Frenchman Emmanuel Macron comfortably won another five-year term as president last weekend against far-right candidate Marine Le Pen, but election investors should watch what happens next month in Colombia.
On May 29, the South American country could elect its very first left-wing president if Gustavo Petro receives the majority of votes. (A runoff could determine the eventual winner.) A former congressman and mayor of the capital Bogotá, Petro is an unapologetic admirer of U.S. Senator Bernie Sanders, a self-proclaimed “democratic socialist,” and Hugo Chávez, the radical socialist . president of Venezuela from 1999 to 2013, when he died of cancer.
The two South American leaders were close friends, in fact, and Petro reportedly attended Chávez’s funeral. But the alarming similarities don’t end there.
Chávez and Petro, cut from the same cloth
Before entering politics, both Chávez and Petro were members of militant rebel groups. As a candidate, Chávez pledged to end the expansion of Venezuela’s oil sector, despite sitting on the largest proven reserves in the world. Petro, 61, also vowed to take an adversarial stance against the mining industry, saying in 2018 that companies involved in oil and gas “will not find a friendly government” if he becomes president.
It would devastate the Colombian economy. Crude oil accounts for about half of its total exports and about 10% of its national income. These revenues could disappear overnight, with no replacement to take over.
It’s hard to imagine now, but when Chávez was elected 23 years ago, Venezuela was the world’s fifth-largest producer of crude oil and the largest exporter of petroleum products to the United States. Today, under Nicolás Maduro, its oil industry is practically non-existent. In January, the country was producing about 668,000 barrels per day (bpd), a far cry from the 3.5 million bpd it regularly produced in 1998.
You can see the tragic results below. In the face of escalating violence, hyperinflation and a poverty rate as high as 96%, some 4.5 million Venezuelans fled their country between 2015 and 2019, making it the second largest refugee population in the world after Syrians at the time. About half of those freedom seekers went to neighboring Colombia, where about 4% of the population is now Venezuelan-born, up from nearly 0% a few years earlier.
A wolf in sheep’s clothing
As former British Prime Minister Margaret Thatcher once joked, “The trouble with socialism is that at the end of the day you don’t have other people’s money.” Venezuelans learned that lesson the hard way, and it troubles me that Colombian voters, who have witnessed the influx of refugees fleeing poverty, can now elect a man who would institute the very policies that have led to such poverty. .
Investors are understandably worried, and Petro’s advisers have tried to limit the damage by trying to assuage their concerns. Earlier this month, the candidate signed a document saying he would not nationalize the property if elected, but as many have pointed out, the document is not legally binding. It is strictly political theatre.
The same goes for Petro’s suggestion that Colombia could mine Bitcoin
using waterfalls. Bitcoin is privately owned, something Petro, a socialist, hasn’t shown much respect for.
Bitcoin and gold are incredibly undervalued
I hope Colombian voters make the right choice next month, especially as authoritarianism is steadily on the rise around the world. According to Freedom House, nearly 40% of the world’s population now live in countries without basic freedoms, including financial freedoms. This is the highest proportion since 1997.
These are the people who could benefit the most from Bitcoin, I believe. As an open-source, decentralized digital asset, Bitcoin transcends borders and can bypass even the most restrictive currency controls, enabling peer-to-peer remittances.
For this reason and more, Venezuela has one of the highest rates of “crypto” adoption, with some 3 million people, or 10.3% of the population, holding unspecified cryptocurrencies. according to CoinMarketCap. Other emerging countries with high inflation, including Sudan, Lebanon, Syria, and Turkey, also report having relatively high levels of crypto adoption.
Forty percent of the world’s population is approximately 3.2 billion people; meanwhile, the 19 millionth bitcoin was mined earlier this month. If you do the math, that comes to one bitcoin for every 170 people living in repressive regimes. That said, I think Bitcoin is incredibly undervalued at $40,000.
I also believe gold is undervalued at $1,900 an ounce. You can see the true value of the precious metal when you peg it in a currency that has suffered astronomical inflation, including the Turkish Lira. If someone in Turkey had bought gold a year ago, they would have seen its value double from today. Colombian citizens who fear a Petro presidency might consider getting gold coins or 24-karat gold jewelry.
Gold coin sales had their best quarter since 1999
Gold had a strong first quarter for many of the same reasons as Bitcoin, namely high inflation and geopolitical risk. The price of the metal rose 8% in the first three months of the year, its best quarter since the second quarter of 2020, and inflows into gold-backed ETFs totaled $17 billion, according to the World Gold Council (WGC).
However, US investors seemed mostly interested in physical gold. The U.S. Mint recorded the second highest ever sales of American Eagle gold coins in the first quarter, following sales in the first quarter of 1999. When combined with U.S. Buffalo coins, which were introduced in 2006, sales have consistently ranked second.
As always, I recommend a 10% weighting in gold, with 5% in physical gold and 5% in gold mining stocks and high-quality ETFs. I believe a 1% to 2% weighting in Bitcoin and Ether
also makes sense.
To learn more about Bitcoin and Ether, watch the replay of my panel on crypto mining at the Bitcoin 2022 conference by by clicking here!