Believe it or not, there are upwards of 2,100 digital currencies
being traded in the world right now, with a combined market cap
of nearly $150 billion, according to Coinranking.com.
Obviously not all of these cryptos will survive. We’re still in
the early innings.
Last month I compared this exciting new digital world to the
earliest days of the dotcom era, and just as there were winners
and losers then, so too will there be winners and losers today.
Although bitcoin and Ethereum appear to be the frontrunners right
now, recall that only 20 years ago AOL and Yahoo! were poised to
dominate the internet. How times have changed!
It will be interesting to see which coins emerge as the “Amazon”
and “Google” of cryptocurrencies.
For now, Ethereum has some huge backers. The Enterprise Ethereum
Alliance (EEA), according to its website, seeks to “learn from
and build upon the only smart contract supporting blockchain
currently running in real-world production—Ethereum.” The EEA
includes several big-name financial and tech firms such as Credit
Suisse, Intel, Microsoft and JPMorgan Chase, whose own CEO, Jamie
Dimon, knocked cryptos a couple of weeks ago.
Will Bitcoin replace gold?
Lately I’ve been seeing more and more headlines asking whether
cryptos are “killing” gold. Would the gold price be higher today
if massive amounts of money weren’t flowing into bitcoin? Both
assets, after all, are sometimes favored as safe havens. They’re
decentralized and accepted all over the world, 24 hours a day.
Transactions are anonymous. Supply is limited.
But I don’t think for a second that cryptocurrencies will ever
replace gold, for a number of reasons. For one, cryptos are
strictly forms of currency, whereas gold has many other
time-tested applications, from jewelry to dentistry to
Unlike cryptos, gold doesn’t require electricity to trade. This
makes it especially useful in situations such as
hurricane-ravished Puerto Rico, where 95 percent of people are
reportedly still without power. Right now the island’s economy is
cash-only. If you have gold jewelry or coins, they can be
converted into cash—all without electricity or WiFi.
Finally, gold remains one of the most liquid assets, traded daily
in well-established exchanges all around the globe. Every day,
some £13.8 billion, or $18 billion, worth of physical gold are
traded in London alone, according to the London Bullion Market
Association (LBMA). The cryptocurrency market, although expanding
rapidly, is not quite there yet.
I will admit, though, that bitcoin is energizing some investors,
especially millennials, in ways that gold might have a hard time
doing. The proof is all over the internet. You can find a number
of TED Talks on bitcoin, cryptocurrencies and the blockchain, but
to my knowledge, none is available on gold investing.
YouTube is likewise bursting at the seams with videos on cryptos.
Bitcoin is up 350 percent for the year, Ethereum an unbelievable
3,600 percent. Gold, meanwhile, is up around 10 percent.
Producers, as measured by the NYSE Arca Gold Miners Index, have
gained 11.5 percent in 2017, 23 percent since its 52-week low in
Discover investing opportunities in high-quality gold miners!
Look Past the Negativity to Find the Good News
The news is filled with negative headlines, and sometimes it’s
challenging to stay positive. Take Friday’s jobs report. It
showed that the U.S. lost 33,000 jobs in September, the first
month in seven years that this happened. A weak report was
expected because of Hurricane Irma, but no one could have guessed
the losses would be this deep.
The jobs report wasn’t all bad news, however. For one, the
decline is very likely temporary. Beyond that, a record 4.88
million Americans who were previously sitting out of the labor
force found work last month. This helped the unemployment rate
fall to 4.2 percent, a 16-year low.
There’s more that supports a stronger U.S. economy. As I shared
with you last week, the Manufacturing ISM Purchasing Managers’
Index (PMI) rose to a 13-year high in September, indicating rapid
expansion in the manufacturing industry. Factory orders were up
during the month. Auto sales were up. Oil has stayed in the
relatively low $50-a- barrel range, which is good for
transportation and industrials, especially airlines. Small-cap
stocks, as measured by the Russell 2000 Index, continue to climb
above their 50-day and 200-day moving averages as excitement over
tax reform intensifies.
These are among the reasons why I remain bullish.
One final note: Speaking on tax reform, Warren Buffett told CNBC
last week that he’s waiting to sell assets until he knows the
plan will go through. “I would feel kind of silly if I realized
$1 billion worth of gains and paid $350 million in tax on it if I
just waited a few months and would have paid $250 million,” he
It’s a fair comment, and I imagine other like-minded,
forward-thinking investors, buyers and sellers will also wait to
make huge transactions if they can help it. Tax reform isn’t a
done deal, but I think it has a much better chance of being
signed into law than a health care overhaul.