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Ron Struthers of Struthers Resource Stock Report discusses the downfall of cryptocurrencies and the rise of gold, and presents four gold companies he is adding to his selection list:
It looks like my Christmas present to some was ringing the warning bell on cryptocurrencies. On Dec. 8, I was thinking they were going higher but by the 19th the mania looked like a climax and I posted a couple of charts at 'Chart of the day' and called them mania charts. A couple of days later I commented: "I am still nervous on the price of these cryptocurrency and block chain deals."
My alert on Dec. 20 was to sell Blockchain: "BLOC is breaking down on the chart and is currently $2.20 and I was concerned about a close below $2.23. It might bounce back but I am getting nervous on this whole sector because it is so frothy. I would rather take the profits and visit again in January "
It is now Jan. 23 and I am revisiting the sector, and what I see is a train wreck and bear market. The two mania stocks, Riot Blockchain (NASDAQ:RIOT) and LongFin (NASDAQ:LFIN), have dropped between 50% and 75%. Global Blockchain (OTC:BLKCF) dropped to $1.40 and is currently in the $1.60s.
The leader in the cryptocurrency space, hands down, is Bitcoin and is the best barometer of the sector. It is not easy to get charts and this is about the best I found for my purpose. This is apparently closing prices, but there is no close because Bitcoin trades 24/7. I believe the actual intraday peak was over US$20,000 and the low on Jan. 17 was under $10,000. When something drops 50%, the run up or bull market is over. This chart clearly shows a bear market.
I highlighted Dec. 8 when I thought it was still going higher and the 19th when I believed it was too frothy. I believe the crypto craze has peaked. The main reason is because it is too competitive with government issued fiat currency. Like fiat currency, cryptocurrency can be created out of thin air. It has no value other than the confidence and credibility of who is backing it. The crypto bulls will argue that it has to be created with computers doing calculations, therefore work is performed and that produces an underlying value. To me, it is just a number in your phony-electronic-virtual wallet.
Government authorities did not give it a lot of attention until it started to attract billions of dollars. China has banned ICOs, has stopped trading on major exchanges and is initiating proposals to stop bit mining. Currently, China is the largest bit miner in the world so this is significant. China believes bit mining is a waste of their precious energy grid and only contributes to the pollution problem. Another major cryptocurrency player, South Korea has threatened to ban trading, causing quite an uproar. In the U.S., banksters have shelved cryptocurrency ETFs under SEC pressure.
I will continue to watch the space and will make another point clear. Blockchain is an underlying technology of cryptocurrencies and it does have some good, useful value. I believe the Blockchain technology will survive and thrive even though it was, and still is overhyped. The best way I found to describe Blockchain is a transaction and accounting method for measurement.
Cryptocurrencies can be a threat to fiat currencies just as gold can. However, gold has been used as a currency for so long that it is already embedded into the system. That is why governments/central banks have adopted it and hold large reserves of gold. If cryptocurrencies evolve to become a lot more credible, governments will probably just create their own out of thin air as they do their fiat currencies.
"Bitcoin looks like the history of fiat money in the United States and elsewhere," Alan Greenspan told CNBC in early December, comparing it to the 1775 Continental currency created to help the U.S. fight the British for Independence. That currency was worthless by 1782. "Humans buy all sorts of things that aren't worth anything," he said, pointing to an eventual decline in value. "People gamble in casinos when the odds are against them. It has never stopped anybody."
Gold vs Crypto
There seems to be some buzz about this even though it appears to me that cryptocurrency has less credibility than fiat currency. I find it amazing how everyone can get wrapped up in a mania and jump on board. In December, Ron Paul, the former congressman, started an online poll on Twitter asking whether people, if given the option of taking a gift worth $10,000 and had to hold on to for a period of 10 years, would take bitcoin, gold or dollars (Treasury notes). Over half (54%) of the respondents showed support for bitcoin. Gold was second at 36% and 10% for dollars. I find this quite astonishing when you consider Ron Paul has been a loud supporter of gold so his followers would be swayed this way, I would think.
A substantial disadvantage crypto has compared to gold is that it is subject to cyberhackers. Over 14% of Bitcoin and Ether have been compromised, according to Lex Sokolin of Autonomous Research LLP., noted in a Bloomberg report. A gold bar or coin cannot be hacked, but you have to ensure your original purchase is from a reputable dealer as there are a few fake coins and bars around.
In my last update I commented that all markets were moving higher and for the first time in a decade the world economies are all doing well. This will certainly bring on the next wave of inflation forces that "gold bugs" will love. Bloomberg reported the underlying pace of U.S inflation unexpectedly accelerated in December. Excluding food and energy, the so-called core consumer price index increased 1.8% from a year earlier. Commodities, USD, Oil, Treasury notes and Gold are all showing signs of inflation and are on the verge of major break out signals.
There is commodity inflation too, but you have to know where to look for it. Ever since the CRB Index was hacked up into a black box computer model in 2005 that adjusts prices to the down side, it has been rendered useless to measure long-term trends or historic comparisons. I now use CRB BLS Spot Index or the BLS Raw Materials as reliable indicators for longer-term comparisons. The BLS Spot Index includes food stuffs along with industrial commodities. There is no energy or precious metals component, so I believe it provides a strong base or underlying measurement of commodity inflation.