Dumping Bonds to Buy Bitcoin

Times change. So must my portfolio…

Back in 2020, in the months immediately following the pandemic’s arrival, I studied my largest retirement account—a mid-six-figures portfolio—to gauge my tolerance for the crisis I see coming.

And I decided that I wanted to sell… pretty much everything.

So, I dumped 90% of the stocks I owned, including Nvidia, Facebook, and others.

I put all the proceeds into gold, a particular gold miner, and Swiss francs.

I missed the big run in stocks over the last year or so, but I do not care. I have no idea when America’s inevitable debt crisis, which will become a currency crisis, will land. Might be 2027/28, as I regularly predict. Could be sooner. Might be later.

Because of that uncertainty, I’d rather just comfortably sit on the sidelines. I know my big exposure to gold and Swiss francs will protect my portfolio from the storm.

Now, along similar lines, I’ve made a significant change to a different retirement portfolio—a low-six-figures IRA.

Late last week, I dumped almost all the bond exposure I had and replaced it with Van Eck’s Bitcoin ETF.

Why the change?

The more I look at what’s taking shape in the world, the more I feel uncomfortable holding most types of bonds, including (and especially) US Treasury paper. The only bond exposure I kept was an ETF packed with inflation-protection bonds. Inflation has played its last card, so they’ll probably do OK.

The Federal Reserve last week kept interest rates unchanged, but the tone of the Fed governors in explaining their rationale was clearly doveish. Plus, the Fed says it remains on track for three rate cuts this year.

A day later, the Swiss central bank surprisingly cut interest rates in that mountain state. That marks the first Western economy to begin the rate-cut cycle that’s coming.

In textbook terms, rate cuts are great for bonds. Indeed, we will see bonds rally, without question.

But I’m not interested in a temporary rally that pushes bond prices up 15% to 50%.

Because I’m looking farther afield, and farther afield looks to be a disaster for the global bond market…

The source of that disaster is, as I regularly note, US and Western debt—but primarily America’s extreme debt load now approaching $35 trillion. For context, that’s equal to about one-third of all government debt in the world. An insane number. China and Japan—numbers 2 and 3 on the list of most heavily indebted nations—amount to about 26% of global debt, combined.

I could be wrong here, but I’d say we’re well beyond the event horizon at this point.

The paths forward are limited and all are painful in some way…

  1. A full-blown crisis as Western economies melt down in the wake of some catalyst. Maybe that catalyst is the US Congress defaulting on debt payments as part of some game of political chicken that goes awry.
  2. A monetary devaluation in some fashion. The US has done this twice in the last century (1933 and 1971). So it seems quite likely the strategy will play a role in fixing America’s disastrous finances this time around, too.
  3. Continuing to pile on trillions of dollars of debt every year to keep the government running until the global bond market balks at the size of America’s debt and simply walks away.  (Debt reliance is 100% assured. The walk-aways are already happening.)
  4. Allowing inflation to run rampant for a while so that the dollar plunges in value, enabling the government to pay down at least some of its debt with deeply devalued greenbacks. (This could take the form of the Fed pushing interest rates back toward zero for an extended period, which would see inflation heat up but also allow Uncle Sam to refinance his debts at much lower, 30-year rates.)

Whatever the path… the end result is bad news for American families, investors, companies big and small, and the economy as a whole.

It’s ultimately bad news for bonds as well.

Bond yields are never going to keep pace with inflation, or the value-destruction the Fed imposes on the dollar year in and year out.

As such, I simply want nothing to do with US debt.

I want bitcoin instead.

Yep—it’s crazy volatile.

But it’s crazy volatile along an upward trajectory that will take the granddaddy of cryptos deep into the multi-hundreds of thousands of dollars. At some point, it will crack the $1 million threshold.

And it will do so because bitcoin is the ultimate anti-fiat currency.

The way I see it, I might get a 0.5x return on bonds. 1x if I’m lucky. But that won’t allow me to keep pace with inflation or protect me from the crisis to come.

With bitcoin, I will see a 3x to 15x return—probably more. That will far outpace inflatioy’n, and it will shelter my wealth when the crisis arrives.

Savers and investors are going to wake up to the dollar’s ongoing wealth destruction at some point, and they’re going to immediately search for a safer store of value. They’ll find it in gold, silver, probably land (particularly overseas land not priced in dollars)… and they will find it in bitcoin because it’s so easy to trade and transport.

And now that we have bitcoin ETFs, the process of non-dollar wealth protection is as simple as logging into a brokerage account and clicking “buy.”

Which is exactly what I did last Thursday night.

I saw that the times are changing. I want to be as far from that change as I can, financially speaking.

So, my portfolio had to change too.

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