Chief Investment Strategist, The Freeport Society
Well, that was embarrassing.
On Tuesday, a tweet from the SEC’s X/Twitter account announced that the agency had officially approved a Bitcoin ETF.
Great news!
Anything that makes it easier for Americans to hedge their dollar risk with cryptocurrencies like Bitcoin is a win.
Only, it didn’t actually happen.
The SEC’s account was “compromised” and the tweet was fake.
Still, within minutes, the price of Bitcoin spiked by $1,000. Over $500 million in futures positions were opened.
When SEC Chair Gary Gensler threw a wet blanket on the affair, Bitcoin gave up its gains.
The whole fiasco resulted in nearly $90 million in forced liquidations due to margin calls. Ouch.
On Wednesday, the SEC actually did approve 11 Bitcoin ETFs. More chaos ensued. This is, after all, the Age of Chaos.
So, what are we to make of all of this?
The Case for Owning Crypto
For starters, protect your social media accounts with two-factor authentication so that some joker doesn’t post fake news under your name. Someone at the SEC seems to have missed that memo.
The bigger lesson here is to tune out the trading noise and focus on the real trends. In this case, it’s great that ordinary investors will be able to easily buy crypto in their brokerage account or IRA rather than dealing with the arcane world of crypto exchanges and self-custodial wallets.
But that doesn’t answer the question of why you should own a little crypto.
So let’s answer that.
You should own a little crypto because of the Federal Reserve’s manhandling of the dollar over the past 15 years.
The Fed “prints” money by lending it into circulation or by buying assets like government bonds through open market operations. Going into the 2008 financial crisis, the central bank’s balance sheet was a little under $900 billion, as you can see on this chart.
It more than doubled to $2.2 trillion by the end of 2008 and then exploded to $4.5 trillion over the following five years.
That was just the pre-game warmup.
The real printing started in 2020. In less than two years, the Fed’s balance sheet more than doubled to $9 trillion.
One of the central bank’s primary roles is to be a “lender of last resort.” When the financial system is under stress or facing a short-term liquidity problem, the Fed can step in and supply liquidity to maintain an orderly market.
For example, if a bank is facing a wave of withdrawals, borrowing short-term from the Fed is preferable to calling in their customers’ loans or attempting to raise capital in a rough market.
But the key words here are “short term,” and by no stretch of the imagination would that include buying trillions of dollars of assets over several years.
The worst aspect of the Fed’s bond buying is that it’s effectively bankrolled congressional irresponsibility.
Uncle Sam is now $34 trillion in the hole, as you can see for yourself in this next chart…
And while our leaders love to talk about “investing in America’s future,” there was very little investment buried in that $34 trillion in debt. It was just spent… gone forever.
The scariest aspect of all is how quickly it’s accelerating. The national debt has doubled over the past 10 years. And we’re adding nearly $2 trillion per year to the tab with no politician from either party offering a credible path to solvency.
These are the people managing the dollar. Or rather failing to manage it.
This is exactly why Bitcoin was launched. Under the pen name Satoshi Nakamoto, someone wrote the whitepaper that mapped out the cryptocurrency during the 2008 crisis in response to the monetary tinkering by the Fed, the Bank of England, and most of the rest of the world’s central banks. The first Bitcoin was mined the next year.
Unlike the supply of dollars, which has no theoretical limit (remember QE Infinity?), Bitcoin’s supply is tightly controlled by its underlying algorithm and is capped at 21 million.
That’s why everyone should own a little crypto.
Just like gold coins, it’s a form of insurance – a hedge against currency debasement.
Yes, it’s still a new asset class and can be wildly volatile. That’s why you should only keep a modest position size. But regardless of how much, just have some in your portfolio.
As for the Bitcoin ETFs, keep your distance for now. The instant liquidity of ETFs is one of their main selling points, but it also makes it a little too easy to be your own worst enemy and overtrade.
I keep my crypto in a self-custodial wallet. I can sell if I need to, but it’s more time-consuming and that extra bit of difficulty makes it less likely that I let my emotions control my investing.
You should do the same, especially now, before the chaos of the presidential election gets into full swing. Things are already chaotic. It seems hard to believe it’ll get worse. But mark my words, it will. August 19 will be a particularly telling day. Our Freeport Society friend, Louis Navellier explains why in this special presentation.
To life, liberty, and the pursuit of wealth.