Over the past couple of years, many people have become aware of cryptocurrency and its primary underlying technology: Blockchain.
The other technologies are proof-of-work, P2P network, and cryptography.
Like most people reading this, I didn’t understand the concept of blockchain right away. I found out about Bitcoin in 2011 when the digital coins were valued at $2 but didn’t think we were ready for digital money.
Ironically, I remember thinking money would evolve into a digital, paperless form when I was a kid – maybe an implanted chip that tracked our bank balances as we shopped.
The idea came from my 5th-grade teacher, but we thought of it as more of a futuristic fantasy that would occur after we were dead.
We never imagined the foundation for this technology was already being laid by the Cypherpunks community in the late 1990s – a time when very few of us even used the internet.
I first saw Bitcoin as digital coins stored on a hard-drive and not, more accurately, as The Internet of Money.
Today, I understand it’s a code-based ledger where transactions are processed, validated, and recorded by various members of the network – all on the internet.
Imagine a code-based excel spreadsheet that contains all your transaction history. Now imagine it is public and up on the internet, but only you can affect the balances because you’re the only person that has the password (i.e. the private key).
With a better understanding of the basics regarding blockchain, I began to ponder the implications of this kind of technology:
- Banking – international wire transfers (lower fees and quicker turnaround)
- Music – royalty payments for downloads and streams (better deals for artists)
- Pharmaceutical – supply chain (multi-level production tracking)
- Elections – digital voting (real-time results)
- Financial reporting – tax compliance (more transparency)
And that’s just to name a few.
Blockchain is still in its early stages, and further advancements in this field will pave the way to a decentralized future. It may take some time, but that’s a good thing.
Think of artificial intelligence, the internet of things, robotics, 3D printing and so forth. All these technologies could intertwine with blockchain.
Yet, cryptocurrency has just as many critics as it does proponents. Why? Let’s look at the three main objections to this new technology.
The Top 3 Objections to Crypto
Critique #1: No Intrinsic Value
This essentially means Bitcoin is not backed by a valuable commodity such as gold or silver.
However, the same could be said of the USD, considering we have not had a gold standard since 1933. Fiat money (USD) is created from the issuance of government bonds which are then purchased by central banks with newly printed money –nothing is backing this new currency.
Crypto wasn’t created out of thin air; it was created out of technological innovation. Thousands of hours of coding went into the creation and mining of digital currencies.
Don’t believe crypto mining takes time and resources? Try telling that to this guy.
Critique #2: Scam and Fraud Potential
Did you know that USDs are the primary currency used for illicit activity in the world right now?
It has been that way for decades, with one study even claiming 90% of U.S. bills carry traces of cocaine.
The majority of pump and dumps over the last century have been perpetrated via the stock market using U.S. fiat currency.
Scams are an inevitable reality in our world, but we can’t blame that on blockchain and digital currencies.
Critique #3: Not Issued by Government
Dollars are not issued by our government, although they are indeed backed by the “full faith and credit of the U.S. government” – meaning Uncle Sam can tax you to come up with the money you’re owed. Our money is issued by the Federal Reserve, which is a consortium of private central banks.
For a more in-depth understanding of the federal reserve, you can read The Creature from Jekyll Island by G. Edward Griffin. It is available here for free.
The Truth About Crypto
The truth is crypto is internet money for the internet age.
I think that it is also the best investment you can make RIGHT NOW (not a financial advisor).
Around the peak of the BTC boom in 2017, John McAfee famously predicted a price of $500,000 by 2020 and promised to eat his penis if he was wrong.
Many Bitcoin purchases were made near $20,000 because of such claims.
This is how the majority of pump and dump schemes work.
Everyone and their grandmothers buy in a frenzy with the hopes of getting wealthy.
But times like these are exactly when NOT to buy.
Here we are in March of 2019, with the price of BTC down to ~ $4,000, which amounts to an 80% drop from its all-time high.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffet
I do not advise you to be greedy. I will propose another approach that is less risk-averse.
I suspect many solid coins have reached (or will soon reach) support levels.
Many will see this as the end for crypto and proof that it is worthless.
On the contrary, now is the time to get in the game (again I’m not a financial advisor – please proceed with caution ;).
