With bitcoin and Ethereum reaching new highs again last week… the biggest question I’ve received over the last few days is, “Teeka, how long is this going to last?”
“Are the wheels going to fall off like they did at the end of 2017?”
As I wrote last month, my research suggests bitcoin is starting to break out of its usual boom-bust cycle. So I doubt we’ll see anything else as brutal as the 2018 “Crypto Winter.”
Now, that’s not to say we won’t have volatility. We’ll still have volatility in crypto like we saw over the weekend… when bitcoin dropped about 16% from its all-time high.
But I think we’ve moved beyond the wholesale value destruction we’ve seen in the past… when crypto experienced 85−95% drops across the board, or three-year bear markets.
And here’s why…
Institutional Money Is Stabilizing Crypto
During the first 10 years of its existence, only a small group of people owned cryptos. First, a few hundred… Then a few thousand… Then a few million.
During the 2017 boom, adoption increased to about 20−25 million. But most of that was “low-conviction” retail investor money.
By that, I mean it was a lot of hot, fast, retail money that was in for the ride and could care less about the underlying long-term value of the technology.
I’ve learned retail investors have a different mindset than institutional investors. They’re easily spooked, and thus, less willing to stay in an asset for the long term.
So when the crypto market collapsed in 2018, the low-conviction money fled.
At the time, bitcoin was too small for institutional investors to get involved. The same way a whale can’t swim in the shallows, these institutional leviathans can’t operate in small markets.
Without professional buyers to stem the selling from the retail crowd… crypto prices plummeted 80−85% during the 2018−19 Crypto Winter.
Once BTC Crossed $1 Trillion Everything Changed
However, now bitcoin is a trillion-dollar asset. That’s changed everything. It’s given big money a big enough pool to play in.
That’s why the money coming into crypto today is “high-conviction” institutional money. These operators do deep research. They take a long-term view. And when they are convinced, they make big bets in the direction of that long-term view.
Most importantly when prices drop, they don’t sell… they buy more.
We’ve seen that exact same pattern emerge during each of bitcoin’s selloffs this year.
According to blockchain analytics firm CryptoQuant, spikes in outflows from Coinbase Pro (Coinbase’s institutional arm) have consistently marked the bottom of the dips in bitcoin’s price…
It’s a bullish sign that institutions are undeterred by the recent pullbacks and are confident in bitcoin’s long-term potential.
We’ve Seen This Movie Before
Institutions went through a similar process when the smartphone was launched.
At first they thought it was just a consumer fad… but when it didn’t go away they realized the mobile wave would be a long-lived trend.
We saw this back in 2013, when smartphone sales surpassed traditional cell phone sales for the first time… That’s when institutions allocated massive amounts of long-term capital to the smartphone space.
Those investments have resulted in enormous profits for Apple, Facebook, Google, and Amazon. It’s this type of farsighted money that is now coming into bitcoin for the first time.
I want to be clear, though: It will be a while before we completely escape volatility in the crypto space.
Assets poised for massive growth – like crypto – are highly volatile… just like Google, Apple, Facebook, and Amazon have all been volatile stocks.
So volatility is the price of admission for life-changing gains. You can’t expect huge swings to the upside… without downside volatility, too.
The thing to remember is we’re still a long way away from crypto being a mature asset.
I’d consider crypto to be a mature asset when it’s worth $100 trillion. It’s only worth about $2 trillion right now. So that means we’ll have volatility. It hasn’t gone away.
Remember, by the time this becomes a non-volatile asset, all of the life-changing profit opportunity will be squeezed out of it.
I believe the magnitude of volatility will shrink dramatically. We could still see 40% or 60% drops in crypto. But unless it’s a horrible project or suffers from a catastrophic bug/hack, I don’t think we’ll see 85−95% drops in quality tokens again.
We’re in the Midst of a Boom
Friends, we’re in the midst of a historic boom. And I believe it’s going to last a lot longer than most people realize.
There are only about 100 million crypto investors right now. There are over seven billion people in the world. About four billion of them have smartphones. And anybody who has a smartphone can trade crypto.
So we haven’t even come close to the tipping point of mass crypto adoption.
During the depths of the Crypto Winter, I said, “The next bull market will be the biggest bull market we’ve ever seen. It will be much bigger than what we saw in 2017.”
And that’s what we’re seeing right now. Think about how much higher crypto will go when it grows from 100 million global users to one billion global users? Then imagine what will happen when we have mass adoption and five billion people are using crypto assets?
Can you see why I’ve never wavered in my excitement about crypto’s moneymaking potential? We have barely begun our climb higher
My message to you is simple. Stay invested in crypto. When the next big selloff comes (like the one we saw over the weekend) be a buyer, not a seller. And remember, the big boys are on this ride for the long term.
Consider this: If you’re a conservative institution like MassMutual or the Bank of New York Mellon, you don’t change your investment charter to add bitcoin unless you’re making a meaningful and fundamental long-term investment in the asset.
Always remember that.
These big boys are in for the long term and that means you should be, too.
It bears repeating that Amazon, Apple, and Microsoft were at the forefront of massive adoption shifts. And they all had numerous times when their stocks plunged 40%, 50%, 60%, 80%, even 90%. At one point, Apple was at the brink of bankruptcy.
And today, they’re three of the biggest companies in the world.
So if you are already positioned in crypto, don’t worry about the volatility we’re seeing now. Bitcoin alone is one of the best-performing assets in the world… and it’s seen plenty of volatile swings to the downside.
And despite its recent pullback, bitcoin has still rocketed 91% since January. Over the same span, the S&P 500 is up just 11%, and gold is down 7%.
So just enjoy your life and trust in the fact that you own some amazing assets. I think they’ll continue to make an enormous amount of money for you.
And if you haven’t gotten your feet wet, it’s still not too late. Bitcoin and Ethereum still have plenty of room to run before they hit my recommended buy-up-to prices of $75,000 and $3,000…
But the window to buy won’t last long.
Let the Game Come to You!
Editor, Palm Beach Daily
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