For the past three months, I’ve been pounding the table about digital currencies. They’ve been some of our most popular plays.
Now you may be wondering whether digital currencies are really money at all.
Here’s the truth about money: It can be anything.
Take the U.S. dollar. There’s nothing backing it up – we went off the gold standard in 1971. So, the dollar really is… just a promise… an “act of faith.”
A digital currency is no different. It’s simply internet-based money. And like any other medium of exchange, many people around the world have decided it is money.
They believe they’ll be able to use digital currencies in the future to buy stuff. That alone makes it have value.
Now that we’ve gotten that out of the way, let me tell you what’s driving up digital currency prices. (Like any other currency, the digital currency market fluctuates.)
These Two Forces Are Driving Up Digital Currency Prices
When we initially recommended digital currencies, we wrote they were some of the best alternative investments you could make to protect yourself from low/negative interest rates and the War on Cash.
So far, our thesis has been spot-on…
The European Central Bank expects to maintain negative interest rates until at least 2018. The Bank of Japan has no plans to halt its experiment with negative rates, either.
And although the U.S. Federal Reserve is considering a rate raise in June, rates still remain near historic lows between 0.75% and 1%.
Meanwhile, countries continue their war on cash.
France, Italy, and Spain have all implemented maximum cash transaction settlements.
In France and Italy, the maximum is €1,000, while Spain has a €2,500 maximum.
And the U.K. – which is also moving fast toward a society in which cash plays a much smaller role – doesn’t even have a £100 note.
And there have been calls by some to eliminate the $100 U.S. bill.
The War on Cash
As I mentioned above, governments around the world are pushing negative interest rates and threatening to ban cash.
A negative interest rate is when a government or bank charges you to hold your money in a bond or account. It’s like a second tax on money you have already earned.
I know it sounds crazy, but this is happening all over the world. More than 20 countries have already implemented negative rates. And the United States has been flirting with the idea, too.
To sidestep these negative rates, citizens in countries affected by them have been hoarding their cash.
For instance, in Japan, one of the hottest-selling items in the country has been safes. People are using them to store their cash at home rather than a bank.
If you live in a country that decides to embrace negative interest rates, buying a safe to hoard your cash won’t be enough to protect your money.
That’s because negative interest rates will be followed by the other government policy I’ve told you about… the War on Cash.
These two forces have the potential to wreak havoc on your retirement plans. Imagine what would happen if the cash you have stored up to live on was suddenly hit with a 4.5% annual “surcharge.” According to a JPMorgan report, that’s exactly what could happen if the Fed decided to shift gears and start levying negative interest rates.
The government knows that if it tries to turn rates negative, people will begin to hoard their cash, just like in Japan.
After all, why would anyone pay to put their money in a bank?
For negative interest rates to really work, the government needs to ban cash. Not all cash at first, but at least large denominations to start. The government would have to make it inconvenient to store large sums of cash.
This is already happening…
For example, in February 2016, European Union central bank head Mario Draghi pushed to ban the €500 note.
The very next day, he was supported by former U.S. Treasury Secretary Larry Summers, who then called for an end to the U.S. $100 bill.
If large-denomination notes are banned or removed from circulation, it would be difficult to hoard money in your home. Imagine trying to store $100,000 worth of savings in $1, $5, or $10 bills.
You’d need a bank vault.
But there’s a better way…
An alternative way to “hide” your money from negative interest rates…
If you want to protect your money, you’ll need to find investments that maintain the privacy and portability of cash… but aren’t hurt by low or negative interest rates.
And digital currencies do just that.
Consider this… $1 million in $20 bills would weigh over 100 pounds. That would require a massive carrying case to move around.
On the other hand, $1 million in digital currencies can be carried in a flash drive. That’s because your money is in digital form.
Now, some investors may opt to buy gold to shelter their wealth from negative rates or a cash ban. And I do recommend owning some gold.
It’s the safest and most secure way to protect the value of your money… but it’s not very convenient.
Although gold is a good store of wealth, you can’t just break off a piece of gold and anonymously go buy something with it.
When you’re ready to buy something, you’ll need to convert your gold into some other form of currency. That makes gold inconvenient and somewhat illiquid.
But digital currencies, on the other hand, are just as liquid as cash, more portable, and, in some cases, totally anonymous.
The digital currency we love the most is already accepted by more than 100,000 merchants as payment, including Overstock, Cisco, Wal-Mart, Starbucks, and Microsoft.
And best yet, if you use this digital currency correctly, you remain anonymous. So your financial privacy will be secure.
What to Do Next
The War on Cash and negative interest rates are radical and insane measures. They are also huge threats to your financial security…
But you can protect your wealth from these government policies by sheltering a small portion in digital currencies. One of our favorites is bitcoin.
Editor, Palm Beach Confidential
P.S. As governments of the world attempt to get rid of cash, I believe there is a strong likelihood a cryptocurrency like bitcoin will replace the dollar.
I recently put together a presentation where I share one of my top cryptocurrency recommendations in the event this happens. This presentation is only available for the next few days. Watch it right here.