Cryptocurrencies took a $140 billion hit this Monday with a 21% plunge over Sunday and Monday. Kevin O’leary, well known as the judge on the TV show ‘Shark Tank’ has deemed gold, not bitcoin, as the ultimate hedge against inflation.
“Gold has traditionally been a hedge against inflation. If you ever wanted to hedge against inflation, you’d want it now,” said O’leary, “Some people have suggested that bitcoin could be a replacement for that. I am not in that camp for a whole host of reasons. I haven’t found the inverse correlation yet that people tell me bitcoin has to the markets, if you go look at the March corrections, bitcoin corrected as much, if not more than the market did, so I’m not convinced yet that it’s a replacement for gold.”
Other cryptocurrencies took a plunge as Ethereum also fell 12% and smaller coins XRP and Litecoin fell about 18%. While we expect to see digital currencies to be the new form as COVID-19 and the tech boom have transformed the economy, there are also risks in investing in these digital currencies. The number one and most important rule in investing is diversification. Savvy investors who are invested heavily in stock diversify with precious metals as a form of insurance. Similar to this, those invested in digital currencies should invest in physical assets such as precious metals to offset risk in an increasingly volatile market.
Kaiko Research noted in its December market report, “Bitcoin’s value increased as the money supply and inflation expectations grew. At the same time, the dollar depreciated to multi-year lows, resulting in an inverse correlation between the government-backed fiat and decentralized digital asset.”
As political tension, an uncertain future economically, and historical amounts of a fiscal stimulus directly accelerates the rate of inflation for the U.S. dollar, the American people along with the rest of the world have lost faith in the governments and large banks. Large banks themselves have already moved their assets into precious metals, as financial experts who know what’s to come.
What independent investors can do now, is to act quickly to be ahead of the curve. Diversifying their portfolios with assets that don’t rely on stock market performance will act as a form of insurance. Precious metals have historically served as a protective hedge against inflation and will continue to do so as our economy experiences unprecedented circumstances. During uncertain times, precious metals are starting to look more and more like the safety net we need, but it is important for individuals to invest before prices get too high.