Nick’s Note: On Mondays, we run the latest insights from world-renowned cryptocurrency expert and former hedge fund manager Teeka Tiwari. It’s a feature you can only find here at the Daily.
In today’s interview, Teeka tells us why bitcoin has been struggling… And what needs to happen before it begins to climb higher again…
By Nick Rokke, analyst, The Palm Beach Daily
Nick: T, we’ve gotten a lot of emails saying, “Teeka Tiwari, you owe us an apology for bitcoin not hitting $40,000 yet.”
What’s your response to these people?
Teeka: As you know, I’ve been expecting bitcoin to hit $40,000 by the end of the year.
Now, anybody who knows me knows that if I make a mistake or if I do something dumb, I’ll be the first person to say, “I dropped the ball. I’m sorry,” and ask for your forgiveness.
But I’m not going to ask forgiveness for predicting that bitcoin would reach $40,000 by the end of this year—even though it hasn’t yet.
And I’ll tell you why… Because when I make a prediction on the value of an asset, I base that prediction on research.
Take the cryptocurrency ether, for example.
In 2016, ether traded at $7 per coin. I predicted it would hit $360. That year, it rose to $20 and then collapsed to $6.
People said, “Are you sure you want to stick with this $360 number? It’s irresponsible. How could you lead people to believe that this asset—which in their minds has no value—could potentially be worth $360?”
So I re-examined my case and I looked at the research. And I said, “No, my research indicates that’s where we should value the asset.”
And of course—lo and behold—that’s what happened.
Nick: Didn’t you make a similar prediction for bitcoin?
Teeka: Yes. I went through a similar situation in July 2017 with bitcoin.
At that time, bitcoin got hammered to sub-$2,000.
And I said, “Look, we’re going to have an institutional product called futures coming to the market. It’s going to create a lot of excitement and a lot of buying… And you’re going to see bitcoin trade to $10,000.”
When I said that, bitcoin dropped another 30%—maybe more. But by the end of the year, we didn’t see bitcoin at $10,000—it was at $20,000.
Now, when I said bitcoin’s going to $40,000, I based that on my research of multiple crypto exchange-traded funds [ETFs]… and companies like Intercontinental Exchange [ICE]—which owns the New York Stock Exchange—launching a crypto exchange called Bakkt.
I saw major institutions like Fidelity Investments and TD Ameritrade coming into this space.
And if you look at my research calls, they’ve all been accurate.
Back in December 2017, I said major endowments will start coming into the space in 2018. Guess what happened?
On October 1, Yale University’s endowment started buying crypto. And other major endowments followed.
My fundamental thesis for higher bitcoin prices has always been that Wall Street will embrace bitcoin and crypto as an alternative asset class. That’s not a theory anymore… it’s actually happening exactly as my research suggested it would.
Nick: So why is bitcoin dropping so much now?
Teeka: Panic. Just the same way companies like American Express, Amazon and JPMorgan saw their stock prices drop 85%, 66% and 72%, respectively during the Great Financial Crisis… we’re seeing panic-selling in the crypto market.
Investor sentiment has been negative for much of the year… so the market is very fragile right now. And recently, we’ve had a tsunami of bad news.
This recent dive lower has to do with a ruling by the Securities and Exchange Commission [SEC].
The SEC has taken the position that virtually every single initial coin offering [ICO] is a security. That means they now have to register with the SEC.
An ICO is like an initial private offering held by a company, except the crypto project issues tokens instead of stock.
Last week, the SEC hit two ICOs with fines and told them they had to return the money they raised to their investors.
Here’s the thing…
A lot of projects completed their ICOs late last year when the crypto market was at all-time highs. Since then, you’ve seen the entire market come down dramatically.
So these projects literally don’t have enough tokens or liquidity to raise capital to meet the SEC’s demands.
That’s causing huge panic-selling across the board. I imagine their lawyers are telling these ICOs to raise money to prepare for legal battles with the SEC… and just in case they have to return some of their ICO proceeds to investors.
This is similar to the margin selling we saw during the Tech Crash in 2000 and the Great Recession of 2007–08.
Those crashes forced investors on margin to sell their securities at fire-sale prices.
Do you really think people wanted to sell American Express stock at $10 when it was as high as $65? Of course not. They had to sell it to meet their margin calls. Today, American Express trades around $107.
Just like in 2007–08 financial crisis, the problem is that sentiment is so bad that buyers are highly reluctant to buy. They’re just nibbling and lowering their bids.
They know the market is swamped by forced selling. So they will keep dropping their bids until the selling pressure exhausts itself.
Nick: How long do you expect this to last?
Teeka: I don’t know… The selling isn’t over yet, so be emotionally prepared for lower prices.
When you’re in an environment where people are panicking, liquidity is low, and fear is high… prices get hammered. And that will continue to happen until the selling is done.
The key question to ask during a time like this is, “Do crypto assets still have a future?”
And the answer to that is a resounding “yes.”
Just recently, Japan’s largest bank said it’s considering using a crypto project called Ripple to facilitate its cross-border payment transactions. Multiple major U.S. banking institutions and huge college endowments are coming into crypto.
So crypto as an asset class is here to stay.
Nick: So what has you convinced that bitcoin will rebound?
Teeka: The market is so jaded right now that it’s taking this approach of, “We don’t believe anything that you say. We want to see proof before we start getting excited about prices again.”
The good news is that proof’s not far away.
ICE says its Bakkt exchange will launch in January 2019. We’ve got nine ETFs coming in front of the Securities and Exchange Commission. We expect a decision on at least one of them in the first quarter of 2019.
The way that I’ve added value over my career is that I’ve focused on the knowable. On a day-to-day basis, investor sentiment isn’t really knowable.
To me, the knowable is that if you’ve got a product that goes from a small market that is difficult to buy to a big market that is easy to buy, more demand will be created.
And if the product has only a finite number—as is the case with bitcoin—then higher prices have to come from that demand.
Now, getting back to my $40,000 prediction…
I will tell you what I got 100% wrong on that call—and it wasn’t the price; we’ll see $40,000 bitcoin.
What I got wrong was the investor sentiment piece. Every fundamental development I predicted came true… but I misjudged the depth of how bad investor sentiment was and how long it would take to recover.
And for that I do apologize. I should have done a better job reading the investor sentiment.
My estimation was that by November or December, investor sentiment would’ve improved… and we’d see much bigger price increases in bitcoin relative to the fundamental news.
That hasn’t happened. But there is a lot of good news in front of us that will shift investor sentiment to the positive once again.
That’s because once companies like ICE, TD Ameritrade, Fidelity, Citigroup, etc., open their investment platforms to cryptos, we’re going to have nearly 500 million new buyers who can get into crypto through traditional financial firms.
To reiterate, the asset is here to stay.
Nick: Do you have any final words for people who think you made a mistake?
Teeka: I will always tell you what I believe. And if I believe an asset will reach a certain price by a certain date, I’m going to tell you that—regardless of whether people tell me I’m crazy or whether people say I should be more conservative.
I will never tell you what I think you want to hear… or what I think will make me look good later. I will always give you the benefit of my best thinking all of the time—good and bad.
Nick: Thanks for your time, T.
Teeka: You’re welcome.
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