Cryptocurrencies: Six Points You Have To Consider

In case you missed it, you can watch an “At a Glance” summary of this week’s blog posting here.

Shake Up Your Belief System. There’s More Money In It.

NO ONE wants to be called out on what’s most connected to their core beliefs because these beliefs are connected to their identity. Challenge certain beliefs and you challenge their identity. Challenge their identity and you challenge their “everythingness.” Challenge their “everythingness” and you have an angry man.

What could possibly go wrong?

When you shake up the belief system of someone they get pretty darn mad. You can call out a lot of things to humans, but if you accidentally (or not) call out something that is connected to them at an identity level, then watch out. Anger will follow. Why? Because they just got hurt. And humans, especially male humans, have never been taught how to deal with hurt feelings.

And hurting people hurt others.

And if you then add in investing, the equivalent of modern day hunting. Then watch out. Because male humans 10,000 years ago died if they didn’t know how to hunt. So when you call out someone’s flawed investing point of view, you are essentially calling out their manliness.

Once an investor believes something to be true, he will then go out and find information to support that belief. And not the other way around.

Isn’t that interesting?

One of the founders of Agora Publishing (Mark Ford), the company behind Porter Stansberry, Doc Eifrig and Steve Sjuggerud and hundreds of other “pick of the month” newsletters said it best.

We noticed our best newsletters were NOT the ones that had the best performance. In fact we noticed performance didn’t matter. We noticed the highest generating newsletters with the lowest subscription turnover were those letters that confirmed what the buyers of those newsletters already believed to be true. 

 

So if they believed the government was lying to them, then we could package that belief system into our gold newsletter. Our gold newsletter could then be the platform of ‘the government is lying to you and we’ll show you every day, week and month.’ And as long as we didn’t change that theme of a lying government then people stayed. 

 

Even if the gold newsletter had the worst performance track record out of all 100 of our other newsletters. If we kept selling ‘the government lies to you’ then people kept buying.

Isn’t that interesting?

Cryptocurrencies

The currency. The technology. The two leading ETFs to buy. The risks. The history. The Government’s reaction. Banks next steps. And what you may want to do.

What’s behind the passion of cryptocurrencies? Is it real? Should you pay attention? And is there money to be made?

Let’s Dig In.
The first question I have is, are cryptocurrencies a fad or a trend?
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Crypto curriencies

The difference between a fad or trend is the length of time that “it” stays relevant. A fad is something that is short lived, like Pet Rocks. While a trend is something that has a long lifespan, like blogging for example. Blogging is here to stay. The question is, is cryptocurrencies the Pet Rock of 2017 or Blogging of the 21st century?

Here are the six ideas that stand out the most about cryptocurrencies. Try not to take sides as you read through these six points. Or even better, notice that you might want to be taking sides. And when you do notice wanting to take sides. Ask yourself, why does the side you are taking mean so much to you? What do you feel like you might lose if your side loses?

1. Cryptocurrencies are Not a New Asset Class

Cryptocurrencies are not a new asset class. They’re a currency. There are only four asset classes on the planet: stocks, fixed-income, commodities, and real estate. That’s it.

Cryptocurrencies are a type of currency. And currencies are part of the fixed-income asset class. Cryptocurrencies are a currency that is not backed by the faith of the government that “prints” it.

We don’t have horse buggies anymore, but the transportation industry didn’t go away. The horse buggy was simply replaced with cars. So cryptocurrencies is a form of currency and falls within one of the four main asset classes.

Maybe cryptocurrencies will replace fiat currencies or gold or maybe they won’t. And maybe cryptocurrencies will simply be a third type of currency. Fiat-based. Gold-based. Crypto-based.

Horse Buggy

2. Cryptocurrencies are Not Hurting the U.S. Dollar

Cryptocurrencies are NOT hurting the U.S. dollar. The US government and China are. China has started making contracts with other countries to buy their stuff (oil, metal, grains) with Chinese Yuan and not US Dollars. This is a big deal. Because China is the first or second largest buyer on the planet for many of the world’s commodities. So what they do matters to everyone. And China is sick and tired of having to buying stuff in US Dollars. Enough!

The smart thing China is doing is saying to the world, pay in Yuan and then if you don’t feel safe staying in our currency, no problem. You can then immediately exchange our Chinese Yuan for gold on the Shanghai Gold Exchange. Immediately.

This will be good for the Yuan and good for gold. And I’m willing to bet in ten years or less people will start thinking the Yuan is as good as gold. Kind of like the US Dollar was before 1971.

