It is not only the stock exchanges and the stock exchanges which are the scene of carnage today. The FTSE 100 is down 7% from Friday’s close, of course. But it’s not as bloody as the crashes we see in the cryptocurrency markets on Monday.
Take Bitcoin. Bellwether digital currency is now trading at $ 7,770, down 13% on the day. These 2020 peaks, around $ 10,400 recorded in February, now seem very, very far away.
Bitcoin’s plunge this weekend and early this week may surprise some.
The mid-2019 price action could be a hazy memory amid the rampant volatility of the financial markets right now. However, at the time, many commentators crowded in to proclaim that the time for the asset as a credible safe haven asset had come.
There was also some logic in this thought. Bitcoin reached $ 12,000 in June, as a myriad of geopolitical and macroeconomic concerns weighed on the mood of the market. The trade wars between the United States and China were getting worse. Fears linked to Brexit intensified and economic data in the euro zone became more and more worrying. Meanwhile, central banks around the world were cutting interest rates to help save the slowing global economy.
There has even been talk that cryptocurrencies would bring down gold as the most popular security escape asset. In an increasingly digital world, this school of thought had at least some merit in theory.
What the falls today show is that such a reflection was clearly built on very sandy foundations.
Indeed, compare the Bitcoin crash in business earlier this week to the performance of gold. Prices for yellow metal are close to touching the setting of new seven-year highs around $ 1,700 an ounce.
One thing is certain. To say that digital currencies are already as precious as eternal security rush assets like gold is, well, a baloney. It is clear that investors are only interested in safe havens with a long track record (the yield on 10-year US Treasuries hit record lows of 0.318% overnight, buyers piled up).
Better shopping than Bitcoin
So forget about buying Bitcoin, I say. I have long expressed my concerns about the legitimacy and therefore the long-term prospects for cryptocurrencies. We’re still waiting for the Federal Reserve to approve a crypto-backed exchange-traded fund (ETF), after all. The volatility of recent sessions has only made me even more cautious.
I much prefer to buy gold-backed ETFs, say Aberdeen Standard Physical Swiss Shares Gold ETFs. Alternatively, purchasing a similar vehicle containing shares in gold producing stocks (such as the iShares Gold Producers UCITS ETF) is another solid option.
My personal preference would be to buy shares in one or more gold miners listed in London. These stocks are not immune to Monday’s liquidation and major producers like Polymetal International and Centamin have declined (albeit slightly) in today’s trade. However, once the worst of investor panic has passed, I think these companies are in great shape to record dramatic price gains.