Bitcoin has experienced a heck of a run over the last month (and year). There’s no point trying to predict how long the run will last, and the only way to protect those profits is to take some off the table.
Eventually the momentum in any rally stalls. The problem with Bitcoin is that much of the price action is driven by speculators. Once the current momentum stalls, many of those speculators will want to exit, and it’s entirely possible we will see a large correction.
So, if you decide you’re going to take some profits off the table, where do you move that capital? You can move to fiat, another asset class, or another digital asset. Moving to fiat, stocks or another liquid asset class means exiting the crypto market.
And moving to different digital assets also poses a problem. Cryptocurrencies are highly correlated — especially the liquid ones. And the correlation increases when prices fall. This isn’t just true for digital assets — it also happens with stocks, bonds, commodities and precious metals.
In September when Bitcoin fell 40%, the correlation between Bitcoin and other leading cryptocurrencies jumped. The correlation between Bitcoin and Ethereum, and between Bitcoin and Litecoin both peaked within a week of Bitcoin’s biggest decline in six months.
So, if you want to lock in some of your Bitcoin profits, moving into another purely digital asset may not be a smart move. There is however another option — asset backed cryptocurrencies.
If a digital asset is backed by something liquid, fungible and tangible, it will track the price of that asset rather than the crypto market as a whole. The only asset markets this can really work for are gold and silver. While real estate is also a tangible asset, it’s illiquid and not fungible — no two pieces of land are identical.
A token directly supported by a precious metal — whether it’s coins or bars — will track the metal’s price. The price of the token can only deviate by the transaction cost of buying or selling the token. If it deviates more than that, it offers an arbitrage opportunity to traders. There is therefore a real incentive for traders to keep the token price in line with the underlying market.
Gold isn’t a bad store of value, but silver may outperform over the next few years. Many industries actually use silver. Meaning, the world’s silver supply is being consumed and silver will become scarcer over time. Also, with the rise of cryptocurrencies, gold is losing its status as the ultimate safe haven asset. In that respect gold has more to lose than silver in the medium term.
Silvertoken is a cryptocurrency supported by physical silver and has recently launched. The tokens are backed by real silver that is stored in a vault. A small transaction fee goes into buying more silver each time a token is used– so the amount of silver backing each token increases over time.
Silvertoken is the ideal token to store value if you decide to take profits from you Bitcoin. The tokens have a strong underpin and very low correlation to digital assets. And, if there is a correction in the price of Bitcoin, you can then move value back into Bitcoin, or another digital currency.