Justin’s note: Like many investors, Doug Casey’s longtime friend and colleague Bill Bonner is skeptical of cryptocurrencies. He’s even said that some cryptocurrencies might be more like gambling than investing.
But, similar to Doug, Bill’s looking at how cryptos hold up as a use of money. Not only do they pass the test today, Bill believes cryptocurrencies could eventually be an “even better form of money than gold.” Below, in a first-ever interview with renowned crypto expert Teeka Tiwari, he explains why…
Chris Lowe (CL), editor, Inner Circle: Bill, you’ve been writing about bitcoin quite a lot recently. And your coauthor at The Bill Bonner Letter, Dan Denning, has recommended readers speculate on bitcoin with just 1% of their portfolios. What’s your take?
Bill Bonner (BB), chairman, Bonner & Partners: I’ve been watching, studying, and thinking about money for a long time. I’m coming at this from the angle of money. And money is a very interesting and nuanced phenomenon.
Gold has proven useful as money. It has traditionally been used as money because it works as money and nothing else. Gold is durable, fungible, divisible, and portable. And it is restricted in supply. Those properties make it a very good money.
For instance, you can grow a crop of tomatoes. The tomatoes will be gone in two weeks. But you can sell those tomatoes while they are still fresh… receive gold in payment for them… and enjoy the fruits of those tomatoes 50… or 100… or 1,000 years later. That’s the beauty of gold.
And I see that—theoretically, at least—bitcoin does the same thing. It’s also divisible, fungible, durable, portable, and limited in supply, all the properties of gold. But it also has one more thing that gold doesn’t—you don’t have to put it in storage and hire a guard to watch it because it’s secured on the blockchain.
Another key feature of both gold and bitcoin is that they are tethered to the real world—the world of time. It takes energy—in the form of computer processing power—to “mine” new bitcoin. The more of them you mine, the more time and energy it takes to mine the next one.
You could fill a library with what I don’t understand about the technology behind bitcoin. But in a purely theoretical sense, from what I understand, bitcoin could be an even better form of money than gold.
And it’s certainly true that the financial industry has become parasitical since the dollar came off gold. It uses fake money to con billions of dollars out of the Main Street economy… and shifts it to Wall Street and the Deep State.
Cryptocurrencies, on the other hand, are not state-run or state-controlled. And that’s got to be a good thing. Will they stand the test of time as gold has? That I don’t know…
Teeka Tiwari (TT), editor, Palm Beach Confidential: Bill is right. Bitcoin is challenging the way we think of money. As Bill has been writing, we live in a time where the idea of money is changing more dramatically than at, perhaps, any other time in history. Up until now, we’ve had a faith in the U.S. dollar that’s really been unwavering. But that’s changing because of the huge experiment that is going on among central banks.
They’re creating an enormous amount of new money to try to “stimulate” the economy. That goes above and beyond anything that anybody has ever imagined. People are looking for an ultimate store of value—something that can’t be manipulated by a central government. In fact, they’re looking for something that can’t be manipulated at all.
That is why we are starting to see large pools of capital move into cryptocurrencies. If we had a currency whose value we could depend on… or if we had central bankers that were rational… cryptocurrencies wouldn’t have survived for 10 minutes.
Their growing popularity is a direct response to policies that are designed to trash the value of fiat currencies. That is why now is the time to get involved in cryptos.
CL: Bill, you wrote in the Diary over the summer about investing some of your family money in cryptocurrencies. What’s been the upshot so far?
BB: Well, we have a family investment account, and I let my children—now all in their 20s and 30s—do some of the investing. I figure I’m not going to be around forever… and they’ve got to learn how to invest.
But when they came to me with the idea of investing in bitcoin, I was shocked by how much they wanted to put into it. Cryptocurrencies are not an investment in a classic sense. You can’t study the books, like you would with a normal business. There are no earnings… or profits… and that kind of thing.
So, I warned the children that I thought this was more like gambling. I told them that if they were going to do a little gambling, that was fine, but that they had to understand that they could lose all the money.
Anyway, they did make the gamble. And so far, it has paid off beautifully. The family crypto portfolio has roughly doubled. One of my sons told me today that he was doubling down on his investment in bitcoin. So, I don’t know that it turned out to be the formative experience I’d hoped for.
TT: There are certainly some eye-watering gains to be made in the crypto space. In the recommended portfolio at Palm Beach Confidential, we’ve booked gains of 207%… 1,004%… and even 14,354%. So, it’s natural enough to make the comparison with gambling. But the difference between buying a lottery ticket… or playing roulette… and buying a cryptocurrency… is that cryptocurrencies have real-world value as decentralized, global payment networks and stores of value.
I think a better description of the opportunity right now in the crypto space is asymmetric risk investing. Asymmetric risk investing is where you can take a trivial sum of money and turn it into life-changing wealth. It’s the old question of whether it’s better to risk 100% of your money for the prospect of a 10% gain… or risk 10% of your money for a 100% gain. Crypto investing is definitely in the latter category.
You invest a modest sum of money. Then you just let it run. I’ve been using this strategy for two years now at Palm Beach Confidential. And I’ve been helping subscribers take cryptocurrency accounts of $500… $1,000… $2,000 and turn them into $5,000… $100,000… $200,000… even $600,000. That is the beauty of being early in a space like this and using asymmetric risk investing techniques.
