August 6, 2020
Dear reader,
We’ve received dozens of questions about bitcoin and cryptocurrency in recent days…
It all stems back to the incredible Capitalism in Crisis event one week ago featuring Stansberry Research founder Porter Stansberry and crypto expert Eric Wade. (If you missed it, you can catch an exclusive replay here.)
Some folks watched and came away convinced. For example, Michael Y. writes:
I have a son-in-law studying for his accountancy exams. He has been staying with us and said cryptocurrencies are part of his homework on the syllabus.
In order to give him background info, I forwarded your email to give him a wide sense of the possible future of cryptos… I think Porter’s own conversion has convinced me to wake up and smell the crypto coffee.
Michael, we had no idea that cryptocurrency was in accounting coursework, but it makes perfect sense.
We’ve heard that about 10% of Americans currently hold some type of cryptocurrency – so it makes sense that those gains are going to be increasingly relevant on their taxes. Thank you for writing in and sharing… and we wish your son-in-law the best on his exams.
Of course, other folks are still hesitant. For example, Henry P. writes us:
Bitcoin is not a coin, not gold, like the one-ounce coin we normally see an image of when bitcoin is depicted. Those images, along with the two vertical lines through the “B” are meant to give the illusion that bitcoin is real, like a dollar bill or a gold coin, that it has real value when it is just an arbitrary construct, a digit created from nothing, is, well, it’s nothing but an abstraction.
We’ll set aside gold for a moment, Henry, and note that “arbitrary construct” isn’t too far off from describing a dollar…
What do you think is backing those many pieces of cotton-rag paper, printed with special inks and engraved on a press, that we carry in our wallets and exchange for goods and services?
The simple answer is nothing. Nothing at all… other than the belief of billions of people in its worth. That’s why you can easily trade a single dollar for anything from a soda to an iTunes song to a lottery ticket.
Today, one bitcoin is backed by the belief of millions of people regarding its worth. That is exactly both its risk and its opportunity…
- There are, of course, billions of people in the world who aren’t ready to trade $11,000 in paper bills for one bitcoin.
- And yet, what do you think will happen if tens of millions or even hundreds of millions more start to believe that bitcoin is worth something?
We are not die-hard believers here. Instead, we have been both interested and somewhat skeptical of the burgeoning promise of both cryptocurrency and blockchain technology since we launched American Consequences.
In fact, we made it the focus of our second-ever issue, three years ago. A single bitcoin was about $2,500 when we published that issue… versus more than $11,000 as we write today.
And that is exactly why we remain interested.
Because if Porter and Eric are correct… why wouldn’t you want to put a small amount of your capital into bitcoin and other cryptocurrencies?
You should absolutely hold gold and dollars, too… But if the current, seemingly inevitable trends of technology and monetary policy from central banks around the world continue to collide… then holding bitcoin makes a lot of sense to us. It’s that simple.
Many other pressing questions that we’ve received were answered during the Capitalism in Crisis event last week.
And for others, we’ve asked Eric Wade to answer some of the most frequent questions he’s asked in today’s essay…
Regards,
Steven Longenecker
Publisher, American Consequences
Everything You Want to Know About Cryptos…
But Are Too Embarrassed to Ask
By Eric Wade
Over the past couple of years, you’ve probably heard a lot about cryptocurrencies…
Bitcoin – the original and oldest cryptocurrency – went on a tremendous run in 2017, soaring roughly 2,000% in less than a year… peaking at nearly $20,000 that December. But then, just as quickly, bitcoin’s value plunged more than 80% throughout 2018.
It’s a hot-button topic in financial circles…
It’s clear that the crypto space is full of fantastic opportunities. However, many individual investors simply don’t know how cryptos work – or what they’re good for.
So here, I will answer several common questions to help you better understand this space. If you want to make money in cryptos, you need to know the basics first…
What is a cryptocurrency?
It’s a long-running joke in the industry that the hardest thing about cryptocurrencies is explaining them without taking an hour to do it. It’s a complex topic, but here’s my one-sentence definition…
A cryptocurrency is a computer program that makes digital coins and tokens that anyone can use over an extremely secure network.
At their heart, they’re computer programs – or teams of computer programs that all work together.
Bitcoin – which you’ll often see written as “BTC” – is the best-known crypto and the easiest to understand… Physical “bitcoins” don’t exist. You can’t hold them. Bitcoin is simply digital money that isn’t controlled by a government, group of people, or corporations.
One part of the bitcoin computer program allows the safe transfers from one bitcoin investor to another. That should make sense… If you’re going to use bitcoin as a currency, you need a way to send and receive them.