If you want to dig into the Yuan/Gold for commodities thing you can read the original article here at Nikkei Asian Review.

China

So yes cryptocurrencies are a new form of currency, but no they are not going to be the downfall of the U.S. dollar as the reserve currency of the world. That job will be left to the US Government and China.

BUT… what the Fiat-based-currency-countries of the world are going to do with Crypto-based currencies is clear. They will fight it.

The US$, The Yen, The Yuan, The Euro and The Pound are going to put up a fight. China is already cracking down.

And what about the US constitution and its coinage clause?  Under Article i, Section 10, the states are not permitted to coin money… make any Thing but gold and silver Coin a Tender in Payments of Debts.

3. Cryptocurrencies are Not Its Technology

I want to separate the currency of cryptocurrency from the technology of cryptocurrencies. The technology behind the cryptocurrency is called blockchain. What I’ve noticed is that smart money is pouring billions and tens of billions into the technology of blockchain. A blockchain is a public ledger. Meaning you don’t need a bank anymore. Or letters of credit. Or days or weeks of paperwork. Cross border deals can be done in hours.

This means you don’t need to trust the other side of the deal because it’s a public ledger. This technology is a trend and here to stay and is probably as big as fracking, email and the Internet. Seriously. Blockchain technology will change the world. And not in 100 years but in the next 10 years.

Big banks are getting involved. They see the risk of being left out and are jumping in.

4. Cryptocurrencies are More Like Gold 2.0

The currency part of cryptocurrencies are more like gold than anything else but with much higher volatility. When someone invests in cryptocurrencies, especially someone who’s really passionate about it. What they’re basically saying is that the government cannot be trusted any more to manage their currency.

Crypto’s are transferable.

Crypto’s are scarce.

Crypto’s are usable.

Crypto’s hold their value???

Crypto’s are liquid???

Governments have mismanaged their budget, their spending, their debt and their currency and people are losing or have lost faith. This could mean the currency part of cryptocurrencies are more like gold. Because when someone buys gold as a currency, they’re basically saying I don’t want government intervention. I want this thing that has held it’s value for 5,000 years.

The difference? Gold has never gone to zero. And some of the 1,000 cryptocurrencies will go to zero.  The first crypto currency was Bitcoin which was created in January 2009 but there are another 1,000 plus cryptocurrencies on the market today.  The takeaway, hold on tight. Cryptocurrencies are the 2017 equivalent of dot com late 90s investing.

 Crypto is like gold

5. Cryptocurrencies are Really Small… Right now.

The fifth thing is that cryptocurrencies are really small. Think of cryptocurrencies like a market cap. Cryptocurrencies are about $200 billion in market cap. That’s about  ¼ the size of Apple.

And depending on how you measure gold, cryptocurrencies are anywhere from 35 to 500 times smaller than gold.

The NASDAQ at it’s peak in March of 2000 had a value of around 11 trillion dollars. About 55 times bigger or more valuable than cryptocurrencies right now. Also a lot of smart money was being invested in Internet 1.0.

And people make fun of things like Pets.com but there was an actual business behind that. We weren’t ready yet to get 50lbs of dog food delivered. But in Internet 2.0 Chewy.com was bought for 3.4 billion.

So Chewy.com was the next iteration of Pets.com. Cryptocurrencies are really small. And that’s ok. So we don’t know yet. The smaller something is the more price volatility that it’s going to have. The larger it is, the less volatility it will have. So like I said in point number four, hold in tight.

Pets.com 2.0

6. Are Cryptocurrencies a Fad or Trend?

The most important question is, is this a fad or trend? Is this the late 90s with Internet start ups? Is the currency-part here to stay? Is the technology here to stay?

This is what I know for sure. There will be fraud. There will be a lot of instant millionaires. There will be people that will lose all of their money. The banks will get involved mostly to make sure they are not left out. If there’s a dime to be made Goldman Sachs will get involved.

And there will be ETFs.

Below is a price chart of ARKW (AMEX:ARK Web x.0 ETF). Here is one article you can start with to learn more about what is behind ARKW. What I like about this ETF is that is buying the technology behind the coin. And as you can see in the price chart of ARKW below it’s been around for three years and is heading higher.

ARKW

The other ticker symbol is Grayscale’s GBTC.

GBTC is the Bitcoin Investment Trust traded in the over the counter market (OTC). Below you can see that GBTC is slightly younger than ARK Web above. And if you’d like more information about this pure-play you can check out the company behind it… Grayscale.

GBTC

In Your Corner,

RCPeck-Dig Signature.JPG     
RC Peck, CFP

 

 

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