Chaka’s Note: Over the next few days, Daily editor Teeka Tiwari and I will be in Washington, DC, for the Legacy Research Conference… an investment summit hosted by our publishers at Legacy Research.
It’s an opportunity for us to meet with readers, share our best ideas, and learn from the smartest minds in our industry.
And while many attendees are asking for our thoughts on the Russian invasion’s effect on oil and commodities… we’re also getting a lot of questions about bitcoin and crypto.
So in today’s Daily, we’re sharing a recent Q&A between Teeka and Legacy Research editor Chris Lowe, where Teeka explains how Russia’s war – and Washington’s weaponization of the U.S. financial system against it – will push bitcoin to new record highs.
By Chris Lowe, editor, Legacy Research
and Teeka Tiwari, editor, Palm Beach Daily
Chris Lowe: Teeka, you first recommended bitcoin (BTC) to your paid-up readers in April 2016. Since then, it’s up 10,958%.
But the last few months have been tough for crypto investors. Bitcoin hit an all-time high of $68,990 last November. Since then, it’s down 30%. Are you worried?
Teeka Tiwari: Those of us who have been in the space since 2016 know this is business as usual in crypto. These kinds of price drops are typical. Excluding the recent fall, bitcoin investors have had to endure eight plunges of 30% or more over the past five years.
And a 30% drop is mild in crypto. During the so-called Crypto Winter bear market, which raged between December 2017 and December 2018, bitcoin plunged 84%.
But if you bought at the pre-Crypto Winter peak… and held through all that stomach-churning volatility… you’d be up 143% today.
I’ve always been clear with my readers… and anyone who’d listen: If you can’t handle this kind of volatility, crypto isn’t an asset class for you.
Chris: The headline news right now is the war in Ukraine. I’ve been writing a lot about how this has raised stock market volatility and sent commodities markets haywire. What’s your take on the war’s financial impact?
Teeka: Recent events have made one thing obvious: Western governments have shown the world they can seize all your assets… even if you’re part of the traditional financial system.
Just days after Russian tanks rolled into Ukraine, Western nations sanctioned Russia’s central bank. And they froze about $600 billion worth of the country’s foreign currency reserves.
These reserves weren’t sitting in piles of cash in Moscow vaults – most were electronic balances in commercial and central bank accounts in the U.S. and other Western countries.
The U.S. dollar is the world’s reserve currency. And Washington controls the dollar-based financial system. If you want to use that system, you have to play by Washington’s rules.
Weaponizing the dollar-based financial system may be beneficial in the short term. Your readers may agree that we need to sanction Russia for its war on its neighbor. But in the long term, it’s an awful decision.
From a humanitarian standpoint, we’re making hundreds of millions of innocent Russians suffer economically. We’re already seeing long lines for basic foodstuffs like sugar in Russian cities.
But what’s more important for the future of the financial system is these moves weaken trust in the financial architecture the U.S. government has had in place since the end of World War II. It has other governments thinking, “If they could do that to Russia, a key exporter of natural resources, what could they do to us?”
So people are thinking about alternative financial and central banking systems.
Chris: And you believe bitcoin is one of those alternatives?
Teeka: People describe bitcoin in a lot of different ways. But essentially, it’s a central bank in cyberspace. It pushes out currency units at a preset rate. And that supply schedule is baked into bitcoin’s code. Unlike a human-run central bank, nobody can manipulate it.
Bitcoin is a decentralized network. So it’s tamperproof and censorship-resistant. It allows you to store value in a way that doesn’t let other people confiscate it from you.
Imagine if Russia was sitting on $600 billion in bitcoin… and was one of the biggest bitcoin miners in the world. It would have a lot more financial sovereignty than it does today.
Russia thought it had $600 billion in savings. But it forgot that most of that cash was someone else’s liability. Bitcoin, by contrast, is wealth you store yourself using your private cryptographic key.
The only government in the world with true financial sovereignty is the U.S. Even American citizens – and I’m one of them – don’t have true financial sovereignty. The government can freeze our bank accounts anytime it wants. That’s crazy.
Nobody should get to say what I do with my money. That’s how it ought to be in a free country. But that’s not our reality. And the world is waking up to the need for an alternative.
Chris: One asset Russian president Vladimir Putin still has access to is gold. According to one estimate, Russia holds about $132 billion in gold reserves. That’s about one-fifth of its overall reserves. Is gold another alternative asset worth mentioning here?
Teeka: Some people will say gold is the alternative to the dollar-based system we need. And sure, gold jumped after Russia invaded Ukraine on February 24.
But it’s been a month since the invasion, and gold is back to where it was at the start of hostilities. Bitcoin, meanwhile, is up about 14%.
And at a fundamental level, gold doesn’t have the use cases or the ease of use that bitcoin has.
Like gold, bitcoin is nobody else’s liability. That makes it hard to confiscate. But unlike gold, you don’t need vaults to store your bitcoin. You can store billions of dollars in crypto wealth on a thumb drive.
Bitcoin is more liquid than physical gold, too. You can trade it online 24/7 without lugging around heavy bars.
I think we’ll see more countries buying gold. They’re realizing it’s the only asset Russia has that nobody else can touch. But I predict we’ll also see central banks adding bitcoin to their balance sheets for protection.
Sovereign wealth funds – which invest a country’s cash savings in stocks, bonds, real estate, and so on – will do the same.
Just as U.S. Treasurys, European bonds, and gold are major reserve assets today… bitcoin will be part of a country’s reserves in the future.
I’ve been showing my readers why bitcoin is an important “chaos hedge” for their portfolios for years.
Now governments want their own “chaos hedge” against the kind of moment we’re in now.
I’ve said it since I started recommending bitcoin six years ago. Adoption drives the price of bitcoin. The more people who use it, the higher prices go.
So to answer your initial question, I’m not worried about bitcoin at all. Just the opposite. I see lower prices as an opportunity to buy.
My recommendation is to allocate 10% of your overall portfolio to bitcoin. So if you haven’t bought any bitcoin yet… or you’re still building your position… now is a great time to buy.
You can pick up some today at roughly two-thirds of the price it was selling for a few months ago. And every time we’ve seen a sell-off like this in bitcoin, it’s gone on to make all-time highs.
With the U.S. weaponizing the dollar-based financial system, bitcoin will continue taking market share. This will increase adoption… and prices with it.
Chris: Thanks for chatting with me, Teeka.
And to our readers, remember that you can learn about Teeka’s new oil company recommendation by catching a free replay of his U.S. Energy Independence Summit.
Teeka: Wonderful speaking with you, Chris.