Blockchain technology and cryptocurrencies are all the rage these days. Investors have flocked to Bitcoin and alternative crypto in droves. Some have made huge profits. In fact, I believe there are still profits to be made in the near future, although no one really knows where prices will head. But crypto is a highly volatile speculative digital ‘asset’ and no one should be surprised at large gains or losses. It is obvious, too, that prices are often driven by frenzied investors suffering from fear of missing out, so the greater fool theory probably applies to this kind of investment – there will always be someone who invests later and is willing to pay an even higher price than the previous investor.
I have even observed some investors having so much faith in Bitcoins and the like that they sell their silver and gold and jump ship to crypto. Many did so even though it means losing money (at least initially). This is normal behaviour in the investment world, where scores of investors jump from non-performing investments to better-performing ones, or to investments to better fundamentals for higher returns. But selling precious metals – investments you can hold and touch – for digital assets that exist only in the digital world seems a poor decision to me.
Some investors believe that the crypto bubble will pop, deflate, or become overregulated and that those who earned healthy profits will eventually reconsider silver and gold. I agree with this sentiment. But when this happens, silver and gold premiums will increase, as production and supply will hit a short squeeze. A large portion of cryptocurrency profit earners will then start chasing silver and gold, while precious metal investors will be happy that they are already holding what has fallen into short supply.
Article courtesy of Going for Gold: A guide for the South African precious metal investor by Zoltan Erdey
