What (exactly) is a cryptocurrency? The Feds want to know
At some point in every cop drama movie you’ve ever seen, there’s the inevitable scene where competing law enforcement agencies clash over “jurisdiction”…> READ MORE
At some point in every cop drama movie you’ve ever seen, there’s the inevitable scene where competing law enforcement agencies clash over “jurisdiction”…> READ MORE
I want to debunk a common piece of Wall Street advice that is dangerous to the health of your portfolio. It has to do with trying to capture the “best days”> READ MORE
Since the recent correction in the crypto market, a fairly consistent slew of negative news has come out about the space. We’re seeing a lot of people say, "I> READ MORE
As the Satoshi Roundtable IV, a small gathering of some of the most influential and legendary figures in the crypto space, wraps up there’s one primary reflection> READ MORE
The ongoing correction in global stock markets isn’t unexpected… but if you’re not ready, check out our crisis preparation checklist. And if you’re focused on> READ MORE
One of the most persistent - and yet baffling - narratives that frames the crypto space is that cryptos are used by criminals. Cryptos, according to a cavalcade of> READ MORE
A lot of people hate cryptocurrencies… the very idea of them. And they hate them with a passion. “I think it’s a pyramid scheme,” said Dick Kovacevich, a> READ MORE
Forest fires, whilst potentially lethal and devastating to people and property in their path, are a crucial part of the natural cycle of forest ecosystems. Fires> READ MORE
At some point in every cop drama movie you’ve ever seen, there’s the inevitable scene where competing law enforcement agencies clash over “jurisdiction”… especially when it’s a particularly juicy crime.
I’m talking about that scene when the Feds muscle in, pushing out the local police… and it typically comes with a bit of cursing, a little back-and-forth between everyone at the scene of the crime, and eventually a weary police chief telling his guys that “sorry fellas, it’s out of my hands, the Feds have got this one”.
The spurned local beat cop hero then ignores the chief, and goes to work on the case anyway… before he’s dragged back into the Chief’s office at some point and told “I said leave it alone goddammit!”
Like I said, it’s part and parcel of every cop drama.
If you take a trip over to cryptoland these days, there’s nothing but drama – and you’ll see a familiar (albeit cliched) narrative playing out.
Make no mistake, there have been plenty of crypto crimes committed amongst the thousands of initial coin offerings (ICOs) that have taken place over the past 12 months, some of the singularly salacious.. As a result, there’s a spate of jurisdictional jostling going on amongst various government agencies over who gets to lead the regulatory charge.
First off, in the U.S. we’ve got the Securities and Exchange Commission (SEC), headed by chairman Jay “every ICO I’ve seen is a security” Clayton (aka Eliot Ness, if we’re going to keep with the movie metaphor).
Clayton is in no doubt that cryptoland crimes fall under his purview. And with news filtering out recently that dozens of subpoenas have been issued over the past few months to blockchain companies conducting ICOs, it’s clear that Clayton is looking to stake his claim.
But don’t expect other agencies to stand back. They want their fair share of the action.
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Earlier this week the Financial Crimes Enforcement Network (FinCEN), a department of the U.S. Treasury tasked with analysing financial transactions to combat money laundering, terrorist financing, and financial crimes, released a letter sent to a U.S. senator last month that outlined that it viewed those involved in selling ICO tokens (both developers and crypto exchanges) as subject to FinCEN regulation, stating:
In other words, if you conduct an ICO then you’re a “money transmitter”. I can only speculate, but my guess is there are more than a few ICOs that haven’t registered with FinCEN as a “money transmitter”. Likewise plenty haven’t done KYC (know-your-customer) checks on their token sales either, so with this FinCEN interpretation they could technically be charged with a felony.
At the risk of this crypto crime drama turning into a comedy caper, a U.S. district judge just ruled that virtual currencies are “goods exchanged in a market for a uniform quality and value” and hence “can be regulated by the CFTC [Commodities and Futures Trading Commission] as a commodity”.
