Bitcoin Hasn't Kept Its Promise
Dear subscriber,
Things look glum.
The economic order has broken down. Stocks have crashed, along with bonds. And investors have soured on the U.S. currency. With President Donald Trump vocally threatening the independence of the Federal Reserve, the dollar is in free fall.
But there's been at least one shining light...
A better, truer form of money has soared, keeping smart investors safe from the chaos.
This proves that this type of money is superior to a government-managed fiat currency. It's a true store of value... and it has a promising future ahead of it.
The kind of "money" that has worked has been gold.
Gold soared to $3,400 this week, up 40% over the past year. (Remember when I told you $3,000 could be "just the beginning" for gold?)
Now, in some alternate reality, that could have been the case for bitcoin.
The so-called "digital gold" was supposed to be the asset that would protect investors against a government-manipulated, inflationary currency. When everything collapsed, bitcoin was supposed to soar.
But it hasn't.
As the U.S. dollar has fallen, so has bitcoin. You can see how both peaked in January before falling off a cliff. The price of bitcoin went from around $107,000 to below $80,000...
Bitcoin has popped in the past few days – but that's only because the tariff news has softened, and stocks and the dollar have rallied.
In other words, bitcoin is acting like a risk asset... not a safe haven.
Now, let me be clear before the e-mails roll in...
I like bitcoin. I was mining cryptocurrencies with graphics processing units ("GPUs") stuffed in a milk crate back in 2013. I bought my car with bitcoin gains.
But in the grand scheme of things, bitcoin is still a new asset class. We're still learning about where it fits in the investment world. And we need to constantly review the evidence as to how bitcoin moves, and why.
The story of bitcoin has changed over time.
On a "first principles" basis, bitcoin is a form of digital money that allows you to transfer value without a middleman like a bank.
In the beginning, bitcoin was going to be used to buy and sell things in a whole new way. And the more buyers and sellers that adopted bitcoin, the more its value would rise.
But bitcoin proved to be a little too slow, costly, and complicated for it to take off as a true payment method.
So the focus shifted from using bitcoin to spend to using it to save.
Bitcoin became digital gold... with its value derived from its scarcity, deflationary qualities, and inability to be affected by central banks.
The cryptocurrency always had an anarchist, "hard money" element to it.
Indeed, the global financial crisis of 2008 inspired Satoshi Nakamoto to create bitcoin. In a 2009 white paper, Nakamoto wrote about how central banks couldn't be trusted to avoid debasing their fiat currencies. That was the reason for a digital currency.
Then, an interesting thing happened...
As the store-of-value thesis spread, the bitcoin audience split in two.
Some loved it as a hard-money asset. Others loved it as speculation.
Its price had soared so much that it became a way to get rich. Gamblers saw it as a way to build wealth. And big institutions saw it as a way to earn higher returns outside of traditional stocks and bonds.
For the past five years, the get-rich crowd has been winning.
Put simply, all the statistical evidence points to bitcoin as a speculative asset... not a form of digital gold.
Bitcoin moves closely with risk assets like tech stocks. It goes up when speculative fervor rises. And it falls when people get scared...
So far, it hasn't successfully protected investors from market crashes, inflation, or currency debasement.
The question is, how should you think about bitcoin today? Can it ever fulfill its promise as digital gold?
Here's what I think...
First, you can view bitcoin as an asset to which you allocate a small amount of money.
I'm not going to predict the price of bitcoin. That's not my job. But I do think a lot about constructing portfolios, and bitcoin can improve your returns. Given that it can rise so much, so fast, you can get a lot out of even a small allocation.
Of course, if you have held bitcoin since 2008, the historical returns have blown anything else out of the water. But even over the past five years, if you held a 60/40 portfolio and moved just 2% of it into bitcoin (a "59/39/2" portfolio), it would have boosted your returns by nearly 2% per year, without adding much volatility...
If you still want to think of bitcoin as digital gold, well... the problem, for now, is leverage.
The bitcoin ecosystem caters to speculators who borrow so much to invest in bitcoin that the leverage makes bitcoin move like a tech stock.
You can trade bitcoin futures at leverage levels of 50 (or even 100) to 1. That's $50 in borrowed money for every $1 in equity. And leveraged bitcoin exchange-traded funds ("ETFs"), like the 2x Bitcoin Strategy Fund (BITX) and the ProShares Ultra Bitcoin Fund (BITU), let investors make leveraged bets on bitcoin with a click.
Back in November, I discussed MicroStrategy (MSTR) – a software company that borrows billions of dollars to make levered bets on bitcoin.
At the time, MicroStrategy had 279,420 bitcoins. Today, that number is nearly double. It holds so much bitcoin that there are even ETFs that offer investors levered bets on MicroStrategy.
When markets get jittery, investors unwind their levered bets.
It doesn't matter so much if that bet is placed on what's supposed to be safe digital gold... If leverage is unwinding, bitcoin will fall.
As long as this dynamic is in place, bitcoin is going to trade like a risky tech stock – not protection against an unstable economic system.
What Our Experts Are Reading and Sharing...
A couple years ago, a hacker took over the computer systems at Colonial Pipeline, a gas-distribution company with a massive network of pipelines across the U.S. Several folks in the Southeast found themselves without gas for a few days. Sounds minor. But it happened to me, and seeing how vulnerable we are can be a harrowing experience. Shortages don't typically happen in modern America... though they may soon be the new norm. CEOs from big-box retailers like Walmart (WMT), Target (TGT), and Home Depot (HD) privately warned Trump that tariffs will break supply chains and shelves will be empty. As Axios reports, consumers could start to notice in just two weeks.
The gambling mentality still plagues novice investors, even in these turbulent markets. The Wall Street Journal recently wrote about the growing trend of young, aggressive investors betting everything on big, risky trades. One trader even self-identifies as a "degenerate gambler" and recently spent $40,000 on GameStop (GME) call options.
Markets rallied sharply on Wednesday. Treasury Secretary Scott Bessent told investors that he sees U.S.-China tensions de-escalating. And Trump backed him up, saying the tariffs on China would eventually come down. He also walked back his statement that he'd fire Fed Chair Jerome Powell. As I said two weeks ago, "Tariffs make the market fall. Tariff relief makes the market rise"... not that that's a novel theory or anything. Let's just see if the lesson gets to Washington.
New Research in The Stansberry Investor Suite...
Most of the financial news this week centers around tariffs... again.
But fortunately for investors, it looks like the administration is easing off its hard-line stance on global trade... and stocks have started to rise a bit.
Of course, the saga isn't over. And wise investors are on the hunt for businesses that will succeed no matter which way the tariff story turns.
In this month's Stansberry Score report, we've found one such opportunity...
This company has a stellar business making real, vital products that few other manufacturers can put together.
More importantly, most of its manufacturing sites are based in the U.S... as is half of its revenue.
And despite being a manufacturer of complicated goods (the exact kind of business that Trump wants to grow in the U.S.), it manages to generate $0.20 in free cash flow ("FCF") for every $1 in revenue. That's a rich, 20% FCF margin.
Shares have declined with the broader market recently. But given its strong cash flow, generous share-repurchase program, and current tailwinds... this is the kind of stock investors will flock to over the next few years.
Stansberry Investor Suite subscribers can read the entire report here.
If you don't already subscribe to The Stansberry Investor Suite – and want to learn more about our special package of research – click here.
Until next week,
Matt Weinschenk
Director of Research
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