Key Takeaways
- The renewed interest in a specific basket of assets, namely silver and leading crypto-assets like Bitcoin and Ethereum, represents a high-conviction investor response to a macro environment defined by persistent inflation and expansive fiscal policy.
- This thesis is not merely a bet on inflation, but a structural position against perceived monetary debasement and a search for assets with supply dynamics outside the direct control of sovereign issuers.
- While silver offers a high-beta play on both precious metals and industrial demand, digital assets introduce a technology-driven store of value narrative. However, their historical performance during true liquidity crises suggests they may function more as risk-on assets than true safe havens.
- Investors should scrutinise the correlation between these assets; a unified risk-off event could see their prices converge downwards, challenging the diversification benefits of the strategy.
In the lexicon of financial markets, a simple declaration can often signal a profound shift in portfolio strategy. A recent assertion from the analyst known as The Long Invest, suggesting a particular investment path is “the way”, encapsulates a growing, high-conviction trade developing among investors navigating a complex macroeconomic landscape. This view is not merely a tactical allocation but reflects a structural thesis centred on a specific basket of assets: physical commodities like silver, complemented by digital assets such as Bitcoin and Ethereum. It represents a calculated response to an era where fiscal dominance appears to have neutered traditional monetary policy, forcing capital to seek refuge in assets with inelastic supply schedules.
The Anatomy of a Post-Pandemic Conviction Trade
The core logic behind this thesis is a straightforward, if unsettling, diagnosis of the global economy. Government debt levels in developed markets, particularly the United States, have reached peacetime highs, with little political appetite for austerity. The U.S. national debt, for example, has surpassed $34 trillion, a figure that continues to climb with persistent deficit spending. This fiscal expansion creates a challenging environment for central banks, forcing them to walk a fine line between containing inflation and ensuring sovereign debt remains serviceable. The result is an environment where nominal interest rates may not be permitted to rise to levels that would genuinely quell inflation, leading to prolonged periods of negative real yields.
It is in this context that assets perceived to be outside the direct manipulation of sovereign issuers gain their appeal. They are not just inflation hedges in the classic sense; they are bets on the continuation of financial repression, a policy whereby governments channel funds to themselves that would otherwise go elsewhere in the economy. This strategy makes holding cash and sovereign bonds a depreciating proposition, pushing rational actors further out on the risk curve or into alternative stores of value.
Silver and Bitcoin: Correlated Bets or Unrelated Hedges?
The chosen assets for this thesis, silver and Bitcoin, are fascinatingly different yet serve a similar purpose in this framework. Silver, the perennial second fiddle to gold, offers a dual narrative. It is both a monetary metal with a history stretching back millennia and a critical industrial commodity essential for the green energy transition, particularly in solar panel production. This gives it a higher beta than gold; it tends to outperform in bull markets for precious metals but can suffer more in downturns. Its appeal lies in this leverage, combined with a current price that remains significantly below its inflation adjusted all time highs.
Bitcoin, and to a lesser extent Ethereum, represent the digital equivalent of this hard asset thesis. Proponents view Bitcoin’s programmatic scarcity, capped at 21 million coins, as a superior form of monetary hardness compared to gold, whose total supply is unknown and can increase with mining investment. The recent approval and significant inflows into spot Bitcoin ETFs have provided a powerful tailwind, signalling a degree of institutionalisation and simplifying access for traditional portfolios. According to data from Farside Investors, these U.S. based ETFs have attracted net inflows of over $12 billion since their launch in January 2024. Ethereum adds another layer, combining a store of value proposition with a decentralised computing platform that generates utility and cash flows through transaction fees and staking yields.
A performance comparison illustrates the differing dynamics of these assets over the past year.
| Asset | 1-Year Performance (as of late May 2024) | Primary Narrative Driver |
|---|---|---|
| Silver (XAG/USD) | +31.5% | Monetary hedge and industrial demand |
| Bitcoin (BTC/USD) | +152.1% | Digital scarcity and ETF adoption |
| Ethereum (ETH/USD) | +104.8% | Platform utility and potential ETF approval |
| Gold (XAU/USD) | +19.2% | Primary safe haven and central bank buying |
Performance data retrieved from public market sources on 27 May 2024. Past performance is not indicative of future results.
The Inescapable Problem of Liquidity and Risk
While the thesis is compelling, it is not without significant vulnerabilities. The primary risk is a genuine liquidity crisis. In a true risk off event, such as the market dislocation seen in March 2020, correlations across nearly all asset classes tend to converge towards one. During that period, both Bitcoin and silver sold off sharply alongside equities as investors fled to the safest and most liquid asset available: the U.S. dollar. This historical precedent challenges the notion that these assets can function as effective portfolio hedges during the most acute phases of a crisis. Their value may be more as a hedge against a specific, slow-burning macro trend, monetary debasement, rather than a tail risk hedge against a market crash.
Furthermore, the high volatility inherent in these assets means that while they offer convexity, they also introduce significant portfolio drag and the risk of severe drawdowns. The path of this conviction trade is unlikely to be a smooth one, requiring a durable temperament from those who follow it.
The critical, forward looking question is therefore not whether inflation will remain persistent, but what happens during the next deflationary shock. A speculative hypothesis is that such an event would reveal this basket of ‘hard assets’ to be less of a diversified hedge and more of a single, correlated bet on a particular future. The ultimate test will come when liquidity evaporates, and in that moment, the conviction of its adherents will be measured not in online declarations, but in the stark reality of their portfolio’s performance.
References
@TheLongInvest. (2024, May 19). [This is the way.]. Retrieved from https://x.com/TheLongInvest/status/1891126337433178588
@TheLongInvest. (2024, May 19). [Post about silver]. Retrieved from https://x.com/TheLongInvest/status/1891125914152358381
@TheLongInvest. (2024, May 22). [Post about Bitcoin]. Retrieved from https://x.com/TheLongInvest/status/1892003618124914694
@TheLongInvest. (2024, May 31). [Post about Ethereum]. Retrieved from https://x.com/TheLongInvest/status/1897327718582378937
@TheLongInvest. (2024, June 2). [Post about Bitcoin]. Retrieved from https://x.com/TheLongInvest/status/1898360820838375809
Farside Investors. (2024). Bitcoin ETF Flows. Retrieved from https://farside.co.uk/?p=997
U.S. Department of the Treasury. (2024). Debt to the Penny. Retrieved from https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/
