Since I started writing about cryptocurrencies in 2016, I told anyone who followed me on this trend to buckle up… that it’d be a wild, roller-coaster ride.
And 2021 will be no different.
It will be full of highs and lows. You will experience eye-watering rallies and heart-stopping selloffs. That’s the nature of a wild crypto bull market.
We saw that at the beginning of the year… when bitcoin rocketed to new highs on its way to $41,000 on news of major adoption from institutional investors like MassMutual.
And we’re seeing the flip side today, with bitcoin down 25% from its highs after some critical testimony from the U.S. Treasury Secretary nominee on Tuesday… and the exploitation of a glitch in the code of certain bitcoin wallets.
I’ll get to both of these issues today. But what I want you to realize is this volatility is short term.
Yellen On the Warpath
Right now, bitcoin is selling off because incoming Treasury head Janet Yellen made some critical comments about it during congressional testimony. Yellen said cryptocurrencies are “mainly” used for “illicit” purposes.
Her comment shows a stunning lack of understanding of cryptos. The bitcoin network sees 400,000 transactions per day. It is ludicrous to imagine the majority of those are for illegal activities.
We should only hope terrorists are stupid enough to use the bitcoin network to fund their operations. That’s because when law enforcement ties a single terrorist to even one bitcoin transaction, they can unravel the finances of the entire terror network.
Try doing that with fiat cash. You can’t. You can do it with bitcoin because it uses a public blockchain. That means every transaction is public and can be traced from one crypto wallet to another.
The whole world can see how you spend and move your money. Using bitcoin to commit crimes is just about the dumbest thing a criminal could do.
Cash is the preferred tool for criminals and terrorists. About $3.5 billion per year is funneled into terrorist organizations. Do you really think some terrorist in a cave is going to accept bitcoin over good old-fashioned American greenbacks?
Try buying an AK-47 in Afghanistan with bitcoin. Good luck with that.
Again, I hope terrorists are dumb enough to use bitcoin. That way, our intelligence forces can track them down. Now, does that mean terrorists or drug dealers have never used bitcoin?
Of course not. At some point, just about all technology gets used by criminals, whether it’s bad guys using Facebook to recruit suicide bombers… or using Twitter to spread propaganda… or using encrypted iPhones to carry out attacks.
Should we shut down Facebook and Twitter? Should we confiscate everyone’s iPhones?
We don’t because these types of nefarious use cases represent a tiny fraction of the legitimate uses of these technologies.
The same is true for bitcoin.
Chainalysis, a blockchain analytics firm, estimates 1% of bitcoin transactions are used for illicit purposes. That amounts to about $10 billion. Sounds like a lot, right?
But let’s compare it to cash. According to a report from Deloitte, as much as 5% of all cash transactions involve money laundering. That’s as much as $2 trillion per year.
That means illicit transactions in bitcoin are just 0.5% of the $2 trillion. So it begs the question: Why is Janet Yellen focusing on 0.5% of the money laundering problem and ignoring the other 99.5%?
I’ll tell you why…
It’s because her banking buddies in the traditional financial system are the ones allowing all of that money laundering to take place.
Shouldn’t her focus be cleaning up the banking system rather than wasting precious resources on the rounding error of illicit activity represented by bitcoin?
The real truth of the matter is Yellen hates that bitcoin can’t be controlled. It represents a way out of a dollar-denominated system, and that scares her.
And while she may try to “jawbone” the crypto markets lower (like she’s doing now)… all it will do is provide us with another buying opportunity.
Now, political rhetoric isn’t the only thing driving bitcoin lower right now. There’s another technical issue I want to bring to your attention.
There Will Be Epic Scares Along the Way, Too
In 2010, sharp-eyed developers spotted a flaw in the bitcoin code that allowed a bad actor to create 184 billion bitcoins.
As you can imagine, this was a serious problem. Much of bitcoin’s value comes from the immutability of its code… and the fact it will only ever create 21 million bitcoins.
This flaw in the code threatened to destroy bitcoin. But because bitcoin is an open-source protocol, developers fixed the flaw within just 90 minutes.
That’s the difference between an open system like bitcoin and a closed system like that of Solar Winds… which led to the recent hacking of just about every major government system in the United States.
All software has flaws. Bitcoin has had 40 major flaws over its lifespan. Some of them, like the bug outlined above, have been potentially devastating. But every time, the community has come together and fixed it.
Remember: The participants of the bitcoin network are incentivized to defend it fervently. That’s because a single flaw in the code affects everyone that holds bitcoin… not just one person or wallet.
It’s bitcoin’s elegant incentive mechanisms that have allowed it to survive and thrive. Even now as I write this, a story is circulating on Cointelegraph of a potential “double-spend” bug that resulted in a small sum of $21 being “double spent.”
A “double spend” is when someone can spend the same amount of bitcoin twice. But subsequent reports have stated this didn’t actually happen… and was due to two blocks being minted almost simultaneously to validate a transaction.
This created the impression of a “double spend.” Luckily, bitcoin’s code ensures there can only be one winning block that will carry on the chain.
The bottom line is: The network will defend itself because the core developers have billions of dollars of collective wealth tied up in bitcoin.
The same way Jack Dorsey, Jeff Bezos, and Mark Zuckerberg act with lightning speed to fix glitches in their software to defend the hundreds of billions of dollars of wealth they have in their respective shares… so will the bitcoin community defend the network.
Bitcoin Is Here to Stay
With all these fears and doubts, bitcoin has still managed to grow from having zero value to recently being worth over $588 billion. That’s bigger than JPMorgan… it’s even bigger than Berkshire Hathaway. At what point will people finally stop calling it a bubble?
Have you ever seen a 10-year bubble that inflated… popped… reinflated another three times… and then go on to be worth $588 billion? I haven’t. And I’ve been in the financial markets since 1989.
If you strip away your fears and look at the real, hard facts, you can’t come to any other conclusion than that bitcoin is here to stay.
For more than 10 years, bitcoin has survived every attack against it – from anti-crypto politicians to technical problems that temporarily created 184 billion new coins.
It’s time to accept bitcoin’s reality… People of massive wealth and influence have even concluded that bitcoin is a better version of gold.
I want you to remember the lesson of the past 10 years. Bitcoin might get bashed. Bitcoin might get bruised. But bitcoin will recover.
That’s why the key to surviving these periods is to hold tight. And if appropriate for you, use these crashes to buy more.
Let the Game Come to You!
Editor, Palm Beach Daily
P.S. As you know, cryptos have long been one of my favorite ways to make asymmetric bets – where you can take a small starting stake and turn it into life-changing wealth.
But they’re not the only kind of asymmetric bet I’ve personally used to grow my own wealth…
Right now, there’s a frenzy going on in one hyped-up corner of the market that’s promising to make millionaires. But most people don’t know Wall Street has once again stacked the deck in its favor, and average investors are only setting themselves up to get burned.
On Wednesday, January 27, at 8 p.m. ET, I’m holding my first big event of the year to unmask what’s really going on and what you can do to help secure your financial freedom… not in 20 years like Wall Street wants you to, but potentially this year.
Plus, I’ve prepared something special for everyone who reserves their spot today… Tune in next Wednesday to find out more details. I hope to see you there.