This past summer I heavily researched the cryptocurrency markets, and I was able to discover three essential trends for 2018: fat protocols, scalability, and interoperability.
Since this summer, the cryptocurrency market has skyrocketed. The overall market size jumped an astronomical from $106 billion to $620 billion for a 485% gain.
Those are insane returns. But I have a strong feeling we will see even greater gains in 2018.
Why do I think that 2018 will dwarf 2017’s returns?
All you need to know are three things… and you’ll make 10x your money or more next year.
Three Trends for 2018
In the past, I’ve talked about three tech themes that will drive value in cryptocurrency assets.
These three trends are scaling, interoperability, and fat protocols.
In 2017 these trends allowed me (and countless others) to generate insane gains such as…
8,700% on Ethereum, which is creating the a contract platform that many expect to exceed Bitcoin.
600% on XRP in 6 weeks, which is revolutionizing cross-border money movements between large institutions.
61,000% on NEO, which is enabling a smarter economy.
4,000% on Monero, which is meeting the demand for private transactions.
The three trends are:
The De-nationalization of Money: The rise of “private” money that’s not issued by any governments or central banks.
Closing the Gap Between Crypto Smart and the Public: A brand-new breed of investor (separate from institutions) is about to make the leap into crypto. Public money here we come. Think AOL before the tech boom.
Wall Street’s New Thoughts on Crypto: Institutions move in masses guided by big-picture stories called “narratives.” I’ll show you how the non-correlation narrative will be the story that lures trillions of institutional dollars into the crypto space next year.
Trend 1: De-nationalization of Money
Throughout centuries of human history, emperors, dictators, and governments have proven to be poor guides of national wealth.
Whether to fight wars, secure allies, or bail out banks, our leaders have always resorted to attacking, modifying and destroying our currencies to fund their personal economic shortfalls.
The only reason this has worked over the years is because governments have used force, or the threat of it, to maintain their monopoly to print money.
Friends, I’m here to tell you that after two millennia, government control over the money supply is about to come to an end.
It all has to do with a trend called de-nationalization of money.
It’s a multitrillion-dollar trend that will forever put a check on the government’s ability to steal your wealth through currency debasement.
Over the centuries, when a government has gotten into trouble, it simply printed more paper money or diluted the precious metal content of its coins.
Regardless of century, this pattern has held.
The Romans did this with the silver denarius. In the year 301, one aureus of gold (about 8 grams) would convert into 833 1/3 silver denarii. By 324, the silver denarii had been debased so much, it took 4,350 denarii to buy 8 grams of gold.
In 1803, Napoleon unilaterally replaced France’s existing currency (the assignat) with the franc. Overnight, he rendered the assignat worthless.
In 1933, President Roosevelt confiscated the nation’s gold, then promptly devalued the U.S. dollar by 70%.
In 1973, President Nixon took America off the gold standard. Over the next 40 years, the U.S. dollar fell in value by 80%.
During the 1998 Asian Crisis, several countries devalued their currencies by as much as 35%. Overnight, millions of people saw their cash savings collapse in value.
For thousands of years, we’ve accepted the fact that only governments can issue money. This has led humanity to sheepishly accept the theft of its wealth in the form of insidious currency debasement.
Whether by the threat of violence or imprisonment, we could only watch meekly as governments seized our wealth. Like a whipped dog that only knows submissive obedience to its master… we’ve blindly accepted this assault against our financial sovereignty.
Those days are over…
Since the time of cavemen, the stronger man has always been able to steal from the weaker man.
With cryptocurrencies, for the first time, the weaker man can keep his wealth safe from the stronger man. This is a life-changing paradigm shift. This type of wealth sovereignty has never existed before.
We finally have a way to secure part of our wealth in an asset that’s beyond the reach of any government.
Imagine if the “small” people of the world switch their fiat earnings to digital assets they control. What happens to the banks? What happens to the brokerage firms? What happens to the tax collectors? What happens to a nation’s ability to raise money to wage war?
You can’t print stadium-sized stacks of paper money anymore when the people have an alternative. This terrifies central bankers, central planners, and all other manner of despots.
Once humanity wakes up to the idea that it doesn’t have to put all its wealth into fiat currencies, we’ll see a tidal wave of money rotate out of paper money into cryptographic-secured money like bitcoin.
The denationalization of money trend means that just because we live in America… it doesn’t mean that we have to keep our wealth in U.S. dollars. We can use non-government alternatives like bitcoin, Ripple, Ethereum, Dash, Monero, and ZenCash.
