Bitcoin and Gold Both Fail Miserably as Hedges, Investments

Bitcoin continues to implode as predicted and right on time, falling below 19,000.

And also as predicted earlier, on a 3-month timeframe Bitcoin (black) is still massively lagging 3x tech ETFs (blue and yellow) and Tesla (green):

The only difference between now and 2 weeks go is that ARKK is outperforming the 3x funds, but this is because ARKK is not leveraged, so it does better in bear markets.

What about other timeframes? BTC still underperforms, so it’s not like I am only cherry picking 3 months. Here you can see over a 5-year window that BTC and ARKK are unchanged–zero gains–compared to 180-240% gains for the 3x funds and 1130% gains for Tesla:

Bitcoin is so bad that had you bought five years ago you made nothing, compared to large gains in the S&P 500 and even way bigger gains in the Nasdaq (these are the unleveraged versions):

QQQ (blue) is the clear winner, up 103%, followed by SPY, up 59%, and DIA, up 40%.

I remember talking to someone in 2018 who agreed with every I had written except Bitcoin. Yeah, in 2021 it looked like I was wrong, but then–whoosh–Bitcoin crashed 75%. Meanwhile those 3x funds, Visa, Mastercard, Microsoft, QQQ, Amazon, Tesla, etc. keep pulling ahead. Only Facebook has not gone up (unchanged since early 2018 like Bitcoin). I stuck by my guns and didn’t get tempted by the crypto hype in 2020-2022. I knew it would not be sustainable, and sure enough it wasn’t.

So what about gold? That too has been a useless inflation hedge and has lagged index funds, for almost all timeframes. Gold’s performance (black) over the past two years compared to the S&P 500 (blue) and Nasdaq (yellow) is far worse:

And relative to inflation:

To get an idea of how bad this is, gold lost 13% of its value despite 13.5% gains in the CPI since October 2020. It’s even worse than the above chart would seem to indicate, because only looking at the year-over-year percentage change overlooks the accumulated, total change, which is 13.5% (296/260) instead of only 8%:

Over the past 5 years, gold is the clear loser compared the the Nasdaq and S&P 500. Not even close:

For the past three years, including the 2020 Covid crash/recession, the 2022 bear market, and the highest inflation in 4 decades, gold still massively lags index funds:

It’s hard to beat boring old index funds. Quants are paid 6-7 figures to find strategies. Fund managers are paid billions, and hire some of the smartest people in the world who obsessively work on this stuff. What are the odds that your newsletter subscription, podcast (Peter Schiff), or favorite commodities blog (Lyn Alden) has some special insight or strategy that is actually superior compared to what hundreds or even thousands of highly paid experts have already done, and are greatly incentivized such as bonuses and other compensation to find such strategies? Pretty slim.

That’s not to say it cannot be done but it’s not going to come from a newsletter or a podcast. You will have to find it yourself or know someone. People who have superior strategies are going to be disinclined to broadcast them to hundreds of thousands of people.

If a strategy or investment is already well-known, then likely it’s too late. In late 2021, before Bitcoin’s 75% crash, crypto hype was everywhere. Who was left to buy? Often these hedges or overhyped investments (like Bitcoin) both lag index funds and fail to hedge inflation. The above data shows that index funds can still be superior to commodities during high inflation and market turbulence. Although commodities may not be as negatively correlated with stocks on the downside, they tend to lag considerably on the upside, like after Covid or from 2009-2020.

Leave a comment

Your email address will not be published.