Justin’s note: Today, I’m handing the reins to world-renowned cryptocurrency expert Teeka Tiwari, who has an important update on the crypto space.
Below, Teeka responds to a recent piece in The Wall Street Journal that claims bitcoin’s spectacular price run in 2017 was partly due to market manipulation. But Teeka says the author’s missing a major detail…
By Teeka Tiwari, editor, Palm Beach Confidential
At first blush, Wall Street Journal technology writer Andy Kessler makes a compelling case for why bitcoin’s 2017 meteoric 1,368% rise was not “real.”
In an article published on Sunday, July 1, Kessler cites a University of Texas study that argues manipulation was behind half of bitcoin’s 2017 move upwards. The study pins the blame on a crypto coin called Tether (USDT).
Tether is a fixed-value, or “stable” coin. It supposedly backs each coin with one U.S. dollar. To be clear, I have never been a fan of Tether because it requires you to trust that there is $1 backing each coin.
In the January 2018 issue of my Palm Beach Confidential newsletter, I wrote:
[Tether] claims that for every Tether in the market, it has an actual dollar bill in a vault somewhere.
Let me be clear: I HAVE NEVER BELIEVED THAT CLAIM. That’s why I never recommended the token.
To date, I still haven’t seen proof of Tether’s reserves.
Many people share my misgivings about Tether… But that hasn’t stopped it from issuing more than $2.5 billion worth of coins. Does Tether have $2.5 billion in cash reserves to back that up? Or is it just printing its own money at will?
The decentralized revolution is about getting rid of “trusted” third parties. Ultimately, coins like Tether will fail if they can’t find a way to become “trustless.”
(With trustless technology, you don’t have to know or trust the person you’re doing business with. The blockchain records and verifies every transaction transparently. So the system builds trust by default.)
Back to the University of Texas report… It suggests that more Tethers were issued than had backing by actual dollars. The report makes the case that Tethers were used to prop up—and ultimately manipulate—the price of bitcoin.
Kessler’s article attempts to use the study to bolster his argument that bitcoin is just another balance sheet-driven bubble, just like every bubble since the South Sea Bubble of 1720.
He argues that temporarily shifting assets from one balance sheet to another inflates a bubble. When the money runs out, the bubble pops.
It’s the type of argument that initially reads well… But it doesn’t really hold up under scrutiny.
For instance, Kessler tries to pin the dot-com crash on America Online’s dot-com-era ad policies. I read his explanation three times, and I still don’t understand how AOL’s ad policies could have caused the dot-com crash.
The dot-com boom was a $5 trillion bubble. It seems a bit of a stretch to pin $5 trillion worth of value destruction on one company’s ad policies.
Kessler also blames the infamous Dutch Tulip Mania of 1636–1637 on balance-sheet manipulation. But that doesn’t work, either. If he had really done his research, he would have found out that the Tulip Mania was an overblown myth. It had nothing to do with balance-sheet manipulation.
(The Smithsonian journal did a great write-up on the Great Tulip Mania and called it more of a fanciful fiction than a serious financial crisis. You can read the essay here.)
If we poke a little more, we can find more holes in Kessler’s bubble theory.
If Kessler is right about last year’s crypto market action, how does he explain the so-called bitcoin bubbles of 2011, 2013, and 2014?
That’s right, this is the fourth time bitcoin’s “bubble” has popped…
2011 bubble “pops”: $32 to $2—down 94%
2013 bubble “pops”: $230 to $70—down 70%
2014 bubble “pops”: $1,200 to $173—down 85%
2018 bubble “pops”: $20,000 to $6,500—down 66% so far…
If Kessler is going to attack the 2017 action as being manipulated, why not attack the 2011, 2013, and 2014 “bubbles”?
Were all of those moves manipulated, too?
If they were, then those are the most unique bubble manipulations I’ve ever seen.
Here’s what I mean…
If you bought at the peak of each move, your average “old” peak to “new” peak gain would be 9.8 times your money.
How many bubbles do you know of that could make you money if you bought at the peak of every move?
I don’t know of any others.
I fear Kessler has confused market volatility with market bubbles. Just because something is volatile doesn’t automatically make it a bubble (or mean that it’s been manipulated). Bitcoin is volatile… but it’s also very valuable.
Fraudulent assets go to zero. True bubbles don’t continue to make higher highs and higher lows the way bitcoin has done.
Bitcoin is a highly volatile asset—not a fraudulent asset.
And that’s why I have always recommended that my readers keep their position sizes small.
(In Palm Beach Confidential, we recommend that investors with smaller accounts place no more than $200–$400 per trade… and that investors with larger accounts place no more than $500–$1,000 per trade.
Cryptocurrencies are volatile. So small position sizes will allow you to keep a cool head during extreme periods of volatility, like we’re seeing in the current crypto market.)
It’s the only prudent way to invest in assets like bitcoin and other cryptocurrencies.
But let’s get back to Kessler’s central theme on manipulation…
Has the issuance of unbacked Tethers manipulated the market higher? It’s possible. I don’t know if we’ll ever really know for sure.
But in the long run, does it really matter? I don’t think it does.
The truth is that sometimes, bad people co-opt great companies and great technology.
Speculators used to manipulate early railway stocks all the time. In the early days of General Motors, founder Billy Durant routinely manipulated company stock.
These short-term blemishes did nothing to diminish the long-term value the rail and automotive industries were ultimately creating.