Another part of the program watches every transaction, making sure no fake or fraudulent transactions take place before they’re verified. Since we’re talking about hundreds of millions and sometimes billions of dollars in bitcoin exchanging hands every day, preventing fraud is important…
It’s like credit-card company Visa (V) suddenly announcing that anyone in the world can download its software and start verifying its transactions in exchange for a cut of the fees. That’s how the bitcoin computer program works… Anyone can run the program and even verify transactions for a cut of the transaction fees.
Yet another part of the bitcoin computer program works like a ledger, keeping a permanent record of all the transactions. The ledger is like bitcoin’s accounting books… It’s a public list of all the bitcoin transactions that have ever happened.
For example, if Alice pays Bob for a service with a bitcoin, it’s recorded in the ledger for both people. But not only that… It’s also recorded in the ledger by Carl, Debra, and anyone else who runs the bitcoin program.
(Of course, that’s a simple explanation because on the bitcoin network, people’s names aren’t used. Instead, the ledger uses unique bitcoin addresses… They’re like super-long phone numbers.)
You’ll commonly hear this ledger called a “blockchain.”
The blockchain was one of bitcoin’s biggest innovations. Since every transaction is public, it can be verified by anyone else within minutes in most cases. While every bank in the world shuts down and reconciles its database with other banks every night, bitcoin runs 24 hours a day.
The word “crypto” comes from bitcoin’s super-strong cryptographic code… In other words, it’s the same type of secret code used to protect highly classified government information.
The code makes sure the bitcoin network and the ledger stay secure… Alice doesn’t want Bob to be able to steal from her – or to even guess her password. And no one else wants the database to be manipulated… So they’re all protected with the secret code.
With cryptocurrencies, all these pieces of the puzzle work together to make it possible for us to buy, sell, and transfer them safely… even though no one is in charge.
That’s right… No central party – like a bank or government – is in charge of bitcoin. It’s why you’ll often hear cryptos like bitcoin referred to as “decentralized.”
The blockchain has spurred radical innovation in non-financial industries, too…
For example, some cryptos can be used to transfer virtual items in video games. Others track pharmaceutical drugs from their raw ingredients all the way to a hospital bed… help build artificial intelligence networks or insurance marketplaces… and countless other uses.
In short, cryptos are already touching almost every industry on the planet.
OK, so I know bitcoin is a crypto. But what other cryptos exist? And how many does the world really need?
Yes, bitcoin is a crypto. And at least for now, it remains the biggest and the most popular.
But after bitcoin launched, all sorts of entrepreneurs dreamed up ways to make their own cryptos with different features than bitcoin…
For example, Ethereum (ETH) supports “smart contracts,” which enable automatic financial transactions. And Binance Coin (BNB) can get you discounts and other benefits on the world’s busiest crypto exchange, Binance.com (and its American counterpart, Binance.us).
Bitcoin is extremely strong – some experts say it can’t be hacked – but it’s also pretty slow when it comes to verifying transactions. Imagine if you’re buying groceries… Instead of swiping your card and being approved in seconds, it can take minutes – or hours, in rare cases – for bitcoin to verify a transaction. So faster cryptocurrencies were developed.
Also, in recent years, other cryptos came along that can better protect your privacy by hiding information about your transactions. And others added specific features like a built-in programming language or “programmable money.” That unlocks the potential for automated financial transactions…
Imagine, for example, if you only had to pay for insurance when you were physically driving your car. Thanks to smart contracts – financial transactions that don’t require human intervention – that day will come. Smart contracts are impacting everything from the lending industry to prediction markets to robotics and more
Other cryptos target specific-use cases. Called “utility tokens,” they grant the holder certain privileges… for instance, voting rights or access to a specific service.
We’re also seeing more “security tokens” emerge… They’re similar to stocks and can do things like pay dividends, include embedded financial reports, and more.
You can find more than 6,000 cryptos in the world today. And the short answer to the final question above is… It’s hard to know how many we actually need in the world.
You see, of the thousands of cryptos that exist, we only like a few dozen or so right now.
Some cryptos are designed to serve as a currency – like bitcoin.
But as I said, many cryptos have been created to complete company-specific tasks or other narrow-focused ones… These tasks can range from tracking real gold to verifying data to even proving you’re old enough to purchase alcohol without sharing your personal information.
This year and beyond, we expect to see these specific-use cases soar.
And frankly, some other cryptos are simply worthless products from crafty computer programmers who are just trying to cash in on the popularity of this exciting industry.
With that said, teams of entrepreneurs trying to solve problems and improve industries are also building cryptos. You can find cryptos for banking, advertising, voting, investing, betting, making music, tracking our food supply, verifying art… and hundreds more.