And then on top of that, we have the Internal Revenue Service (IRS), the U.S. tax service, that treats virtual currency as “property” for U.S. federal tax purposes.
So depending on which agency you look at, when it comes to crypto you’re either dealing with a security, a commodity, money, or property.
There’s a huge amount of regulatory overhang left to play out. I’ve got no doubt that the SEC in particular will end up taking some prominent scalps, not only those of enterprises that have issued crypto, but of the lawyers and advisors who’ve ushered them towards to darker end of the grey spectrum that exists in crypto law (it’s not all black and white… plenty of cryptos operate in the grey areas).
As a result, we should expect plenty of volatility and be braced for a few more knocks to the market as the industry works through this period. Ultimately, regulatory clarity will pave the way for institutionalisation of the space, and with that will come a lot more institutional money.
In the meantime, choppy seas ahead.
I want to debunk a common piece of Wall Street advice that is dangerous to the health of your portfolio. It has to do with trying to capture the “best days” of the market.
The buy-and-hold mantra of Wall Street tells you that it’s in your best interest to be in the market all the time.
If you’re not in the market all the time – the mantra says – you’ll miss the best trading days (and they won’t collect their fees).
This topic came up when John from California emailed me this question:
I recently heard a quote from a JP Morgan study indicating that six of the best 10 trading days occurred within two weeks of the worst days of a bear market for the past 20 years. Does your buy signal usually occur within a short time of renewed buying capturing some of these “best days”? I’m concerned about missing some of these best days to be in the market after following your sell or “red” zone signal.
There are really several questions here.
Let’s tackle the first two questions to start.
Here’s a table that shows the largest daily gains of the Dow Jones Industrial Average (DJIA) from the 21st century, as of a few weeks ago. The table is sorted by the largest point move in the DJIA and shows if it was two weeks or less away from a large bear market move.
What we see in this table is that:
Now, for the third and most important question, should John be concerned that TradeStops was out of the market for nine out of 10 of these big up days?
The answer to that question is a resounding “No!” In fact, John should be incredibly pleased that TradeStops was out of the market for these big up moves.
This next table highlights something that JP Morgan conveniently forgot to mention when bringing their claim to the media. Seven out of 10 of these big up moves all were followed by big drops in the DJIA that wiped out the big up moves before the market finally turned higher.
Take a look:
In other words, most of these big up moves were dead-cat bounces in the middle of brutal bear markets.
TradeStops was right eight out of 10 times! TradeStops was in the Red Zone for seven of the big up days that were followed by further drops. TradeStops was in the Green Zone (in the market) for one of the big up moves.
You can see what I mean here from the “best up days” that occurred during the brutal 2008 bear market. The red arrows show the worst down days and the “best” up days that followed within two weeks of the big down days.
Would you have really wanted to be in the market for these “best up days?” I didn’t think so.
Missing the best days of the market was the smartest thing you could have done. In only two cases was TradeStops out of the market when it was rising. And the TradeStops signals would have had you back in the market shortly thereafter to take advantage of the long-term uptrends.
Wall Street won’t tell you this because they want you in the markets all the time… including during harsh bear market periods. They collect the most fees that way.
But we’ll show you what really works (and back it up with data).
That’s why so many people are taking control of their own portfolios and using the TradeStops tools to become successful investors. They’ve figured out that Wall Street doesn’t work for them. “Buy and hold” is really nothing more than buy and hope.
Since the recent correction in the crypto market, a fairly consistent slew of negative news has come out about the space.
We’re seeing a lot of people say, “I told you so!”
We’re also seeing the usual round of, “bitcoin’s finished, the crypto market’s dead,” and so on and so forth.
Now, if you’re relatively new to this space and this is your first experience with a substantial crypto drawdown, then you might be alarmed.
As I’ve been saying for a while, this was expected.
December and early January were just crazy in terms of the ramp ups.
Between the end of November and early January, the overall crypto market rose at an unsustainable pace, from around US$240 billion to over US$800 billion in total market value in a matter of weeks.
