I don’t think that a discussion on what may perform well-or not- would be complete without a short discussion on cryptocurrencies. It will be short because I am not any type of an expert in this area. When I am not well-versed in a certain area I try to do research and listen to those who do have expertise in the area I am interested in.
I have seen the touting of Bitcoin, Etherium and many other cryptocurrencies and have done some research that has led me to many questions. It started a few years ago when I thought Bitcoin was a great idea for privacy and financial freedom. The story was that supply was limited- unlike the central bank currencies and that transactions were “private”. You can imagine how disillusioned I was when I read a Financial Times article- years ago about numerous people sitting in jail and their bond to get out was their password for their Bitcoin! I had to ask myself- if this is so “private” how in the world would anyone know that they were trading illegally or doing something illegal? In another story a young man described how he saw his crypto wallet being emptied and he could do nothing about it but watch as it happened. Now I had to ask how “secure” is it really?
In looking into it further I discovered that the blockchain is private BUT transactions have to be done from a platform and platforms and wallets have been hacked numerous times.
I also saw a letter signed by over 1300 computer scientists from places like MIT, Oxford, Google and others to the US Congress that there is nothing new about blockchain technology. They did say that it would take human interaction out. I thought the funniest line was : It appears that losing money in crypto is not a glitch but a feature. Personally, I believe this is nothing but an elaborate ponzi scheme.
As a matter of fact, a few years ago- when Bitcoin was $20,000.00 I wrote an article 3 weeks prior to its collapse. I didn’t mention any numbers- just that I expected it to collapse. The reason- the major banks got involved. There was great excitement at that time that this was now going mainstream and the next leg up would be monstrous. I based my conclusion on how the banks operate in most “markets”. As I wrote earlier, the banks “print up” paper contracts and sell them into the markets to keep prices suppressed- if that is the goal. After watching them do it to gold and silver for a decade I assumed they would do the same to Bitcoin. I was proven correct as just after the banks started issuing futures contracts on Bitcoin the price collapsed to $3000.00. This is not the end of the story though as after the collapse Bitcoin shot up to $64,000.00. I believe the banks probably managed that also and shorted it somewhere around the top and made a fortune as the price collapsed again by shorting.
With all of this volatility I find it hard to believe that Bitcoin could be used as a currency. One of the main reasons Bitcoin went to $64,000.00 was that Elon Musk said he would take Bitcoin as payment for his Tesla cars. The price spiked when he made that statement. A few weeks later the price fell hard and Elon then said he would no longer take Bitcoin as payment. Just think of the damage. If he sold a Tesla for $100,000.00 when Bitcoin was 60,000.00 he would have parted with the Tesla for 1.67 bitcoin ($100,200). Just a couple of weeks later, as Bitcoin fell to $48,000 old Elon just lost $20,000.00 on that transaction. I would stop that ASAP also! The decline didn’t stop until it fell to the teens.
I know many people made a lot of money speculating in this space and I say- Great! I will also say, however, that you better have an exit plan. I know many people are thinking this is a good long-term hold. I don’t think so. I will start by asking “What is the utility of Bitcoin- or any other crypto for that matter?” We have already discussed that it really can’t be viewed as a store of value. It is not as anonymous as it was touted to be and when central banks unleash the CBDCs it will almost certainly be illegal to buy or sell with anything other than the “approved” currency.
Don’t think so? If you had a monopoly on conjuring up cash that you charge interest on, buy assets with and enrich yourself beyond anyone’s wildest dreams would you give that up?
I have often said that there were two presidents that really took on the bankers. There may be other reasons that are included but those two presidents were Lincoln- who printed up greenbacks after the civil war. He was promptly disposed of. In the early 1960s John F Kennedy issued silver certificates through the US Treasury- a direct competitor to the Fed’s fiat paper. He met the same end as Abe.
The point here is that those who have this extraordinary privilege take it VERY seriously and will stop at NOTHING to keep this power.
Keeping this in mind what can these cryptos actually do for you? It appears the only hope is that a greater fool comes along and bails you out. I am not saying that traders can’t still make a buck here but be aware of what you are involved in- a SPECULATION- not an investment. To anyone who thinks it is not speculation I would ask what is the utility of these assets? Many people will say “You can’t eat gold”. While that is true tell me how you eat a mathematical equation that is only in cyberspace. I haven’t even brought up the question about what happens if the power grid goes down or if you were to lose your zip drive with the information on it.
We are entering extremely uncertain times. Many are touting the Metaverse and other ridiculous ideas where you can get a cyberspace by a celebrity. Who cares! I believe this shows how decadent and decayed our society has become. We are entering into a new era where what will matter most are the physical things we humans need to survive. While cyberspace may help us manage it, we can’t count on illusions to carry the day.
Keep in mind that all the way back in the 1600s there was a tulip mania in the Dutch Republic where you could exchange a tulip bulb (Yes- the tulip plant you see in the spring!) for a house. Sounds ridiculous? How about someone selling a house for a mathematical equation that depends upon the electricity being on and it not being stolen during the transaction. At least you could look at and appreciate the tulip! To me, these situations are VERY similar.
While those who got in at the right time and converted their gains into other assets- BRAVO! To those of you who think that it is a good long-term hold I would think LONG and HARD about that.
Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.