The Emerging World Is Leading the Change
This is such a fundamentally important trend, but it’s easy to ignore if you live in the West.
You see, cash grabs by our Western governments tend to happen slowly. It’s like the steady decline of the dollar since Nixon took us off the gold standard. Whereas in emerging markets, money can evaporate overnight through hyperinflation.
The 4+ billion people living in emerging markets are crying out for an alternative they can control and trust.
Just look at Venezuela and Zimbabwe, where inflation runs at 500% and 12,00% per year, respectively. The fiat currencies in both countries are so worthless (prices double in Zimbabwe every 24 hours) that bitcoin trades at huge premiums of 20% in Venezuela and 85% in Zimbabwe.
Bitcoin, among many other crypto assets, is the solution these billions have been yearning for.
Collectively, emerging markets account for $12 trillion worth of wealth. We’re betting on an exodus from shaky fiat currencies to crypto assets governments can’t debase.
With the proliferation of smartphones and cheap internet access, people can now be their own banks. That’s because they can buy and store digital currencies with their smartphones.
Just like how the emerging market skipped landlines in favor of wireless phones, we think they will skip banks and, instead, transact in cryptos via their smartphones.
We think the trend of denationalization of money can push the entire cryptocurrency market past the size of the gold market. (Cryptocurrencies have far more utility than gold… They’re easier to divide, store, save, and send.)
The entire gold market is worth about $8 trillion. Today, the crypto market is just $620 billion. That means we could see the whole crypto market grow 13 times on this one trend alone.
Trend 2: Public Participation
Want to enjoy a long, healthy life?
Eat right and exercise. Everybody knows that, right?
But just because most folks are aware of the benefits of eating right and exercising… that doesn’t automatically mean everyone will start taking action.
In fact, given what we know about human nature, that would be a crazy assumption.
Is Mere Awareness the Same as Participation?
Bitcoin has brought crypto to the public masses.
A crowd quickly gathers around me when people hear me say cryptocurrencies. They tell me, “Everybody knows about bitcoin now. The opportunity is over.”
That’s a false assumption. And all of us can profit from it.
You see, people sitting on the sidelines of the crypto market are confusing awareness with taking action. Just because a lot of people know about bitcoin, doesn’t mean they’re actually buying it.
I have people coming up to me all the time saying how great they think bitcoin is. But when I ask them if they own any… more often than not, they say no. Usually, I’ll hear they are too busy to buy it… or they just don’t understand it… or they just haven’t gotten around to it.
My best guess is that less than 2% of the people who ask me about bitcoin actually own any crypto assets. This aligns perfectly with a study which found that although 88% of those polled had heard of bitcoin, while only 2% actually owned it.
So, what that tells me is that, while awareness is growing rapidly, public activity is significantly lagging.
That’s why it is a mistake to confuse awareness with public participation.
In 2018, the gap between awareness and participation will close.
Imagine for a second if you could take a diet pill and magically experience all the health benefits of working out and eating right without any of the work.
How successful do you think such a pill would be? How many people do you think would take it religiously every night?
Millions, right? Hundreds of millions, heck maybe billions of people would line up for a diet pill like that.
Well, the cryptocurrency equivalent of that will happen in 2018. Next year, we’ll have our diet pill moment.
The Magic Pill: Bitcoin
It’s about to become dramatically easier to buy, store and transfer bitcoin. Mark my words, we will see a bitcoin exchange-traded fund (ETF) launch in 2018.
Very soon, buying bitcoin will be as easy as clicking an icon in your E-trade account.
Imagine all the hassle of buying, storing, and sending bitcoin eliminated with a mere mouse click. That’s the promise held by the launch of a bitcoin ETF. Tens of millions of people will get their first taste of bitcoin through an ETF and that public demand will surge crypto prices.
Since 2014, people have been trying to get a bitcoin ETF approved. Odds looked slim, but the moment is now here.
So what happened?
The CBOE, CME, and the CFTC.
This trio of agencies and exchanges are paving the way for the approval of a bitcoin ETF. The Chicago Mercantile Exchange (CME) is the world’s largest futures market. The Chicago Board of Options Exchange (CBOE) is the world’s largest options market. And the Commodity Futures Trading Commission (CFTC) is the most powerful derivative regulatory agency in the country.
All three have come together to approve the launch of bitcoin futures and bitcoin options. For the first time, institutions have the ability to hedge their risk in bitcoin.
This means they can buy bitcoin, then buy a futures or options contract that will protect them if the price of bitcoin drops.
Being able to hedge risk will bring a flood of public liquidity into the cryptomarkets.
