Monday, June 23, 2014

Liquid Alt: Gold, CA$H And Bitcoin

Almost everyone maintains some kind of liquidity, it is just natural to want to have enough money around to cover the necessary things in life: food, rent/mortgage, gasoline...  Most of people's liquidity is in banks, checking and savings accounts.  In this article, I argue that that may not be good enough, that everyone should try to own liquid assets outside of the financial system.

The USA and the world as a whole suffer numerous financial problems.  In recent years we read about people in Cyprus being "bailed-in", that is having some of their account money actually removed by their government, kind of a tax.  There are now numerous proposals being floated in the US and Europe to allow similar actions if the government so decides, "in extremis" of course...

Many of us have also read that the FDIC only has some 1% of its total possible liabilities should there be widespread bank failures.  Maybe the customers of the first few banks would get paid (ah, but only up to $250,000 -- in total, that figure is for the total of all of your banks accounts).


In the event of a "crunch" or other serious negative financial event, I believe that everyone (who can) should already own all three of these "Liquid Alternative Assets":

-- Gold (and/or other precious metals)
-- Cash, actual FIAT currency, perhaps four months worth
-- Bitcoin, diversification, mobility and a "Lotto Ticket"

NO ONE can predict the future!  We can make guesses and informed choices however.  Prudence would dictate owning at least something of the above in case of massive bank failure...

I offer the same suggestions to all readers outside of the USA as well!  Just tonight I read that the controversy in Germany about them NOT getting THEIR gold back from the Federal Reserve Bank of New York is making news again...


Most of you kind readers already know that I strongly believe that EVERYONE (with savings) should have some physical gold.  I suggest 5% - 20% of net wealth in gold.  Having 5% of your (net) wealth in gold puts you into "the 1%" (that is, 99% of people own NO gold, except for jewelry).

And I do not mean buying the GLD (the ETF for gold) or other "paper gold" (futures, etc.)!  Buy the gold, not the gold miners.  Buying gold miners is buy shares in companies.

Gold has been valued by humanity for at least 5000 years.  The ancient Lydians started "minting" gold coins about 550 BC.

Gold coins (especially, for Americans) the Gold Eagle or the Gold Buffalo) are probably the best way to get started.  Gold Eagles are available in sizes as small as 1/10th of an ounce (would cost about $160).

Silver is often called "the poor man's gold".  Silver is better than nothing, but if I had to pick ONE, I would pick gold.  There is no harm in buying some silver (or platinum) once you have a starter position in gold.


Since the banks are paying 0.1% (or less) of interest for your money in the bank, why not just take some OUT of the bank?  There is a real risk that banks may wind up losing some or all of it should bad things happen...

Since you receive essentially no interest on your money, there is essentially no "Opportunity Cost" (loss of possible income) in just holding some of your money in CA$H!  Just find a safe place for it...

How much cash?  The "survival" websites suggest around three - four months of family expenses.  Of course, in the event of big financial problems, "family expenses" might very well go down.  Again, hide it well, maybe even have TWO places, one easier to fool the burglar or other robber...


I also am feeling more and more confident that Bitcoin (BTC) is likely to be here to stay.  And that "almost everyone" with some extra "money", and the ability to get it, should own some BTC.

Before I get to my arguments as to why I recommend owning BTC I would like to show one apparent change in the fast-moving world of Bitcoin.  There are new entrants into the mining pools (, image from about 5:15 PM US ET), *click* on the image for a better view:

People who closely watch the "mining pools" (groups who put hundreds or even thousands of special ASIC computers that work together to solve the "math problem" to mine BTC) will recognize the large blue slice GHash.IO, who has been grinding away in first place for as long as I have been looking at these charts (eight months or so).  GHash.IO typically takes some 30% - 49% (but they briefly did go over 50%) of the hashing power ("tera-hashes" in BTC mining jargon), which is closely correlated to BTC won by the miners.

But, there are new players!  Note KnCMiner (fourth place, 7%, "purple slice") and AntPool with some 3%.  Both of these miners are apparently owned by bitcoin mining equipment manufacturers!  In other words, KnC and Bitmain (the latter makes AntMiner rigs if I have this information right) are front-running their own customers!  The above chart illustrates what has long been rumored, that customers of these manufacturers are suffering long delays, because the manufacturers are using their own machines!

Bitcoin mining looks like it is no longer worth it to anyone but very highly capitalized groups who can also take advantage of things like having a data center, low electricity costs, and mining on a very large scale.

(The above also shows other new players, other mining pools that until recently have not been seen there: Polmine, "1AcAj9p" and "1BX5YoL".  Polmine is out of Poland, CloudHashing might be the guys in Iceland,  the other two mentioned here I know nothing about.)


As is the case with gold, don't "buy the miners", nor mining equipment, nor invest in "cloud-hashing"!  The rate of return in every case I have looked at is negative.  Buy the BTC!

Buying BTC is not for everyone.  There is a basic (it's hard though) set of knowledge that you must have to know how to buy and spend BTC.

But, you can use BTC in many places in the world now.  Argentina, for example, has severe financial problems (brought on by their government) and BTC has become rather popular there, going for a PREMIUM of some 30% - 50% over BTC prices here in the USA.  In other words, if you take enough BTC with you, you could make money (and pay for your trip) by selling BTC there in Argentina.

Bitcoin can be taken with you on your laptop, a flash drive, or even on a piece of paper ("paper wallet").  If you have a wallet at (there are others too offering wallets on the web), you do not need anything, just access to the Internet anywhere!  What this means is that you can move HUGE amounts of capital very easily (of course you need the capital to buy BTC), taking it out of the country if you need to in nearly complete secrecy if you do it right...

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