So while the correction has been painful, it was what the market needed.
And it’s important to understand that this is not the first correction in crypto.
If you’ve been around in this space for a while, you’ll have seen big pullbacks of 30 percent, 40 percent, 50 percent and higher. It happens pretty consistently, and it’s to be expected in a market which, as I’ve continued to say, is the most volatile asset class on Earth.
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But every single time we see big corrections, the bears come out of hibernation.
I won’t say to ignore them completely – I’m always looking for reasoned and rational bearish voices on crypto – but make sure you really parse what people say for the finer details because everyone in this space has their own agenda.
Everyone, and especially the people who have drawn a line in the sand early on and have been very negative on the crypto space all the way back from when it was US$1,000, will still be harking on the same perma-bearish news.
So keep your head and stay calm. (And if you’re still worried, make sure you attend this complimentary Emergency Bitcoin Briefing.)
That means never borrow money to buy bitcoin… or mortgage your house… or take out debt… or other insanities like that.
If you’re a beginner, you shouldn’t be investing any more than 1 percent of your investible portfolio into cryptos.
If you’re more advanced, more bullish and more familiar with this space, up to 5 percent is acceptable.
Anything beyond that, and I think you might be wrestling with a few sleepless nights from time to time.
As the Satoshi Roundtable IV, a small gathering of some of the most influential and legendary figures in the crypto space, wraps up there’s one primary reflection I’d like to share with you: nobody who attended this event appeared in the slightest bit panicked about the recent crypto correction… and neither should you.
In all the discussions I was a part of, people simply referred to the recent market correction (from a market peak value of US$825 billion to as low as US$280 billion in the space of a month) as a matter of fact… as though it were an everyday occurrence.
This kind of blasé attitude is born from years of experience. Many of these guys were there right at the birth of today’s crypto market, working alongside the anonymous bitcoin creator Satoshi Nakamoto himself.
There were other attendees whose work and innovation actually laid the foundation upon which bitcoin itself was designed.
In other words, these guys have already seen it all. So a 60 percent-plus drop in the market is just another battle scar amongst many.
This ability of a collective of seasoned, hardened crypto pros to shrug off price volatility allowed for this conference to focus on what it does best – diving deep into the real meat of the crypto space… debates on privacy, scaling, development, exchanges, regulation, decentralisation, token securitisation… even an appearance and lengthy speech from U.S. Congressman Dr. Ron Paul.
I couldn’t help but draw a contrast with my wedding.
Let me explain…
You see, I got married on a surprisingly hot afternoon in Hong Kong in late October 2008.
A month earlier, Lehman Brothers had filed for Chapter 11 bankruptcy protection. The benchmark S&P 500 equity index was cratering below 900, down 30 percent in a matter of months. Financial markets were chaotic.
I recall a large number of guests speaking of little other than the stock market. There were more than a few senior investment bankers and traders in attendance. Most were glued to their Blackberries. Others just hit the bar… hard.
The only people there who seemed immune to the panic were the older guys who’d been around the block a few times already. Guys like my father Peter, for example, who’d worked through the dotcom bubble, the Russia debt default, the Asian Financial Crisis, the Japan bubble and Black Monday, amongst others.
They say that one human-year is equivalent to seven dog-years. It’s a similar ratio for human-to-crypto years.
In the nine years since bitcoin was born, there have been nine major corrections (two of them being over 90 percent!).
That’s why the kind of people who gather for the Satoshi Roundtable are so laid-back about the market. A correction is just par for the course. The important thing is that nothing has fundamentally changed with regard to the long-term future of the crypto space.
In the same way that people like my father knew that even a crisis wasn’t the “end of equities”, so too do the crypto veterans know that this correction is just another bump in the road that will ultimately pass.
The second major reflection I have after the past couple of days is this: 2018 will be about quality. By that I mean the market is going to bifurcate between cryptos that exhibit real promise, and the garbage (which constitutes the majority of the market).
