Bitcoin and Gold: A Guide for New Investors

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At some point in every investors journey, they start to question the real value of their investments.

This train of thought can lead investors down a rabbit hole—seeking stores of value that aren’t dependent on unpredictable company performance like stocks, or prone to depreciation like national currencies.

At the end of their search, wise investors will find scarce assets like gold and bitcoin that have no counter-party risk.

If you’re new to bitcoin and gold investment—you’ve come to the right place. This guide for new bitcoin and gold investors will tell you two things:

  • Why you should buy bitcoin and gold
  • How much bitcoin and gold you should buy

💰 Gold

“Gold is money. Everything else is credit.”  – J. P. Morgan

On a long enough timeline, all other investments—including national currencies, individual stocks, bonds and niche items like antique furniture—have lost value against gold.

As shown on this chart from GoldMoney, it takes around the same amount of gold to buy a house today as it did in 1940, but the gradual erosion of the value of the dollar means it takes far more fiat currency. 

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Chart from GoldMoney 

All in all, it is clear that over a long enough time period, holding national currencies, or even individual equities, is a poor way for individuals to maintain the purchasing power of their money.

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The value of German Reichsmark dropped like a rock in the early 1920s, but other world currencies have followed the same trajectory over the long-term.

Now this doesn’t mean you should go all in on gold, but it does mean you should consider allocating a part of your investment portfolio to the metal.

How much gold should you buy?

Choosing how much gold to buy is a personal decision, and should be determined by reflecting on your own financial position, or professional financial advice (none of which can be found in this blog post!)

But, many wizened old investors agree that holding between 10-25% of your assets in precious metals is a wise move. This small percentage of wealth acts as a sort of insurance against market catastrophe—like a trade war decimating the stock market, sudden global recession, or societal collapse…

The first guy to recommend holding ten percent of your assets in gold was a Federal Reserve economist named John Exter—a personal friend of the great Austrian economist and sound money theorist Ludwig von Mises.

He placed gold at the bottom of an inverted pyramid of all financial assets, showing that it is the least risky of all financial assets.

Exter
A modern adaptation of Exter’s inverted pyramid (where would bitcoin be?) 

In modern developed democracies with stable markets, holding ten percent of your portfolio or less in gold might be enough. But if you live in a country struck with high inflation like Venezuela, or a dictatorship, then you might decide on a larger allocation.

How to buy gold

Buying gold with Vaultoro is simple. 

Sign up online in minutes, verify your identity with photographic ID, and then send bitcoin to your Vaultoro address. 

When the bitcoin arrives, you can instantly swap it for gold bullion that is stored in a secure vault in Switzerland.

Bitcoin

“Gold is a great way to preserve wealth, but hard to move around. You need some kind of alternative, and bitcoin fits the bill.” — Jim Rickards 

Not all investors share the same motivations for buying bitcoin: Some think the cryptocurrency could be the next global reserve, some think it acts as a digital form of gold, and others think it is a god-given tool to save humanity from dictatorships.

Nevertheless, most of these investors are attracted to bitcoin by the qualities that make it appealing as an investment asset.

Just like gold, bitcoin is scarce. There is only a limited amount available, as only 21 million will ever be minted, and the supply reduces every four years or so. So if bitcoin does garner widespread adoption, then it could spark a race to buy all the bitcoin before it is too late, pushing up the price significantly.

The other appealing quality is that bitcoin is uncensorable. As it exists only on a decentralized computer network that transcends national borders, bitcoin cannot be seized, and cannot be controlled by governments. This makes it very appealing in times of crisis, as authorities are unable to interfere with the money supply and damage its value.

Now that bitcoin is growing in popularity, it is no longer the preserve of computer geeks and libertarian idealists. More people people are using bitcoin, and the network effect is growing, making it even more valuable to existing users. Even mainstream asset managers like Fidelity are now holding bitcoin for institutional investors that want an asset uncorrelated to fluctuations of global economy. 

Historically, bitcoin has been the best performing asset of the last ten years, and even over the last five years has outperforming stocks, gold, ETFs, bonds —everything!

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Bitcoin has returned 1124% over the past five years, compared to 60% returns from the S&P 500, and 11% returns from holding gold over the same period.

How much bitcoin should you buy?

Social media is awash with tales of investors (or gamblers) remortgaging their houses and selling all their possessions to capitalize on crypto-mania.

Few would suggest going all-in on bitcoin like this is a good idea, and most investors would strongly advise against it.

For most investors, a small fraction of cryptocurrency is enough to benefit from potential upside, but at the same time limit any potential losses.

The exact amount depends on how much you believe in bitcoin, and how much you can afford to risk—with recommendations ranging from a tiny 1% of your portfolio, to a massive 50%.

A research paper from an Economics Professor at Yale University recommends everyone hold bitcoin: 4% of your portfolio if you don’t believe in it, and 6% if you’re a believer.

eToro analyst Mati Greenspan suggests a more aggressive allocation: “Depending on the size and makeup of the portfolio as well as the tolerance for risk,” an investor could put “between 6 and 18%” into cryptocurrencies.

And some investors have even higher allocations. American fund manager Anthony Pompliano claims to have invested 50% of his wealth in bitcoin, and you can find plenty of stories of people who have remortgaged their houses to gain maximum exposure.

But, put too much money into bitcoin and you might end up like this guy…..

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How to buy bitcoin

Buy bitcoin on any trusted cryptocurrency exchange, or with a peer-to-peer service like LocalBitcoins. Then send it to Vaultoro for secure storage and the ability to take advantage of fluctuations in the market by trading between bitcoin and gold at any time.

The information in this article is for informational and educational purposes only and should not be considered financial or investment advice.  Investing in bitcoin and gold is highly speculative.

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