enough "bridges" between traditional asset managers and this new, less well-understood arena of cryptocurrencies.

People like Lewis create a credible "bridge" for these traditional asset managers to cross into the cryptocurrency realm.

Let's say you're the manager of a sovereign wealth fund, and you're interested in making a small allocation to cryptocurrencies. How do you go about it? Do you build an internal team and do it yourself?

Or do you look for people with strong backgrounds in asset management who have transitioned over to crypto, and who already know how to responsibly invest other people's money?

The latter, of course.

A few cryptocurrency funds already exist. Notables include MetaStable Capital (a San Francisco-based hedge fund) and Polychain Capital, run by 28-year-old Olaf Carlson-Wee with around $300 million in assets under management.

These funds, however, are usually backed mainly by big Silicon Valley venture-capital names like Sequoia Capital and Andreessen Horowitz... not traditional institutional asset managers, like pension funds, for example.

The institutional level of participation in cryptocurrencies is still very, very small by any measure... But it's increasing.

In recent months, we've seen several developments that will open up cryptos to the smart money...

For example, this month, bitcoin futures contracts started trading on some of the largest U.S. exchanges (the Chicago Mercantile Exchange and Chicago Board Options Exchange).

This gives a lot of institutional credibility to bitcoin as an asset class. And that really gives the green light to some of these bigger institutions who have been on the sidelines looking for some kind of validation of bitcoin.

Just take this recent quote from the CEO of Man Group. It's a huge asset manager, nearly $100 billion under management, and he simply came out and said, "Bitcoin and crypto, it's not part of our investment universe today. If there's a CME future, it will be."

(Editor's note: Since this essay first ran in October, CME Group has indeed launched bitcoin futures.)

So that is a big sign that we're going to see a lot of institutional money coming into this space.

Also, Coinbase, one of the largest crypto fiat exchanges, recently launched Coinbase Custody, which is a custodian service for institutional investors. Now, Gemini already has this. Coinbase is adding it. And clearly, this is targeted for institutions. Custody is, of course, one of the major issues that an institution needs to overcome in order to be able to buy bitcoin and enter the space. So having more custodian options for these institutions is a big plus.

What does this mean?

This means there's every likelihood that over the next year or so, we will see much greater sums of money flow into cryptocurrencies. And bitcoin is likely to be the biggest beneficiary.

Remember, bitcoin is the global reserve cryptocurrency. It's the first crypto asset that tens of millions of people who enter the space after you will be buying.

The advantage you have as an individual is that right now, you have far fewer hurdles to overcome before you can put some money into cryptocurrencies... and get your money there first.

Sovereign wealth fund or endowment managers who want to buy cryptocurrencies need to jump through a lot of hoops. They have to comply with a slew of regulations, get legal opinions, and – not to mention – expand the scope of their investment mandate (which defines what assets they can invest in). This is no easy task.

But all you really need to do as an individual investor is open a cryptocurrency exchange account and allocate a little bit of money to bitcoin. You don't have to put a lot of capital at risk, either.

Now, you have the opportunity to get out in front of a tide of institutional capital that will likely pour into cryptocurrencies as the asset class becomes increasingly mainstream... and increasingly difficult for asset managers to ignore.

So You Want to Buy Bitcoin... Now What?

With bitcoin soaring as high as $19,000 recently, you'd be forgiven – if you haven't bought any yet – for thinking you've missed the boat... that the opportunity has slipped through your fingers.

Relax. The opportunity is still there. But it's meaningless if you don't take any action to seize it...

Bitcoin works a little differently than the investments you might be used to. Next, I'll share three simple things you need to know before you get started.

1. Start small

Speaking from personal experience, I highly recommend that folks buying bitcoin start with an extremely small amount... that is, just a fraction of a bitcoin. You must make sure not to invest more than you can lose.

The process of buying, moving, and storing bitcoins is not like traditional online banking or investing. If you send bitcoins to the wrong location, for example, you can't just call up your bank and cancel your transaction. So it's critical to first familiarize yourself with the mechanics of moving bitcoins around with a relatively small sum, before moving on to larger dollar amounts.

2. Write everything down

It's ironic that while bitcoin is a highly modern technology, you must make sure to keep offline records of all your bitcoin information. That means pen and paper – or at least using a Microsoft Word document and printing it out as a backup.

You see, storing, sending, and receiving bitcoin involves setting up a digital wallet. This is where you "keep" your bitcoins.

Your wallet has a public key (which might look a bit like this: 1GwV7fPX97hmavc6iNrUZUogmjpLPrPFoE). This functions like an account name where the bitcoins get sent to.

Your wallet also has a private key. This will either be an alpha-numeric sequence that looks like the public key above, or a long sequence of random words generated by the wallet. This is the "password" you use to access your wallet.

Either way, secure wallets do not have an "I forgot my password" option.

If you lose or forget your private key, you lose access to your wallet. And you lose your investment. Period.

I write everything down, and I print out screenshots if I need to (that is, printouts of what is shown on the screen).

3. Don't leave money at the exchange

In order to convert your cash into bitcoin, you need to open an account with an exchange.

This process will typically take a few days, since the exchange will need to conduct KYC ("know your customer") diligence on you. This means a standard identity verification so the exchange knows who you are, and that you're not a wanted criminal.

Once you've opened the account, you'll be able to fund it with a bank transfer – or by credit card, in some cases – before you start buying bitcoins.

If the exchange where you bought bitcoin gets hacked – and if you left your bitcoins there – then you can lose your money. This has happened in a couple of high-profile cases.

For example, in 2014, bitcoin exchange Mt. Gox filed for bankruptcy, saying that 750,000 of customer bitcoins were missing. At the time, Mt. Gox was handling up to 70% of all bitcoin volume.

The safest place to store your bitcoins is in your digital wallet. You'll find a good selection to choose from online.

Regards,

Tama Churchouse

Editor's note: If you haven't gotten in on the cryptocurrency craze yet, you probably think you've missed out. But Tama believes you could make even more money in cryptos in 2018. In fact, he says his top recommendation could make return 500% to 1,000% next year alone. For an extremely limited time, you can watch a recent presentation he put together where he lays out everything you need to know. Watch it here.