So if you’re going to invest in cryptos, you need to make sure you’re investing in the right ones.
The ongoing correction in global stock markets isn’t unexpected… but if you’re not ready, check out our crisis preparation checklist. And if you’re focused on your losses now… take your emotions out of the equation by focusing on your stop-loss levels. And while you’re at it, get some of the best portfolio hedge available.
In the meantime, the cryptocurrency market is in the depths of a sharp correction… as Tama explains…
As I write this in my hotel room on the east coast of Mexico, the Satoshi Roundtable, a gathering of some of the most prominent and renowned blockchain and crypto experts, is about to officially begin… and it kicks off amidst the backdrop of a bloodbath in the crypto market.
As a crypto analyst, I’m attending the gathering because there’s no better place to be right now than amongst the people who have been fundamental to the development of the entire asset class.
Over the next couple of days, I’m looking forward to seeing how a collective of individuals, some with massive personal crypto portfolios, view the current crypto market correction.
I’ll be reporting back on the general ideas and points made at the gathering… but the Roundtable is considered “off the record” and is under “Chatham House Rules”. This means I can’t share any details that would in any way identify a speaker.
Over the past few days, I’ve had messages from friends, readers and Crypto Capital subscribers from all over the world asking for my thoughts on the crypto market. So I’m taking the opportunity to share my observations with you now.
One never knows when a bubbly market will pop its top. But in all fairness, I’ve been warning about this correction for a couple of months now. In November, I told Crypto Capital subscribers:
“Dozens of crypto tokens are up hundreds of percent over the past few weeks.
Now, we’re seeing a lot of self-congratulatory backslapping from crypto investors. Folks talking victory laps, bragging about their returns. Hubris.
This makes me uncomfortable…
…make no mistake, large sums of money will be lost in cryptos in the year ahead. And cryptocurrencies will continue to be one of the most volatile asset classes on earth…
It’s easy to feel like a ‘genius’ in a raging bull market. But make no mistake, markets don’t go parabolic forever…”
And in December, I told subscribers:
“Please stay conservative. Be ready to ride the volatility because we haven’t really even gotten started yet. The big shakeout is going to come. Don’t be even vaguely mistaken about that.”
Finally, in early January, I warned subscribers:
“It [the altcoin market] continues to go fairly parabolic, I don’t know how much longer it’s going to last…
…the market is getting extremely ahead of itself in my opinion. And, when I look at this, it makes me somewhat concerned for many of the reasons I’ve talked about in the past with people not really knowing what they’re buying.”
Between the end of November and early January, the overall crypto market rose at an unsustainable pace, from around US$240 billion to over US$800 billion in total market value in a matter of weeks.
Now, greed has turned to panic, and the market is down to around US$315 billion… back where it was in early December.
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Well, the first reason is that the market was speculatively overbought.
This correction, whilst ugly, is simply a reversal of a market that flew too close to the sun… and is now suffering the burning after effects.
The second reason is what looks like a fairly monumental “risk off” sentiment is gripping global financial markets.
As I write, the Dow Jones Industrial Average was down as much as 4.6 percent in its intraday high/low. That’s a huge drop. And as the crypto market becomes increasingly (albeit slowly) institutionalised as an asset class, it will get treated like one.
That means instead of bitcoin and crypto being viewed as some kind of uncorrelated standalone asset class, it will instead be viewed as one that retains a link to global financial markets and will increasingly be traded in that context.
So in a heavy “risk off” market like we’re seeing now, crypto will also suffer.
Take a look at the below chart, which shows a very closely correlated intraday bottom in today’s equity and bitcoin markets.
Thirdly, regulatory scrutiny of the asset class is increasing. The days of shady initial coin offerings bait-and-switching millions of dollars from unsuspecting investors is likely drawing to a close.
