Forget Bitcoin: These Are the Top Assets to Own in a Recession
If you’ve been following Bitcoin at any point since its meteoric entrance into the financial world in 2009, you’ve probably heard the world’s leading cryptocurrency touted as “digital gold” before.
Apple co-founder Steve Wozniak, for one, has outright said, “Bitcoin is pure digital gold,” while billionaire Mark Cuban recently remarked that “[he sees] gold and bitcoin as being the same thing.”
Nathaniel Popper over at the New York Times even wrote a book about Bitcoin with the title Digital Gold — it doesn’t get much more apropos than that.
Clearly, the idea of Bitcoin being a digital parallel to gold has been permeating throughout financial circles and within the speculative side of Main Street for some time now.
As has long been the case with real gold, many investors have established, at least with some degree of conviction, that Bitcoin serves as a defensive store of value.
Yet earlier this week, that very notion took a serious blow when the U.S. Treasury 2-10 year yield curve inverted for the first time since 2005.
The markets tanked fearing the prominent recession signal, and gold predictably reached a six-year peak. Yet Bitcoin, the so-called “digital gold,” more than tripled the respective losses of the Dow Jones that day, plummeting roughly 11%.
So Much for Digital Gold?
It’s worth noting that I myself have drawn a connection between Bitcoin and gold before.
In 2016, I framed the coin as a financial hedge against global currencies, saying:
Bitcoin tends to work as a hedge because it's disconnected from the traditional financial system. It offers an easy way for people to exit economies that revolve around government money and bad monetary policy.
If you’re one of the many people worried that the U.S. dollar is on its last legs as the global reserve currency, Bitcoin isn’t a bad bet.
Now, from the time of that statement to today, the price of Bitcoin has climbed 1,200%. It would suffice to say that Bitcoin, indeed, hasn’t been a bad bet, but given the price action around this week’s yield curve reversal, it’s clearly not operating as a financial safe haven or direct market hedge, either.
At least, this hasn’t proven to be the case yet, which actually makes a whole lot of sense.
As far as I can tell, Bitcoin is still largely operating as a speculative trading vehicle. It’s only natural that when fear of a recession is building up, cryptocurrency investors are going to liquidate.
After all, what good is Bitcoin to the average Joe or Jane if a recession starts tomorrow?
When recessions hit, consumers and businesses tend to move into a defensive posture. People become nervous about borrowing money and tend to save what they have, not speculate. That’s why the Fed will typically lower rates during a recession: to encourage people and businesses to save less and spend more.
As long as Bitcoin remains volatile, and as long as it is not widely accepted as a form of payment, the market isn’t going to actually use it as a form of defense. That designation still goes to gold and the USD, at least for the time being.
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Guaranteed Passive Income: The Only True Safe Haven
So what, then, does this all mean to you as an investor?
Well, it means you should probably forget about Bitcoin and have some exposure to gold in your portfolio if you’re aiming to hedge against a market crash. Personally, I think anywhere between 10% and 20% is a reasonable range for allocation.
In any event, my advice is not to complicate the purpose of the asset too much.
If you want to use gold as a hedge, you don’t need to go searching for individual mining companies or even buy physical bullion. All you need to do is find a vehicle that correlates tightly with the spot price of gold and is physically backed. SPDR Gold Shares (NYSE: GLD) does that just fine.
That’s not to say there’s no money to be made in miners, of course, but realize if you’re buying one of these gold stocks, you’re not hedging your portfolio; you’re speculating on a single company and its ability to extract gold more efficiently than its competitors.
Frankly, resources aren’t in the realm of my expertise, so I prefer to take the simplest route with GLD and call it a day. Hard-core goldbugs will contend that you want to own bullion instead, but this comes with risk of theft and reduced value by breaking the chain of custody.
Perhaps more important than gold, though, are vehicles for guaranteed passive income — ways for you to get paid whether the market is up, down, or sideways.
Next to gold, passive income is going to be your single most valuable asset in a down market. There are many ways to secure it, but the simplest way is to own the right dividend-paying stocks.
Specifically, you’re going to want to own stock in companies at the center of industries that are still going to be around and, ideally, growing for the next hundred years.
Easily one of the best ways to do that right now is by taking a stake in the ever-expanding e-retail market. I say this because Amazon has already proven largely recession-immune, with revenue growing more than 78% between 2008 and 2010.
Amazon, of course, doesn’t pay a dividend, but one of its supply chain and logistics partners, referred to by Forbes as “Amazon’s Landlord,” is dishing out significant and regular payouts to its investors.
Until next time, Jason Stutman Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and Topline Trader. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted. Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary. Outside the office Jason is a lover of science fiction and the outdoors. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.
Until next time,
Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and Topline Trader. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.
Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.
Outside the office Jason is a lover of science fiction and the outdoors. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.
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