Meanwhile, amid all the manipulation hubbub, we continue to see signs of the mainstream adoption of bitcoin and other cryptocurrencies.
The St. Louis Fed recently announced it has created an index to track the top four cryptocurrencies.
Goldman Sachs announced plans to start a bitcoin trading desk.
Japan’s Nomura Holdings (a $100 billion-plus financial firm) just announced it’s creating a crypto custody consortium (an institution that holds securities or assets for safekeeping) called Komainu.
And there’s more…
By 2002, the dot-com crash caused the Nasdaq to drop 80%. In 2002, venture capital (VC) investment dropped by 90%.
Contrast that with cryptos.
Right now, the crypto market is down around 67% from its high. It seems logical that funding for new VC deals would dry up. But it hasn’t.
VC investment has already doubled from last year, and it’s expected to quadruple by year end.
The key takeaway is that even with the news of manipulations, government meddling, and massive volatility… institutional money is still flowing into this asset in droves.
And what an institution chooses to do with its money will always carry more weight with me than a Wall Street Journal op-ed piece.
Let the Game Come to You!
Editor, Palm Beach Confidential
P.S. For the first time ever, I have an investment announcement so BIG that I’ve teamed up with media personality Glenn Beck to create a one-off, special event. We’re calling it The Great Cryptocurrency Conspiracy of 2018. It will broadcast online on July 19, live from Glenn’s Dallas studios.
When you register for the July 19 event, you’ll get a free copy of my new report, The Crypto Manifesto: Why Cryptocurrencies Are the Smartest Speculation You Can Make Today.
Plus, you’ll have the chance to claim your portion of free bitcoin during the first $2 Million Bitcoin Giveaway.
You can reserve your seat for this free event, plus get a free copy of my report, by registering right here…
Today, a reader responds to Thursday’s Dispatch—“How to Profit From the Biggest Oil Shock Ever”—where we interviewed Crisis Investing editor Nick Giambruno on why a potential conflict in the Middle East could trigger the next huge oil shock…
The oil prices went up because Richard Nixon was colluding with the Saudis to figure out a way for the Saudis to afford US warplanes because Vietnam was winding down and the American war-mongering billionaires needed to make more billions off the backs of US citizens!
And another reader shares his thoughts on our recent interview with Doug Casey on California breaking apart…
Well, politics is violence, so this separation of “Corruptifornia” into three states is bit like treating the symptom and not the “disease.” Living in the Fresno area, aside from demographics that are dominantly Hispanic, I don’t see much in common with San Diego, Riverside, and the rest of those included in one of those proposed “states.” I don’t believe “statism” is moral. I believe it is just constitutionalism, and both are wickedness.
As always, if you have any questions or suggestions for the Dispatch, send them to us right here.
Wanted: Expert Investment Analyst
Hey, we’re looking to hire an analyst for the Casey Research team. Our team is growing and a new spot has opened up for an ambitious person to research and write about commodities, stocks, crypto assets, and world markets.
For this position, you’ll work directly with Nick Giambruno, Chief Analyst for and editor of The Casey Report and Crisis Investing. Nick is Doug Casey’s globetrotting protégé. He writes about geopolitics, value investing in crisis markets, the cannabis market, global banking, and survival techniques for financial crises.
If this sounds stimulating, keep reading for more details and how to apply.
Who We Are
We’re a fast-growing company with all the opportunities of a small start-up and the stability of a deep-pocketed firm with a 30-year track record.
We publish half a dozen advisories covering finance and economics. We have hundreds of thousands of readers around the world. Our business is in providing profitable ideas, explaining how the markets really work, and telling great stories.
We’re completely independent and unbiased. We don’t take money from Wall Street or the government. Our revenue comes from selling subscriptions. We make money only if our readers are happy.
Who You Are
You’re able to analyze assets from macro, technical, fundamental, and sentiment perspectives. You’re overflowing with investment and trading ideas. And you’re a voracious consumer of information.
You have a genuine passion for finance and the investment industry. You’re intensely curious, and live and breathe the world’s markets. And you’re willing to travel anywhere and everywhere. You’re ready to improvise, adapt, and overcome.
You’re a good thinker, storyteller, and writer. You’re also good company, and you’re the one your friends say is the smartest person in the room.
The Job We Need Done
We’re looking for someone who loves investment analysis. Someone who wants to make a living reading, thinking, traveling, and writing. Someone who can help us share big ideas with the world.
If this sounds attractive—and you meet the criteria above—we’d love to hear from you.
The compensation will depend on your level of experience. Know this: Dozens of analysts at Agora (our parent company) who write newsletters have become millionaires.
What to Do Now
Send us a basic resume. We’d like to see where you’ve worked.
Write a letter telling us about yourself. We don’t care much about what school you went to. We do care about what you’ve learned doing whatever it is you’ve been doing. We appreciate odd jobs, but we’re also willing to consider Wall Street refugees.
Send us an email with the following information…
Prepare for conversation and travel. If you have what we’re looking for, you’ll start out with a one-on-one conversation with Nick. If that goes well, we’ll fly you to Delray Beach for a full day of interviews. And if we still like each other after that, we’ll discuss the next steps.
Get in touch at [email protected]. Put “Investment Analyst” in the subject line. That’s your first test.
The economy is growing, and stocks remain near all-time highs. But behind the scenes, something strange is happening…
The US government and global financial elites are considering implementing a radical new change to America’s money. If passed, the money in your bank account would fall firmly under government control.
They call it “The Chicago Plan.”