On Tuesday, Chairmen of the Securities and Exchange Commission (SEC) and Commodities and Futures Trading Commission (CFTC), Jay Clayton and Christopher Giancarlo, addressed the U.S. Senate Committee on Banking, Housing and Urban Affairs regarding the oversight roles for their regulatory bodies over the crypto markets.
In their prepared remarks, their general message to the committee was that they have things under control and that they will work to preserve innovation while continuing to use the Howey test as a measure of whether a crypto asset falls under their purview (plenty will).
However, in my opinion, regulatory noise and uncertainty will continue to keep a chill on the market for the next few months.
Nothing that has happened in the past two months has altered my view that crypto is here to stay. But what this correction will do is force market participants to “force discipline on an otherwise broadly unsophisticated market”.
In other words, the market will start to diverge and discriminate between projects with real fundamental potential, and those with little to no prospects at all.
The days of simply buying any old crypto and riding the wave of crypto euphoria are likely numbered.
One of the most persistent – and yet baffling – narratives that frames the crypto space is that cryptos are used by criminals.
Cryptos, according to a cavalcade of “experts,” are merely a tool for criminal activity. That’s it. End of discussion.
Just take a look at some recent quotes…
“Bitcoin just shows you how much demand for money laundering there is in the world.”
– Larry Fink, CEO BlackRock, the world’s largest asset manager
“Cryptocurrencies like Bitcoin, we should be looking at these very seriously precisely because of the way they can be used, particularly by criminals.”
– Theresa May, U.K. Prime Minister
“We will discover that behind this Bitcoin scam, some funds were channelled maybe to finance terrorism and at that point, we will wake up and realize that this is not appropriate.”
– Lorenzo Bini Smaghi, Chairman of Société Générale, a French multinational banking and financial services company
“Bitcoin’s only real use has been to facilitate illegal activities such as drug transactions, tax evasion, avoidance of capital controls, or money laundering.”
– Nouriel Roubini, Economist
“Bitcoin is evil.”
– Paul Krugman, Professor of Economics, City University of New York
Now, some criminals use cryptos as a convenient method of moving value.
After all, there have been ransomware hack/virus attacks that demand users pay a small ransom in bitcoin to unlock their computers.
And who can forget the FBI’s 2013 takedown of Silk Road. Silk Road was an online marketplace used to sell illegal drugs, dirty pictures, and stolen plastic. These criminals thought that because bitcoin operated independently of the U.S. government, their activity couldn’t be traced. (They were wrong.)
But do the “experts” think that the thousands of new account opening requests per day at crypto exchange Coinbase were all from criminals?
Crooks are now so dumb that they are opening crypto exchange accounts by the thousands daily and readily providing personal identity and address proof in the process?
It’s like being back in the mid-1990’s and saying the internet was nothing more than a tool for accessing and distributing unsavoury images (guess what, that’s what some people used it for then, and use it for now).
If cryptos are the currency of corruption and crime… how many bitcoin were involved in financing the 2001 terrorist attacks on the World Trade Center and Pentagon? Zero.
Precisely how many wars in the past century were funded by crypto? Zero.
And when global bank HSBC was fined US$1.9 billion for laundering money for Mexico’s Sinaloa Cartel and Colombia’s Norte del Valle cartel… how many bitcoin were involved? That would be… zero.
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In fact, every single incidence of money laundering in the history of man pre-bitcoin was conducted with fiat currencies like the U.S. dollar.
But have any experts suggest that we eliminate the U.S. dollar (and other currencies) because some people abuse it? Of course not.
I’m pretty sure every criminal also uses a mobile phone and the internet. Should we ban them too?
Again – some people will use cryptos for illegal activity. There’s no stopping that.
But in all the time I’ve spent in the crypto world, talking with blockchain entrepreneurs and founders, along with a string of blockchain venture capitalists and investors, the topic of criminality and/or money laundering has literally never come up.
In fact, quite the opposite, nearly every professional in the space expects know-your-customer (KYC) and anti-money laundering (AML) regulations to be enhanced, not diminished.