In past rejections of bitcoin ETFs, the Securities and Exchange Commission (SEC) pointed to a lack of a hedging mechanism for bitcoin.
Now that the CFTC, CME, and CBOE have embraced bitcoin, we’ll see the SEC approve a bitcoin ETF in 2018.
The demand for this ETF will be unlike anything we’ve ever seen. A bitcoin ETF is the magic diet pill that millions of investors will reach for to gain bitcoin exposure.
In 2018, you’ll see the consumer understanding swing from Mere Awareness to Widescale Adoption. The first approved bitcoin ETF will bring a nationwide storm of public money into bitcoin.
This is just the first domino to fall. Soon after that, I expect the launch of the first crypto asset index ETF. This will surge trillions of new dollars into the entire cryptomarket.
The launch of a bitcoin ETF and a crypto index ETF will close the gap from awareness to full-fledged public participation. As this trend plays out, I think we’ll see at least 10% of America’s stock market wealth pivot into crypto assets.
At today’s levels, that suggests that as much as $10 trillion could find its way into crypto assets, meaning as much as 1,500% growth ahead for the entire cryptomarket.
Trend 3: Wall Street’s New Friend
Wall Street has a history of using stories to drive its investment decisions. Often these narratives are grounded in well-researched theories
Wall Street used to hate crypto, but it seems to be changing.
What would cause a normally prudent shepherd of capital to transform into a wild risk-taking cowboy?
This is not the first time as history lends us a few examples:
Junk Bonds
Before the 1980s, there was no such thing as a new-issue junk bond. All bonds were investment grade. They only became “junk” when they got into financial trouble.
An enterprising analyst named Michael Milken realized that junk bonds had very low default rates. Out of every 100 bonds that became junk, only 4% of them actually defaulted on their payments.
Milken used this low-default-rate narrative to sell over $500 billion worth of junk bonds through his firm Drexel Burnham Lambert. It became the largest underwriter of junk bonds in the world. At one point, Milken was making over $500 million per year for himself (that’s $1.1 billion in today’s money).
The profits in junk bonds sparked a Wall Street-wide stampede into the asset. By the end of the ’80s, companies had issued more than $996 billion in junk bonds.
Before the 1980s, there wasn’t a prudent bank manager in the country who was willing to buy junk bonds. Yet, by the end of the 1980s, America’s savings and loans institutions (S&L’s) were stuffed with $480 billion of them.
The lure of the new narrative of low default rates turned prudent bankers into rank speculators. But along the way, some made billions in profits trading junk bonds. Well-informed speculators made a ton of money during this mania.
DotCom Boom
In the mid-1990s, portfolio managers were loath to pay over 12 times earnings for stocks. By the late ’90s, earnings didn’t matter and they were paying an infinite price-to-earnings (P/E) ratio for stocks like Pets.com.
That’s because in the late ’90s, traders believed we had entered a “new era” of permanent prosperity. The internet would unleash a new paradigm of endless growth, they argued.
A narrative emerged that you could pay any price for a stock if the underlying business had “.com” in the name.
This narrative ensnared the entire investing public. Companies such as Cisco traded at 236 times earnings. AOL traded at 194 times earnings. And there were plenty of companies like WebVan, which reached a valuation of $1.2 billion with no earnings.
In all, more than 5 trillion institutional dollars flowed into internet stocks. Again, informed investors made a killing during the dot-com era. This was a fabulous time to get rich trading stocks.
The Housing Boom
After the dot-com bust, investors turned to real estate. The average home price had gone up every year since 1993, even during 2000 through 2003 when the market swooned.
By 2004, some argued that housing prices could never go down. Based on that narrative, trillions of dollars poured into the real estate market.
At the same time, housing ownership in the U.S. reached a record high, topping 69%. This should have led to the cooling down of the market, as there were less qualified buyers in the market.
But Wall Street couldn’t resist the lucrative opportunity. It started issuing loans with little to no documentation. It used adjustable-rate loans, which lowered loan payments. And it let borrowers use their homes like ATMs, making the problem even worse.
At the same time, the banks were repackaging these loans and selling them to other banks as prime loans. In other words, even though the loans were with the riskiest buyers, Wall Street pitched them as AAA-rated.
Home prices continued to go up, reaching a peak in 2007.
Just like in the junk bond and internet booms, investors smart enough to play the new narrative made fortunes in housing stocks, finance stocks, and materials stocks.
Behind each of these frenzies was a new story that convinced these managers to throw their normal risk management out of the window and go “all in.”
What Does This Means for Cryptocurrencies?
