Chief Investment Strategist, The Freeport Society
Crypto is bleeding red.
Along with stocks, bonds, the dollar – and virtually everything other than gold – most cryptocurrencies are circling as the trade war snuffs out animal spirits.
For instance, Ethereum is down 18% over the last month.
Smaller, less well known cryptos are down double that
There’s one exception, however.
Bitcoin, the original crypto, is showing signs of life.
That’s because, as I’ve been showing you, a dollar crisis is looming. And Bitcoin – along with gold – is emerging as a viable dollar hedge.
That’s why I’m making it my mission in today’s Freeport Navigator to make sure you own both as part of a diversified portfolio.
That does not mean I’m bullish on crypto in general.
As we’ll look at toward the end of today’s insight, you can be bullish on crypto while being highly skeptical of the broader crypto market.
A 50% Dollar Drop Is in the Cards
As I wrote in these pages yesterday, the dollar could lose half its value over the next few years.
That’s not hypothetical.
Twice in the past 40 years, the U.S. Dollar Index – which tracks the exchange value of the dollar versus overseas currency – fell 40% or more.
Once, following the bursting of the dot-com bubble in 2001.
Before that, following the 1985 Plaza Accord, when President Reagan got Japan, West Germany, France, and Britain to help devalue the U.S. dollar against the Japanese yen and the Deutsche mark.
The goal was to fix massive U.S. trade deficits and correct currency imbalances caused by the strong dollar.
This time it’s Trump who wants to fix massive U.S. trade deficits. But the pressure on the dollar is just as real.
Since the start of the year, the U.S. Dollar Index is down by about 9%.
Gold is up nearly 30% for the year as a result. But Bitcoin has been tracking stocks lower… until recently.
As you can see from the chart below, recently it’s been rising as the S&P 500 has been falling.
It shouldn’t come as too much of a surprise that investors are turning to Bitcoin as fears of dollar debasement grow.
There are two important reasons for that…
Digital Gold Standard
First, unlike the dollar, Bitcoin is a scarce asset.
Its supply is capped at 21 million coins. And unlike the dollar, banks and central banks can’t create new bitcoins at will. They’re costly to “mine.”
This is why you often hear Bitcoin referred to as the digital version of the gold standard.
Yes, its price fluctuates, just like the price of gold does. But like gold, you can’t create more of it at will. That makes it a great way to hedge against dollars and other fiat currencies, which get created in vast quantities.
Second, Bitcoin has achieved institutional acceptance.
It may have started as a rebel currency for libertarians and tech geeks, but it’s now a legitimate asset class.
There are now 12 U.S.-listed Bitcoin ETFs. Collectively, they have more than $100 billion in assets under management.
Tesla, MicroStrategy, and other large corporations hold Bitcoin.
It’s even gaining acceptance as a government reserve asset, too.
The U.S. government owns over 200,000 bitcoins as part of a proposed National Crypto Strategic Reserve. The Chinese government holds an estimated 194,000 bitcoins.
For these reasons, I made Bitcoin one of the founding recommendations of Freeport Investor when we launched in December 2023. Even after this year’s volatility, we’re up nearly 120% in that position in our model portfolio.
If Trump is serious about boosting U.S. exports he needs a weaker dollar. And so far, he’s been getting his wish.
Make sure you own dollar hedges like gold and Bitcoin. It’s irresponsible not to.
But…
That does NOT mean I’m bullish on crypto in general.
Was Decentralized Flatulence a Sign of the Top?
The launch of Fartcoin (FARTCOIN) back in October should have been the flashing warning light of trouble to come.
In case you missed out on this noteworthy chapter in market history, Fartcoin is a meme coin on the Solana blockchain promising “decentralized flatulence for the people.”
Its key feature – its only distinguishing feature, really – is its “Gas Fee” system that makes a fart noise when you make a transaction.
Fartcoin launched with a price of $0.01. It topped out at a price of $2.02 in January.
If you caught that run, that’s $202,000 for every $1,000 invested in just three months… in something called Fartcoin.
And that kind of ludicrous speculation sums up about 90% of the cryptocurrencies out there.
I’d love to tell you that Fartcoin is uniquely ridiculous.
But it’s not.
Every speculative bubble has equally asinine excesses.
“An Undertaking of Great Advantage”
The housing bubble leading up to the 2008 meltdown gave us the “Ninja.” loan.
It stood for “No Income, No Job, and No Assets.” If you had a pulse, you could buy a house.
That went about as well as you’d expect.
The 2000 internet bubble gave us that maddening Pets.com sock puppet… and a business model so bad that the company managed to lose an estimated $10-$15 for every bag of dog food sold.
And if you’re a history nerd like me, the standard bearer for the most ludicrous investment of all time is the South Sea Bubble in 1720s Britain.
A stock promoter famously placed an ad for, “An undertaking of great advantage, but nobody to know what it is.” And people bought in.
That gentleman – whose name has been lost to history – allegedly pocketed the money and disappeared over the English Channel to live out his days in France. His legacy lives on today in the form of blank check companies and SPACs.
Bear markets have a way of separating the wheat from the chaff. Assets are repriced based on more realistic expectations. Bad ideas flop, poorly run businesses fail. The strong survive.
We’re seeing this happen in the crypto market right now.
Most cryptos are headed for the history books.
Bitcoin is here to stay.
To life, liberty, and the pursuit of wealth.