There’s no denying that bitcoin was originally encouraged by enthusiasts who tended to err on the side of anti-government and libertarianism. And there’s still a fierce underpinning of that ethos within the crypto market today. But the market has expanded far beyond the realm of any single political ideology.
For example, bitcoin’s market value as a share of the overall crypto market is now less than a third. A year ago, it was over 85 percent.
There are thousands of crypto asset enterprises out there. Some projects veer towards radical transparency. Others are committed to providing absolute privacy. Some cryptos are plainly based around establishing personal identity. And others couldn’t care less.
As for folks like me? Well, at the most basic level I find the idea of a decentralised, fast, secure, immutable means of transferring value to be utterly fascinating and ultimately necessary. (And this is just bitcoin, a currency which is only a fraction of what crypto assets are capable of).
Two months ago, I tried to pay a translator based in China with an international bank transfer from HSBC to a bank in China. The first attempt was kicked back after several days, “rejected” by the recipient bank for no specific reason.
The second attempt went through (i.e. the funds were deducted from our company bank account), but the recipient never received them.
Where was the money then? No idea. Neither bank had an answer. (I’m not even kidding – the money was simply unaccounted for, lost somewhere).
Some SIX WEEKS later, the funds have now reappeared in our account after countless man-hours wasted.
Using a crypto currency like bitcoin cash (BCH), I could have done the transfer from my phone to the recipients in a few seconds, and verified the confirmation on a public ledger.
The point I’m making here is that the time for sweeping generalisations about the nature of the entire crypto market is long gone. It’s symptomatic of a wider trend which sees the media in general focus on the most extreme elements of a particular story because that’s what generates headlines and clicks.
The reasonable, rational and genuinely inquisitive approach is dismissed because it actually requires a bit more effort.
In my humble opinion, crypto is worth making the effort for.
A lot of people hate cryptocurrencies… the very idea of them. And they hate them with a passion.
“I think it’s a pyramid scheme,” said Dick Kovacevich, a former CEO of Wells Fargo, a big American bank. Jamie Dimon, the CEO of JP Morgan Chase, said, “If you’re stupid enough to buy it [bitcoin], you’ll pay the price for it one day.” Robert Shiller, Nobel laureate and the namesake of one of the most widely cited stock market valuation measures, thinks bitcoin will “totally collapse”.
My parents taught me a lot of things… one of which was, if you don’t have something nice to say it, don’t say it. Messrs Kovacevich, Dimon and Shiller feel otherwise regarding cryptocurrencies, clearly.
Cryptocurrencies seem to be uniquely divisive. Investors are either on board… or view cryptocurrencies as a mix of Jack the Ripper, the bubonic plague, and tulip bubbles, all wrapped in one. The high-sodium, yeasty Australian delicacy known as Vegemite (either you hate it, or you love it… and if you’re not Australian, chances are you hate it) is a unifying force compared to cryptocurrencies… and the kaleidoscope of opinions on U.S. President Donald Trump (from pure hatred to adulation) are all more or less on the same side, compared to the ferocity of opinion around cryptocurrencies.
(Full disclosure – until not long ago (though a long time ago, in cryptocurrency lifetime terms) – I didn’t have anything good to say about bitcoin, as you can see here. But then, I learned more about them, and spoke at length with people who are neck-deep in cryptocurrencies, like my colleague Tama Churchouse. And as economist John Maynard Keynes is widely credited with saying, “When my information changes, I alter my conclusions. What do you do, sir?”)
My information has changed and I’ve altered my conclusions. Now, I think that cryptocurrencies are at the stage of the internet in 1994. Some people believed it was something explosively powerful… and others thought it was a waste of space… and most people didn’t really care or notice. Soon thereafter, anything internet related went through a period of massive speculation (see: Pets.com… and the 1999-2000 internet bubble), followed by a massive bust.
And now, a decade and a half later, the internet is an essential fabric that weaves together society and civilisation. It’s found its way into nearly every realm of life. For the most part, it’s made the world a more efficient, smarter, richer place. It wasn’t quick or easy, and vast fortunes were gained and lost along the way. But anyone who poo-poohed the internet in 1994… well, they were wrong.
