Is it time to start hedging your investments with Bitcoin?



By Mark Norton � Editor @

Bitcoin shouldn’t stand a chance. It’s a weird, internet-only money that seems difficult to understand and difficult to use. The press has been full of articles over the last year telling of the many Bitcoin scandals. Given all this, when any knowledgeable investor, not to speak of any retail investor, looks at Bitcoin, it’s a no-brainer that they give it a pass.

That, however, would be a mistake. Bitcoin is not a financial instrument called into existence to challenge a stable, well-run monetary system that is fair to all its users, but was created specifically because the corruption in that system. If governments and banks were working for the general good, Bitcoin would never have gained any traction outside of fringe movements. Bitcoin was specifically created and designed to step up to the plate when the current system begins to collapse under the weight of institutionalized corruption.

The Retirement problem

At my very first job in the 80s, I remember being told that the company was very progressive. No longer were they controlling their employees’ retirement accounts, but instead had started giving the employees the option of contributing to 401(k) retirement accounts. Unlike my father’s company, which promised him a retirement at a certain rate, I could manage my retirement fund myself and, since it was invested in the market, have the possibility of ending up rich.

Even at the time I can remember wondering if that was really such a great thing. Better to have a ‘sure bet’ than a ‘maybe if.’ As it turns out, this plan was never meant to be a replacement for the corporate pension systems that ruled day through America’s golden age; it was supposed to be a supplementary plan to encourage people to save. One enterprising accountant, though, figured out that by enticing employers to switch over to the 401(k) companies would be freed from the responsibility of administering unwieldy pension plans and might even save�money in matching funds since many, (like my younger self), would choose not to invest at all.

Now it turns out that the plan was not such great shakes at all. Frontline and Forbes have both reported on the problems: Since employers have light responsibilities, they barely manage the plans, meaning that participants might be being charged many times the fees active and knowledgeable investors would get. In fact, most 401(k) participants believe they’re fee free � a tragic mistake. Due to the effect of compound interest, the difference between 1 and 2 percent is enormous.

In the 80s, corporations and investment houses started to hard-sell both the public and congress on 401(k)s because of the benefits to their bottom lines.

What’s more, because the 401(k) is invested in the markets (usually the participant is given a limited number of choices that they can make about how to invest), if there is a market downturn, the individual suffers. Companies have no obligation to step in to save their employees’ retirements � unlike in my father’s day when the company would bear the obligation of paying his pension no matter what happened with the markets.

In 2008, many people who were relying on their 401(k)s for their retirements suddenly found that their nest eggs had taken a massive hit. Some had to postpone their retirements and others had to return to work � often at jobs greeting people at the front entrance of a big-box store. If they had stayed invested, they might have been all right as the market has climbed back up and has recently been hitting all-time-highs. For a great many, though, the loss of those funds at that time was a calamity from which they would not recover.

The Wall Street Problem

As the market is pulling back slightly from records highs, a great many reputable market watchers are claiming that the five-year bull market may be coming to a close. Their reasons include the fact that in the last recession, the companies most responsible for the crash were bailed out by the government and have never really reformed their business practices.

Additionally, the TARP stimulus package that saved the economy in 2008 is dwarfed by the amount of money the Fed has quietly been printing and giving for free to the banks, ostensibly so that they will lend it out to spur growth, but really just increasing corporate war chests, leading to corporate buybacks of stocks, which in turns leads to higher markets without any real economic development. When that money spigot is turned off, as it must be or we’ll start to see even official inflation rates start to skyrocket, then the balloon is going to deflate fast.

The Bitcoin solution

Bitcoin can be a difficult concept to get your head around at first. This site has an article describing the five steps of Bitcoin acceptance.

  1. Dismissal � when you first hear of it and think to yourself, “that’s crazy.”
  2. Skepticism � when you hear about it again and think that there may be something to it, but that it seems like it might be a scam or something.
  3. Curiosity � after hearing about it a few more times, you start reading up on it to find out what it’s really all about.
  4. Epiphany � when you start to look at how it works and how it solves a lot of the problems in our current financial systems and think, “Hey, this really could be big!”
  5. Enthusiasm � when you begin actively participating in the community and talking to your friends and family about it because they have no idea how important this thing is going to be.

The biggest jump is moving from step 2 to 3. Once people begin to investigate Bitcoin beyond the hit pieces done on it by their local press, and especially when they start to think about how their standard of living has fallen not just for the last four years, but for the last forty, they realize that the game has been rigged against them from the start. With that realization comes the realization that a currency controllable by no-one may be a good thing.

And after they realize that there will only ever be 21 million bitcoins, they also realize that owning even one bitcoin may have a massive return in value over the long-term.

Now is the time for people to start looking at their investment portfolios and think about including a hedge against the very real possibility of a severe market correction.

The author is not a financial professional and is not giving financial advice. Anyone who invests in any financial product should investigate it thoroughly to be sure that it is the right investment for them.

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