Investing is as difficult a skill as any on the planet – with as much luck involved as skill. Rarely does the inexperienced investor win; though for brief periods - like dotcoms in 1999, real estate in 2005-07, and cryptocurrency last Fall - they occasionally do. However, these periods rarely last long – and usually, end in tears. This is why experience is so valuable – as it gives you the best chance to survive, to fight another day.
I’d like to say crypto is the first time I’ve seen a sector explode and collapse first-hand, but it’s decidedly not. To wit, I bought into Precious Metal mining stocks when they were penny stocks in 2002-05, and watched them skyrocket in altcoin-like fashion for three years. However, despite the fact that gold and silver didn’t peak until 2011, the mining stock bubble started deflating in 2007…with a giant crash during the 2008 financial crisis, reminiscent of today’s crypto crash…until I finally swore off the sector in 2011. If it weren’t for the fact I bought my house in 2007 – and thus, needed to sell some miners to pay for it – I’d have lost money on the nine-year venture. But as it was, I got out whole, and lived to fight another day.
Ditto with physical bullion, which I bought into in 2008 – and watched it explode into a glorious, government-capped top in 2011…just as I joined Miles Franklin as its Marketing Director. Fortunately, bullion is far less volatile than mining stocks – but nevertheless, I suffered through six years of misery before getting out slightly better than whole…with a new lease on life due to Bitcoin.
In Bitcoin, the cycle played out in far less time than Precious Metals, given the “double dog years” pace of crypto development – as foreshadowed by what I wrote on April 27th, 2016 (for those who claim I entered Bitcoin late)…
“…and by the way, take a look at the chart of that “other alternative currency” – Bitcoin – which as I write, is on the verge of a major technical breakout above $450. Gee, its chart looks a lot like gold’s from 1979-2004, just before it surged fivefold – only compressed into a mere 2½ years! Why do I bring it up, you ask? Not just because I’ve been very vocal about taking a position in it early this year – upon news that negative interest rates and the “war on cash” were going global; but because I believe worldwide fear of monetary inflation and capital controls is dramatically escalating.
https://www.milesfranklin.com/april-27th-a-day-of-central-bank-infamy/
The ride was as wild as anything I’ve seen - and NO ONE predicted how it would ultimately play out. However, just 2½ years after writing this article, the move I intimated was possible played out by 10x on the upside, and 10x more coming down, leaving us where we are today. I could have done much better if I ignored my human instinct and sold at the top – but fortunately, that same human instinct led to decisions that will enable me to live to fight another day. The question being, what “fight” will that be, and when will it occur?
WHY the crypto bubble occurred is the confluence of all that’s exciting about investing with the pratfalls of the human condition. That is, a new, world-changing technology; lack of regulation; wild west investment products and salesman; and a global bull market in “risk on” assets driven by years of irresponsible Central bank money printing and market support. WHY it collapsed is Financial Markets and Human Nature 101; which as simple as it appears on paper, is impossible to avoid by all but the best - and in most cases, luckiest, investors.
The fact remains that sadly, cryptocurrency is not yet ready for prime time. Not that the bottom isn’t close to occurring – which may well be the case in some cases - but certainly not all. Bitcoin may well be at or near its ultimate bottom now…but perhaps not, as the worst-case scenario I discussed yesterday - of a knock-down, drag out war with SV - is entirely possible; as like an iceberg, there’s no way of knowing if what CSW is manipulating below the waters is larger than what we see above. It’s also possible the worst of the SV storm has passed, but I view that likelihood of this outcome to be small…at least in the eyes of Wall Street, which needs PROOF Bitcoin can permanently reverse the Hash Rate decline SV foisted on it, before even THINKING about investing in an asset so far below the “Hoffman Line.”
https://twitter.com/Andy_Hoffman_CG/status/1070849381727784960
- Andy_Hoffman_CG
As for scams, “sh-t coins,” and the hundreds of alts without a use case - they, like the dotcoms, are destined for zero…led by BCash, the cancer that metastasized, in true Darwinian form, into a sector (and self) killer. To that end, I fully expect Bitmain to start indiscriminately dumping its million worthless shares any day, even though the exercise has no chance of deferring its imminent bankruptcy. Sadly, “Bitcoin Jesus” will be remember more for the destruction he caused due to greed, fraud, and amorality; whilst his partner-in-crime, Jihan Wu, will be remembered as a terrible businessman – and textbook example of hubris.
https://twitter.com/Andy_Hoffman_CG/status/1070852559596773376
- Andy_Hoffman_CG
Sure, ANYTHING can happen in crypto – including a sharp key reversal. However, for Bitcoin to return to its former glory, everything BCash related must be destroyed, never to show its face again. ABC is still fighting to the death, selling everything it can to fight off SV – but is failing miserably, and likely won’t last though the winter. As for SV, there is no way of knowing if it will flame out soon or be Bitcoin’s worst nightmare for years to come – which is why caution is wise at this juncture, given that SV has only existed for a few weeks.
As for the altcoin sector, it will be out of favor for years to come. Most will be destroyed, and the vast majority of today’s “top 10” will likely be casualties of war. There’s no way of knowing which, if any, will survive - but the only one I feel certain about is Litecoin, despite the fact that much of what made it special no longer exists. To that end, I still don’t understand why Ethereum should be worth much of anything – or for that matter, the entire “platform” subsector. Tether may or may not exist in the future, but isn’t really a cryptocurrency…and then there’s BCash, which will die; and SV, which at the moment is crypto’s biggest mystery - and deadliest-ever FUD source.
However, the beauty of Bitcoin is that it is VASTLY superior to any monetary system the world has known – from fiat currency, to Precious Metals and all prior forms of monetary value and transactional utility. Thus, unless SV can against all odds usurp its dominance, Bitcoin will inevitably rise from the ashes – the only questions being, from what price, and when. As for altcoins, there is NO WAY Bitcoin can return to prominence without a massive wave of investment capital behind it – that unquestionably will find its way into a new crop of altcoin startups, some of which will have viable use cases. This is why I am so intrigued by BRhodium – which given its fortuitous timing, has an opportunity, if all goes well, to be an example of how entrepreneurial developers, armed with the lessons of crypto history, can create a niche altcoin use case.
Only time will tell how things play out, and I wish everyone that has acted in good faith; and treated me, and others who have worked hard to educate, with respect – to survive and thrive. I expect crypto to be the focal point of my career for some time, and hope that a few years down the road, it is for many of you, too.