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Where the internet has come today, is how I think the evolution of blockchain will unfold over the next twenty years (or less… since – thanks in no small part to the internet – everything moves so much faster today). Maybe Bitcoin will be a relic of an era, like AOL’s modem buzz and greeting. Or maybe it will be Amazon, a victor that’s redefining entire industries. But in any case, the applications of blockchain will re-script entire sectors, and upend our assumptions about technology and its application in everything from medical care to logistics.
That’s what I think. The gentlemen I cited at the top of this article clearly think otherwise. And they’re not alone: Cyrptocurrency skeptics (and haters) are thick on the ground.
So I’ve tried to understand the reasoning behind their thinking…
1. They’ve researched the arena and have come to a reasonable understanding of it, and they don’t believe in it. This is fair enough. I can argue with someone over the merits of a technology, but I can’t argue with someone if, well, we just see things differently.
2. They’ve poked around and realized that it’s pretty difficult to understand. So, well, forget it. It’s easier to reject something you don’t understand, than it is to try to understand it.
3. They want to go “on the record” as saying that it’s not going to work, and/or it’s all a giant bubble. Then, when (if) it doesn’t/the bubble bursts, they can say, see? I told you so! (This is a favourite move of analysts and media hogs of all stripes and nationalities… say and write enough in the public domain, and you’ll eventually be right about something. And you can conveniently ignore all the stuff you were wrong about…)
4. As my kids say, FOMO – that is, fear of missing out. They hear about cryptocurrency millionaires who lucked into fantastic wealth. They kick themselves for not having bought just a takeout pizza-worth of bitcoin a few years ago. And now that (they think… though I don’t believe this) the easy money has been made, they want it to not work out – so that they’ll be proven right for not having bought in earlier. They don’t want to have missed out – so they want it all to collapse in a hot mess so that they will not have missed out.
5. They’re wedded to their view, and don’t want to (or can’t) change their view. For years in the early 2000s, pretty much any stock market analyst in Russia (I was one of them) was convinced that the country, and its stock market, would remain in the dumps indefinitely. That was just before a 5,000 percent rally. But for analysts who had been (correct, up until then) naysayers of the market couldn’t change their outlook – even though the situation had changed.
6. When the cryptocurrency market inevitably corrects they can indulge in schadenfreude, which is “enjoyment obtained from the troubles of others”. It’s an ugly and unpleasant mutant of “I told you so”.
Of these, only #1 makes sense. If you find yourself nodding in agreement to #2-6 (or a number 7, 8 or 9 that I’m overlooking), you owe it to yourself to at least try to achieve #1 – or be convinced otherwise along the way.
How? Browse our articles about cryptocurrencies. Sign up for our Crypto Crash Course and listen to what Tama has to say… I’m biased, but for my money there’s no one better than Tama when it comes to explaining the nuts and bolts of cryptocurrencies in an engaging, entertaining and above all, understandable way.
Publisher, Stansberry Churchouse Research
Forest fires, whilst potentially lethal and devastating to people and property in their path, are a crucial part of the natural cycle of forest ecosystems.
Fires remove dead vegetation and alien plants that compete with native species, stimulate new growth, trigger certain plants to release seeds, and actually improve wildlife habitats. They also remove diseased, decaying trees, making new for new younger ones.
In the world of crypto assets, a fire is raging right now. The crypto market has shed around US$200 billion of market value in the past two days (that’s around 26 percent). Every crypto is down by double digits over the past 24 to 48 hours.
The spark was a long-overdue regulatory hammer blow starting to reverberate, from both Korea and China.
China is now intensifying its crackdown on crypto trading, specifically on exchange-like service providers. Chinese exchanges themselves have long been closed, since the previous regulatory onslaught in August/September of last year.
