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Physical and Cryptographic Silver are Asymmetric Trades

David Smith
|
Monday, July 16th

Most people believe that risk and reward go hand in hand. In other words, in order to reap a large reward, one must also risk a great deal. So, for example, if seeking to double or triple your money, then – should your analysis (or the execution of your trading plan) be incorrect – you would anticipate that your entire stake could disappear in the process.

However, there is another kind of activity – not frequently encountered – called the asymmetric trade. An asymmetric trade takes place when the potential for reward significantly outweighs the risk. If buying a stock, the purchaser might use a stop-loss, which would be triggered if and when the price declined by a certain amount, say 40%. (We know that a price decline might “jump” the stop loss and fill even lower, but for our purpose here, let’s keep it simple.)

Another approach would be to risk a relatively small amount of money – and be willing to lose it all – in hopes of getting a multiple “x” return.  Risk $500 for a possible $5,000 (10x) payday? Depending on the investor, his/her financial circumstances, appetite for risk, financial goal(s), and clarity in understanding that risk, such a trade might make sense.

Last year, when cryptocurrencies were all the rage, an individual placed just $260 for 1600 coins into a blockchain-based token called ANT, which at the time was trading for $0.16 cents. Three months later, he cashed out at $10.50 per token, for proceeds of just under $17,000, or 65x his  money…And a few months later that token was going for $120 apiece!

Lotto’s long odds

Buying $500 worth of lottery tickets and being willing to risk losing all of money on a chance for the top prize is one thing. But hopefully it’s also understood that the odds against winning are several million to one. This would be a strategy that most people who have a basic understanding “of the odds”, would appreciate…and then walk away from implementing. (Which brings to mind the sad but true comment about this subject. “There are two kinds of people. Those who understand math, and poor people who buy lottery tickets.”)

Then Consider Silver – physical and digitally-backed.

A strong case can be made that physical silver – and its attendant iteration, cryptographic silver (backed by physical silver and trading on the blockchain, offer the potential of an asymmetric trade. In this premise, as in the case of the ANT trade previously mentioned, a relatively small dollar position in either, could yield a return several times larger than the initial investment.

In 1980, physical silver topped out at a nominal price near US$50 an ounce, and did so once again in 2011. But if you look at an inflation-adjusted number, various computations now show its inflation adjusted price would be as high as $250 an ounce. If silver reached even half this nominal number over the next few years, that would represent  an 8 times return from the current cash COMEX price of around $16.

40 years ago, only a relative handful of people were involved in silver’s 10x run up. The next bull run in the metals – because this time it will be “globally attended”- will take place in a sped-up investing environment, supercharged by the power of the internet, and on global trading platforms that never sleep.

In addition, silver – with the tailwind of a “digital metals’ kicker” – could offer a similar kind of wildly unbalanced asymmetric opportunity that was witnessed in the 2017 cryptocurrency sector run up.

It took Microsoft  shares 20 years to achieve the lion’s share of their appreciation. Amazon about 15. Internet-blockchain compressed time and information shorten that time cycle substantially.

In 2002, David Morgan stated,

“For the record, I will state, there will be another, more frenzied, scramble that will carry silver prices to highs that will repair all the excess paper money creation, price suppression, supply deficit, and bearish sentiment over the past two decades. This will become known as the Great Silver Crisis.”

If Mr. Morgan is even close to being right, it might make sense to look into acquiring, from a reputable dealer, some “hold in your hand silver”. Not to mention taking a serious look at a dual-coin cryptographic silver project – LODE – which so far – on its way toward a projected 6 – 8 month launch – has vaulted over 1,000,000 ounces of .999 fine silver.

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