CL: The gains in the crypto space are certainly head-turning. Bill, you’ve warned that the cryptocurrency market is in a bubble. Is that still your view?
BB: I can barely turn on my car radio and get the right station. But what this reminds me of is that period of the late 1990s. People were putting money into dot-com stocks they didn’t understand. Companies were coming out of the woodwork with bizarre-sounding names… big promises… business plans… and nothing else.
And if you look at a chart of bitcoin, it certainly has the look of a bubble. If you don’t know what you’re doing, you should stay out. If you can’t afford to lose the money you put into bitcoin, then you shouldn’t be in it. Although I believe in it in a theoretical sense, I certainly wouldn’t bet the farm on it.
CL: Teeka, what’s your take on whether bitcoin is in a bubble and how to deal with that?
TT: Bill is absolutely right. Whenever we had a new technology—whether it was the railroads, the telegraph, the automobile, the radio, the television, or the internet—we got over-exuberant.
But as a newsletter writer… and former money manager… my job is to make people money. I’ve been in this game over the 1980s, the 1990s, the 2000s… and what I’ve learned is that you can make enormous amounts of money in a bubble. So, I always tell my readers, “Okay, we’re going to go to the party, dance, and have fun. But whatever you do, don’t drink the Kool-Aid.”
What we do at Palm Beach Confidential to prevent ourselves from drinking the Kool-Aid is we use position sizing—we don’t bet too much on any single position. And we always keep our eye on the exit. That’s why we harvest gains on the way up.
Just recently, for example, I recommended taking gains three times on a crypto that’s risen 1,500%. And so, my readers have not only had the chance to quadruple their money—actual money in their pockets—but we still own 40% of the position.
Even if that position goes to zero tomorrow, we’re up 400%. I’m using techniques I’ve learned managing money professionally to help my subscribers pull as much money as they can out of what will be a magnificent bubble.
CL: Teeka, you’ve been on the road almost non-stop this year researching new crypto ventures. You’ve interviewed some of the biggest names in this space. Where do you see the big profit opportunities right now?
TT: The first thing to keep in mind is that there are two types of cryptos out there. There are what are called cryptocurrencies. They are trying to be a new form of private money. Bitcoin is a good example. But there are others, too.
There are what are called “utility coins.” These are based around the same technology that underpins bitcoin—the blockchain—but they’re solving different real-world problems. The closest analogy to buying a “utility coin” is buying shares in a regular company. It allows you to participate in the rise of value of a crypto start-up.
There’s a ton of exciting things happening in this space. The most important question you need to ask before you invest is whether a crypto project is solving a big enough problem. I’m not interested in companies that solve little problems. I want to invest in projects that are solving massive problems.
For example, earlier this year, I found a crypto startup in Austin, Texas, that was solving a massive problem. It figured out a way to use blockchain technology to make both documents and networked devices—trade agreements, land deeds, car titles, smartphones, and even drones—tamperproof.
You’ve got banks that are going in and backdating contracts. Wells Fargo was recently caught with its hand in the cookie jar, altering millions of documents. This is a major problem. And securing documents is a major cost for businesses.
This company has figured out a way to solve that problem. Its solution is 99% cheaper than current solutions. I recommended this company to Palm Beach Confidential readers in March. We’re up about fivefold on that investment right now.
BB: I think I’m speaking for 99.9% of the population when I say that I personally don’t have the knowledge or the experience to analyze cryptocurrencies or utility coins.
You need to get the right kind of advice. A lot of people who have bought things without understanding what they are got badly burned at the end of the dot-com bubble in the late 1990s.
I expect there will be some sort of speculative blow-up over the next five years or so. But if you do have the tools to analyze these things… and these projects really are solving real-world problems… the companies that are doing things properly will survive and grow. And this will probably be a big industry.
CL: Whether you are a crypto skeptic or a crypto enthusiast, this is a fascinating topic. Teeka, I know you’re putting together a special webinar on this that will go out tonight. What’s that going to be about?
TT: I’m going to be talking to top crypto experts. One of them—a kind of mystery guest—was instrumental in creating the world’s second-most valuable cryptocurrency. It’s now worth $29 billion.
We’re going to be talking about a lot of the things we talked about today. What gives cryptocurrencies value. Where we see them going. What we think will happen in 2018.
We’re also going to talk about some of our favorite crypto investing ideas. And we’re going to give folks a behind-the-scenes look into where this whole industry is going.
It will be a very educational event. Definitely worth signing up for if you have any questions about cryptocurrencies. Are they real? Where do they get their value from? What are the risks? This is an opportunity to hear from two guys that have been at the heart of the entire movement.
CL: Thanks, Teeka. Thanks, Bill.
Justin’s note: As Teeka mentioned, he’s hosting a free cryptocurrency training webinar tonight at 8 p.m. ET (rebroadcast at 8 p.m. PT).
Whether you’ve been trading cryptos for years, or you’re a newcomer interested in learning more, we highly recommend attending. Reserve your spot to this free event by clicking right here.
Are you investing in cryptos? If not, are you planning on getting started soon? We’d love to hear how it’s going so far… Send in your stories, suggestions, and questions right here.