A Useful Stock Market Example
ONVO is the stock ticker for Organovo; a 3D printing company focused on bio-printing human tissues. It has decreased from its $14 high to a support level at about $1.
The company is not profitable right now. And an investment in ONVO is essentially a bet that its technology, if completed one day, will revolutionize the medical field.
Many jumped in during the 3D printing mania a few years ago but bailed soon after.
The tried and true refuse to sell their stock even at $1, and there are additional buyers at prices below $1 which keep the price hovering around this level.
The $1 price support makes for a risk-averse entry point.
I am not suggesting you invest in Organovo – this is just an example.
3D printing is a promising technology that could be revolutionary, but there will be no use for it until it is perfected.
Crypto and blockchain are different because they are viable solutions for many applications right now.
Looming Bubbles in the Global Economy
A bubble by economic definition is an artificially inflated asset class that will pop at some point, losing half or more of its value at a shocking pace. In 2000, we had the dot-com bubble; then came the mortgage bubble in 2008. Which bubble is next? It could be:
- Real estate
- Stock market
- Student loans
- Credit (bonds)
Perhaps all the above?
In 2008, we kicked the can down the road with trillions of dollars’ worth of bailouts and money printing.
A Rolling Stone article from January of 2013 states, “The only reason investors haven’t run screaming from an obviously corrupt financial marketplace is because the government has gone to such extraordinary lengths to sell the narrative that the problems of 2008 have been fixed.”
What all of this means is that we will soon be faced with severe economic stagnation – that’s on the optimistic side.
Don’t take my economic outlook the wrong way. I am an optimist, and I see a bright future ahead. But growth is sometimes uncomfortable and chaotic.
During the next recession, you will see alternative stores of value such as gold, silver, and platinum rise in price. This is all but guaranteed.
Precious metals rise in price during times of economic turmoil because they are difficult and expensive to produce. More importantly, they are limited in availability.
So, they are commonly used as a hedge, or insurance against economic uncertainty.
Many believe that Bitcoin and other cryptos will be used in a similar fashion.
Crypto is still a tiny asset class, second only to silver.
Let’s look at some of the numbers:
Total Stock Market Value – 73 Trillion USD
Total Silver – 17 Billion USD
Total Crypto – 100 – 200 Billion USD
World Gold Supply (above ground) – 7.7 Trillion USD
You can view a complete breakdown of global assets here.
Cryptocurrency’s total market cap comes in at .25% of the stock market and silver is at a measly .02%.
We have reached the last stages of the most epic of stock market bull runs and have not had an economic recession since the ‘great recession’ in 2008.
Do you think big money investors would pass on a hedge for their wealth during the next recession?
Where will the money flow?
Elementary my dear Watson – crypto and precious metals.
All that is needed for crypto prices to skyrocket are a few trillion dollars to be dumped into the market.
“But what about the decline in value of Bitcoin and crypto?” “Bitcoin has lost 80% of its total value since December 17, 2017.”
The Amazon Example
Remember: severe drops in market value do not always correlate with declines in real value.
Amazon went public in 1997 and was valued at $18 per share for its IPO.
During the buildup of the tech bubble, it reached an all-time high of $89.38, before crashing all the way down to $5.97 in 2001 for a 93.32% loss.
As of August 2018, Amazon was valued at $2,000, a 33,400% increase from its low in 2001.
Bubbles create excellent opportunities to purchase valuable assets at steep discounts.
Many internet-based companies evaporated during the early 2000s, but there were also massive gains to be had for those who were able to identify the best projects.
I remember a time when my mom rented DVDs from Netflix – we thought it was the coolest because we no longer had to drive to the movie rental business in town.
Now Is the Time to Act
If you can think independently and go against the grain, then you have a chance to be an early adopter of this futuristic technology.
Crypto is still in the beginning stages of the adoption cycle.
Mass adoption usually starts with individuals, followed by wealthy investors, and is capped-off by institutional investors.
Once institutional investors arrive, the bulk of the opportunity is gone.
Now is the time to do your research.
Stay tuned for further discussion on market cycles and a few promising crypto projects.
Check out the resources below and I’ll see you back here for part two.
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