Bitcoin, gold, and other long-term investment ideas

Warren Buffett famously compares bitcoin to bubble juice, but the legendary investor is no longer ruling out the cryptocurrency as a long-term investment: “I happen to like cryptocurrencies more than paper money,” Buffett said on CNBC last November.

Bitcoin’s downturn has narrowed the number of attractive long-term investment opportunities to two: gold and oil. Here are some reasons to consider these two choices for your portfolio:

Technology

Fortune’s Jeremy writes that “the easiest way to predict the economic future is to look at the past” and that it’s becoming easier for investors to do this than ever before. That’s one of the reasons he chose Bitcoin for his 2018 Best Money-Making Ideas.

According to Fortune, the financial technology arena is growing rapidly. Goldman Sachs and blockchain companies like BitPay are introducing products and services around the world, and the rapid growth in those markets could help those virtual currencies compete with the ubiquitous American dollar.

What is blockchain, you ask? It’s a decentralized software protocol that any company (or person) can use. All transactions and identities are encrypted using a private, public blockchain. Even a PayPal-like company can provide an instant, secure service using the same technology.

The digitization of the financial system is ongoing and well under way: The International Monetary Fund reported that $3.7 trillion worth of transactions were conducted via the blockchain last year, according to Quartz. Virtual currency projects, like Bitcoin and its predecessor, ether, are no longer just upstarts either: JPMorgan Chase and a Chinese payment company, UnionPay, are making the currency mainstream.

Gold

Like all of mankind, money depends on technology. But unlike the digital currency craze that has been sweeping the world in recent years, gold’s fortunes have never been as dependent on technology as they are today.

That’s why Vanguard, the giant American mutual fund and investment company, recently introduced a new “gold ETF” — a product that will let investors buy gold directly rather than investing in a collective fund designed to invest in gold-related equities or the underlying physical gold bullion, as they do now.

Understandably, this has led some to speculate about a coming digital gold rush. But the market itself is not quite so volatile, writes Josh Brown at the popular blog Ritholtz Wealth Management. He points out that gold is a natural hedge against inflation.

The Commerce Department recently put out an annual report that, while noting a bright future for the economy, bemoaned the fact that workers’ wages didn’t keep up with the inflation rate. But the report cited “cost-push factors that can lead to volatility in prices: the dollar’s stability, changes in global oil prices, currency exchange rates, interest rates, labor market conditions and changes in the regulatory environment” as major drivers.

Still, gold has been the market’s best performer over the past month. The once-overvalued metal has made a mini-run at $1,200 per ounce. It has fallen off, however, as the dollar has strengthened over the last month: Gold prices fell more than 3% over the last two months.

Gold’s popularity isn’t fading, however, according to Fortune: Gold demand is now expected to reach 3,700 metric tons in 2019, nearly 50% more than in 2017. Here’s why:

Global investor demand for gold has been climbing this year, driven primarily by increased Chinese demand as the country expands its central bank reserves. This long-term trend could continue for a while.

Meanwhile, Trump, which Goldman Sachs reports has been slowly moving toward a more protectionist trade policy, could result in a reduction in gold imports in coming years.

Economic and political trends

The most compelling reason to go long gold, however, is geopolitical: Although gold is still unquestioned as money — the World Gold Council confirms that “gold remains the world’s most used monetary asset” — its value is under threat from a wide variety of factors that transcend gold itself. Its general value is derived from the less volatile, but still bullion-based, purchasing power of its intrinsic value. As have historically been the case, however, economic and political factors, e.g. shifts in global trade and foreign investment, can affect gold prices in unpredictable ways.

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