Justin’s note: Over the last few months, we’ve shared many essays on the big opportunity in cryptocurrencies. With the recent sell-off, I wanted to get this new essay from Palm Beach Letter editor Teeka Tiwari out to you as soon as possible.
Teeka knows more about the crypto market than anyone I know, and he explains below what you should be doing today…
By Teeka Tiwari, editor, The Palm Beach Letter
I’m sure you’re aware of the vicious sell-off currently going on in the cryptocurrency market.
But what you might not know is that this type of volatility isn’t new.
Even as recently as last March and September, we dealt with similar market meltdowns. What was especially tough for us was that our most important positions actually ended up dropping far lower than the general market.
At certain periods last year, we saw peak-to-valley drops of 67%, 73%, and 78% in some of my recommendations.
It was a bloodbath.
Hackers attacked Ethereum—my most important position… and the one I had staked my reputation on—every day. I can’t count how many times Ethereum forked its code to deal with various attacks.
Aside from the normal angry emails we receive when prices are tanking, I received many mocking emails from “friends” reveling in my perceived “misery.” More than one asked, “How are your ‘tulip bulbs’ doing?”
Then, like now, I knew the slings and arrows of the market would ultimately strengthen the entire crypto asset ecosystem.
Whether it was hackers trying to destabilize the Ethereum network or the Chinese government trying to ban exchanges, I’ve always known that the decentralized nature of crypto assets makes them very resilient to external threats.
That resiliency is what attracted me to bitcoin in the first place.
For example, in 2013, the Chinese government banned its banks from dealing with bitcoin. This was at a time when 90% of all bitcoin mining and the majority of bitcoin activity took place in China.
On top of that, hackers broke into the world’s largest bitcoin exchange at the time (Mt. Gox) and stole nearly 850,000 bitcoins.
Bitcoin dropped 80%… But it still refused to die.
When I finally became convinced to buy bitcoin in early 2016, it was at $450 and had a $6.6 billion market cap.
I knew that any asset class that could survive so much negativity had to have long-term value. Since then, of course, bitcoin has been as high as $20,000.
Now that bitcoin has dropped as low as $7,000, does that mean the party is over?
Technology Has a History of Fits and Starts
I’ve been fortunate enough to meet many bitcoin millionaires—some now billionaires—who lived through bitcoin’s 80% drop in 2013.
I asked what kept them in bitcoin through the negativity. After all, they had made fortunes from bitcoin… So why stick around?
What separated them from the hordes of “investors” who sold was their unswerving belief that the world needed a practical alternative to fiat currency.
Bitcoin is the first currency that can’t be devalued by a government. It’s the first asset that we’ve had complete ownership over.
It’s the most difficult asset to seize in the world. Barring torture, there isn’t a government in the world that can take your bitcoin from you (assuming you’ve stored it securely). That makes bitcoin—and crypto assets overall—unique.
In my opinion, bitcoin’s unique qualities will continue to create value for its holders. But it won’t move in a straight line. No asset ever moves in one direction.
Even the biggest stock winners of the last two decades—Microsoft, Apple, Google, and Facebook—had long periods of price drops, price consolidations, and fears about their long-term viability as businesses.
In the 1990s, the government tried to break up Microsoft. Apple traded for barely the cash on its balance sheet in 2003 as people failed to see the significance of the iPod. In 2007, Google dropped 70% as investors thought it couldn’t survive the Great Recession. And Facebook dropped 50% right out of the gate when it went public.
Just like those tech giants, bitcoin and crypto assets are now under a global microscope.
More Scrutiny Is Not a Bad Thing
China wants nothing to do with cryptocurrencies. And banks are banning the use of credit cards to purchase them. (That’s actually good news. As I’ve said before, you should never borrow money to fund a crypto investment.)
This week, two federal agencies—the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC)—are preparing to send reports to Congress about crypto assets.
Even the G20 (a group of 19 major national economies and the European Union) is threatening to take cryptos more seriously.
All of this scrutiny has people scared that we’ll see a coordinated global effort to snuff out bitcoin and crypto assets.
I believe this fear is overblown.
Global governments have much bigger problems than bitcoin. The idea that they’ll all join hands and put their differences aside in the relentless pursuit of crushing bitcoin appears farfetched to me.
Instead, we’re seeing the maturing of the crypto asset class.
None of this is inherently bad. For cryptos to make the leap to a multitrillion-dollar asset class… some form of regulatory framework must be in place.
I think it’s an overreaction to assume that all governments want to destroy the crypto asset market.
Even if they wanted to, the decentralized nature of bitcoin and other crypto assets makes it impossible for governments to eliminate them (just ask China).
Governments can certainly make things more difficult by shutting down the exchanges. But as we’ve already seen, even when the most important market in the space—China—decided to shut down its exchanges, other countries such as Japan welcomed the Chinese exchange operators with open arms.
The Crypto Genie Is Out of the Bottle
Governments can wail and gnash all they want… but nothing will remove cryptos from the market. The asset class is here to stay. And I think U.S. regulatory bodies understand this reality.
That’s why I think the CFTC and SEC hearings will be more concerned with curtailing initial coin offering (ICO) fraud than trying to kill all things crypto-related.
The CFTC approved bitcoin futures this past December. It would hardly make sense for it to greenlight futures and then expend resources to destroy the asset class.
That’s why I think the current regulatory fears washing through the crypto markets are overblown. Just like they were during the many scary periods I went through with cryptos in 2017.
Then, like now, I offered the same advice: Make sure you have rational position sizes. Stop checking prices. Don’t worry about how long this sell-off will last. No one can answer that question with anything more than a guess. (That said, I’m currently working on an essay that will offer my best guess.)
I’ll leave you with this…
The biggest mistake I made in the decades of the late 1980s and ’90s was to underestimate just how powerful an impact technology would have on the future. I under-owned—and sold too quickly—some of the biggest winners of the past 25 years.
I’m not going to make that mistake twice.
The blockchain and crypto assets are a new breed of technology that will have as much (if not more) of an impact on the world as the tech companies of the 1980s and 1990s have today.
Let the Game Come to You!
Editor, Palm Beach Letter
P.S. The bitcoin mania isn’t over… It’s just getting started. And an event set to occur as early as April 2 is set to launch a second, massive run-up. Bitcoin’s price could soar 20 times higher.
And I’ve found three plays that could soar even higher than bitcoin. I’m talking about making 50, 100, even 200 times your money. You can get the details right here.
Today, readers respond to Doug’s take on the political correctness movement:
Please look up the origin of PC. Educate your audience. I refuse to acknowledge those two words—it’s a term Stalin popularized. We can thank the "New" out of control educational system! College is a breeding ground. Sad, very sad.
All of this PC correctness nonsense is in the Marxist Progressivist line, which Obama-lite democrats are THE PROPONENTS of. Dumb down and numb down the masses, give them a bag of “goodies” to make them dependent on government and you have met your goal = gain the power. Eliminate/smear everybody with different views and you have made it! It’s like from Marx’s Manifesto. We must stay alert and not let the USA become the united socialist states of America!
Mr. Casey forgets to mention that his fellow multi-millionaires support the PC movement. Warren Buffett and Lloyd Blankfein fund candidates that support all this PC nonsense but have no idea why—they flail around for an explanation. There is an answer but it cannot be found in secularism.
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