My specialty is analyzing interest rates and all the financial markets they impact. But right now, there’s a market that has completely decoupled from rates – one that’s being driven by its own, completely unrelated forces.
Now I’m no expert on cryptocurrencies, and there’s a good chance you aren’t either. If you want to learn more about how bitcoin works, this recent Wall Street Journal story gives you some of the basics, as does this Bloomberg story (which has links to many other helpful ones).
But you don’t have to be an expert to see the impact the Bitcoin Bonanza is having in the investment markets. Forget triple-leveraged Exchange Traded Funds. Ignore ETFs that bet on turbocharged foreign markets, red-hot sectors like semiconductors, or the historic collapse in volatility. The year’s best-performing fund is a bet on the mania called the Bitcoin Investment Trust (GBTC, Rated “B+”).
Backed by a firm called Grayscale Investments LLC, which bills itself as the “investment community’s trusted authority on digital currency investment,” the ETF soared an astounding 1,099% year-to-date through earlier this week.
That leaves all other funds we track in the dust, as you can see in this ETFs With Highest YTD Returns Screener below. It’s sorted in descending order by YTD gains, and contains other important details like Weiss Rating and Total Assets.
|Data Date: 12/6/2017|
How massive of a move is 1,099%? Well, the year’s next-best performers after GBTC are the Direxion Daily Homebuilders & Suppliers Bull 3X Shares (NAIL, Rated “B-”) and the Direxion Daily South Korea Bull 3X Shares (KORU, Rated “B”). Both use a significant amount of leverage so they rise (or fall) 3% for every 1% move in their underlying, tracked sectors. They sported YTD gains of “only” 245% and 157%.
Even highly successful plays on the gigantic decline in market volatility this year haven’t paid off like the bitcoin bet. The relatively obscure, $15.9 million REX VolMAXX Short VIX Weekly Futures Strategy ETF (VMIN, Rated “C+”) is up 155% so far in 2017, while the much better-known, $1.2 billion VelocityShares Daily Inverse VIX Short-Term ETN (XIV, Rated “B”) is up 144%.
That brings up an important question for investors like you: Should I join in?
My take is as follows …
- When you read articles like these, headlined “Bitcoin Mania: Even Grandma Wants In on the Action,” it doesn’t exactly make me feel warm and fuzzy on the inside.
I saw the housing mania first hand here in South Florida in the mid-2000s. Before that, I experienced the dot-com mania first hand because I worked at an Internet company in the late 1990s and early 2000s. You know what they say: If it walks like a duck, and quacks like a duck, it’s a duck!
- Sure, you can make ridiculous amounts of money when any asset is capturing the public imagination and multiplying in value month-in and month-out. But if you aren’t quick, nimble, and extremely sharp, you can lose a boatload of dough, too. Depending on how much leverage you use, and how much exposure you take on, you can even ruin your financial security and credit for years.
- I’d personally recommend investing your “serious” money in stocks, ETFs, and other investments that pay market-beating, yet reliable, dividends – the key strategy to building lasting wealth that I use in my High Yield Investing service.
My subscribers may not be racking up bitcoin-like profits. But out of 17 positions opened since inception in June (and either still open or closed thereafter), all but three were profitable recently. Closed gains have ranged as high as 42.5% in six weeks. Given the solid fundamentals, sound Weiss Ratings, and other attributes of the positions in the model portfolio, I’m confident they’ll hold up much better – and have a heck of a lot less volatility – than GBTC will if this mania ends.
If you’re interested, you can learn more about High Yield Investing and sign up by clicking here or by calling my team at 1-877-934-7778. Or if you’re not ready to take that step, just be sure you don’t lose your head speculating on bitcoin. When certain investments lose all tethers to reality or underlying market “governors” like interest rates, I definitely get concerned!
Until next time,