A Chinese central banker was also quoted as saying that businesses providing any kind of market-making (like OTC brokers) or crypto trade settlement services should also be shut down. Chinese central bank regulator Vice Governor Pan Gongsheng also said that mobile apps and websites offering trading services should be blocked, and that there should be an “orderly exit” for the crypto mining industry.
Korea, on the other hand, is focused on more regulation and oversight – an end to anonymous crypto exchange accounts for example, and proper taxation – rather than on shutting the market down.
I’ve been warning subscribers of Crypto Capital, our dedicated cryptocurrency service, about an impending correction for a while now.
Last month I wrote:
“The moves we’ve seen in the alt market recently have been extraordinary. There’s a degree of frenzy, and of blind speculative mania, that has taken hold. I’ve seen projects that I know with certainty have no long-term future whatsoever see their market values double, triple, or more, moving into the billion-dollar plus category.
These are projects that I’m certain will fail.
… The big shakeout is going to come. Don’t be even vaguely mistaken about that.”
No doubt there are plenty of folks panicking out there. Maybe you own a little bitcoin yourself, and are feeling nervous… and you’ve lost some money.
Of course that’s not good. But through the smoke and flames, it’s worthwhile remembering that these fires do serve a greater purpose.
Firstly, they force people to start truly assessing what it is they own… or they think they own. In a raging bull market when everything’s going up, it’s easy to throw some darts at the crypto wall with no research at all, bag some returns, and think you’re a genius. As the cliché goes, a rising tide lifts all boats.
But let’s say a cryptocurrency you own is down 30…. 50…. 70 percent, and it happens in an instant. Chances are, that if you haven’t got that foundation of conviction born of research and understanding to fall back on, then you’ll capitulate. You’ll sell, bag a loss, go home and lick your wounds.
Corrections force discipline on an otherwise broadly unsophisticated market. And that’s only a good thing in the long run.
The second benefit is that these fires clear out the deadwood… that is the garbage of the crypto world. And there’s no greater decaying oak than a crypto called BitConnect.
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Back in November, one of my Crypto Capital subscribers wrote to me asking about it. He noticed it had been doing extremely well and upon further digging came across an article online claiming that BitConnect was some kind of “sustainable 2.0 ponzi scheme”.
(Note: “Sustainable 2.0 ponzi scheme” is one of the best expressions I’ve heard in years. I wish I had thought of it.)
I wrote at the time:
“Another crypto I’ve highlighted, a pretty large market cap coin, it goes by the name Bitconnect, is genuinely a Ponzi-like scam coin.
…I think Bitconnect’s days are probably going to be numbered.
If I look back on coin market cap here, you can see, this is a US$2.5 billion Ponzi-like scheme. I don’t know how much longer it’s going to be around.
I have warned people about it. People go, “Well, the price keeps going up.” Well, that’s kind of what happens in a Ponzi scheme until it doesn’t and the rug comes out from under your feet.
It’s interesting to see the regulators coming down and actually sending cease and desist to a specific crypto. We warned about this crypto in the past, so I hope you don’t own any.”
Well, over the past 24 hours, the inevitable has finally happened – BitConnect is burning, collapsing by over 90 percent.
The sad part of this is that there are probably thousands, if not tens of thousands, of individuals who’ve been wiped out. There was certainly no smart money in BitConnect tokens. This was the preserve of the unsophisticated – who I suspect could least afford its demise.
US$2 billion of “wealth” has vanished in a near-instant.
Its very existence, however, was a black mark on the whole crypto sector in general.
The company behind it received multiple Cease and Desist orders. No one knows who is actually behind the platform. Its github repository, where all open source blockchain code resides, is noticeable only for its inactivity. And if you’re looking for a white paper to learn at least something about the inner workings of this coin, good luck finding one.
Oh, and according to its website, BitConnect is “an interest bearing asset with 120% return”.
When all’s said and done, these corrections will help this still-nascent asset class.
There’s still a lot of deadwood to clear out. It’s a painful process. But the market will be the better for it.
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