This whole lead-up might sound really negative for bitcoin and cryptos in general. It’s not. I’ve always told you that bitcoin and the crypto markets are real, but I expect they will get out of hand just like the junk bond market, internet stocks, and the housing market did.
That doesn’t mean we can’t make a fortune along the way. As you know, I’ve been prudent in our position sizing. And along the way, I’ve had us scoop “cream” off the top of the market-always making sure we are harvesting profits.
If you stay on the right side of manias, they are fabulous wealth-generators.
The point of this history lesson is that Wall Street narratives are very powerful. And they often get wildly out of hand.
A New Story Appears
So, what new narrative will propel bitcoin and crypto assets into the forefront of Wall Street’s collective consciousness?
Let’s start with Wall Street’s main criticism of bitcoin: volatility.
The establishment sees bitcoin’s volatility as a problem because low-volatility portfolio models drive Wall Street.
You see, Wall Street makes its money by holding on to your money as long as possible so they can keep milking you for annual fees. It deliberately tries to tamp down volatility to lull clients into a false sense of security.
When values swing around too much, clients get scared and start to pull out of their investments. Wall Street hates this. Remember, it makes its money by holding on to your investment dollars for as long as possible.
Since bitcoin is so volatile, it hasn’t fit neatly into the Wall Street profit model.
But that’s changing. Study after study is showing that bitcoin is uncorrelated to other assets. For example, a study by the World Academy of Science, Engineering and Technology concluded that adding bitcoin to your portfolio gives better risk-adjusted returns and that bitcoin should be considered a new asset class.
Here’s what that means…
Correlated assets move together in price. And assets with inverse correlations move in opposite directions in price. Uncorrelated assets are unaffected by the forces that affect correlated and inversely correlated assets.
Why is that important?
One of the tricks Wall Street uses to tame volatility is to build portfolios with inverse correlations. For example, when stocks go down, bond prices usually go up. That’s a major reason most money managers tell you to own stocks and bonds.
It has little to do with delivering great advice tailored to your needs. They just want to keep the overall volatility down so they can milk your investment account for 40 years of fees.
So, what does this have to do with bitcoin?
Wall Street is starting to realize that bitcoin is uncorrelated to any other asset. That means the price of bitcoin is unrelated to the price of gold, stocks, bonds, or commodities.
In that context, bitcoin’s volatility goes from being a foe to a friend.
We envision Wall Street’s pitch will be that, by allocating 5–10% of your portfolio to bitcoin and other cryptocurrencies, you can actually bring down volatility.
That’s because bitcoin is unaffected by crashes or booms in the stock, bond, oil, or gold markets.
The S&P 500 doesn’t affect bitcoin. The Brent Crude Index doesn’t affect bitcoin. Gold prices don’t affect bitcoin. The Consumer Price Index doesn’t affect bitcoin.
The result of adding crypto to a well-diversified portfolio is that you’ll see overall volatility actually drop. The World Academy of Science, Engineering, and Technology study bears out this narrative.
Here’s how we think it’s going to play out.
In the near future, we’re going to see an endowment or pension fund add bitcoin to its portfolio. It won’t be a large stake, but that won’t matter.
We expect the fund will explain that it’s using bitcoin as a non-correlated hedge to smooth out volatility.
When that happens, watch out. Wall Street will grab on to the “non-correlated narrative” and run with it like a dog with a stolen pork chop.
I’ve shown you how this has played out before. Institutions did it with junk bonds in the ’80s. They did it with internet stocks in in the ’90s. And they did it with housing in the ’00s.
At first, they’re considered weird investments. Then, a new narrative takes hold and institutions start using them, and they get legitimized. Before long, everyone on the Street is using the product and we’re in a full-fledged mania boom.
It will be the same for bitcoin and the entire cryptocurrency market. Global stock market wealth is approaching $100 trillion. We think 5–10% of that will be diverted into the cryptocurrency market under the narrative of lowering risk.
That’s almost 20 times more money than is in the crypto market currently. We think it’s going to cause prices to boom higher.
All Summed Up
This past summer I noticed three trends: fat protocols, scaling, and interoperability. I said if we got into ideas built on these trends, we’d make a killing.
Going into 2018, we have three new trends that will have an even bigger impact on the market.
As these three play out, we could see $5–10 trillion come into the crypto market next year.
This extra $5–10 trillion rushing headlong into a crypto market that is barely a half-trillion big is going to cause crypto prices to soar. And we will be there every step of the way making money hand over fist.
So, if you feel like you got in too late, relax. Take a breath because this train is just arriving to the station, don’t forget to hop on and enjoy the ride.