So while we have a narrow focus on certain cryptos we like today, that could change in the coming months and years as some of these new, innovative cryptos prove their values.
Openness is one of the core values of the crypto industry…
Most crypto transactions can be verified by anyone, anywhere, at any time. And this idea of openness extends to the computer code used to create a particular crypto…
Most of the time, the developers of a crypto release their code for free (under what’s known as an open-source license). That means anyone can take a crypto’s code, copy it, modify it, and release it with a different name. This openness has pros and cons…
On the downside, it leads to a lot of copycat cryptos that don’t do anything unique. But on the other hand, coders can build upon and leverage the work of others. That has led to radical innovation in the space…
While we have thousands of cryptos in the world today, we believe there could be millions one day. Moving between them will be seamless, instant, and free (or nearly free). And in many cases, end users might not realize a crypto was involved in their transactions at all.
But even though investors now have so many cryptos to choose from, bitcoin has remained popular because it aims to be a very “hard” form of money. Eventually, bitcoin will have zero inflation, which appeals to a lot of investors. You see, bitcoin’s supply is finite…
Eventually, we’ll have 21 million bitcoin in the world and no more. That’s how bitcoin’s founder programmed the network… And it means that’s all that can be created.
That makes it very scarce. And the cryptographic code we talked about earlier assures bitcoin buyers that no one will ever water it down in the future.
What if I just own a few bitcoin and don’t worry about all the other cryptos?
If you were only going to pick one crypto to invest in… it should be bitcoin, hands down.
It’s the oldest, biggest, strongest, and best-known crypto. And in fact, we always recommend crypto investors maintain bitcoin as their single largest crypto investment.
But it’s also just scratching the surface of the potential gains you could see…
Many investors buy some bitcoin and start to learn about the broad choices of other cryptos available in the world. Then, they start to see the appeal of some of these cryptos. One of our main goals in Crypto Capital is finding tiny cryptos before they become big cryptos…
For instance, we discovered one crypto that’s committed to fixing problems with online advertising. And they’re big problems for many people, too… Websites track our every move and sell that data to the highest bidder, for example. Many folks don’t like that.
So an entrepreneur who previously invented one of the most popular Internet browsers in the world created a crypto that can protect your privacy while improving your online browsing experience. At the same time, you can use this crypto to support the creative people who make all the websites and videos that you love to use and watch.
This is only possible with the power of crypto… So we believe it’s worth looking at. Plus, it gives investors an opportunity to get in on the ground floor of an exciting new technology.
It’s also a lot easier to find a crypto that’s worth, say, $10 million that has the potential to quickly rise to $100 million than it is to find one worth $100 million that will quickly rise to $1 billion. That’s how we’ve seen returns of 1,000% or more in as little as a year.
How do you separate cryptos poised for success from ones that are junk? What qualities set good cryptos apart from others?
It doesn’t matter what sort of investing you’re doing – from stocks to venture capital opportunities to real estate to cryptos…
Putting time and effort into your research is always the best way to outperform the market.
Your data and ability to identify trends must be better than the market’s. That’s why we travel the world to attend crypto conferences in good times… and why we’ve participated in virtual conferences during the COVID-19 pandemic. We make it a point to talk directly to founders… and try out every new product we can get our hands on.
The qualities of a great crypto project aren’t much different than what I looked for in stocks when I worked as a financial adviser at one of Wall Street’s biggest firms…
First, you need a stellar founding team. You also need a product that can truly go global. And you need great economic incentives (what we call “tokenomics”).
Cryptos have some unique factors that we should consider, too…
Decentralization, for example, is key. Remember, decentralization means no central party – like a bank or government – is in charge.
We want to see a crypto with hundreds or thousands of computers running its software in a lot of different countries. We also want to see a thriving community of users, contributors, and advocates for the project.
When all of these things align for a small, unknown crypto… you could potentially make life-changing gains just by making a small investment.
Does it make sense for an ordinary person like me to invest in cryptos? Why isn’t it just for tech junkies or people looking to get rich quick?
Absolutely, it makes sense for you to invest in cryptos for two main reasons…
First, beyond the scarcity and low inflation we’ve talked about, bitcoin has created an industry of digital goods and services that can’t be copied or faked.
Decades ago, before the Internet took off, people had to train their minds to accept that digital goods could be copied a million times… and that every copy was as good as the original.
Now, in the coming years, that’s all going to change… thanks to cryptos.
The blockchain allows us to create unique assets… one-of-a-kind digital objects that can’t be faked or duplicated. That’s obviously important for online currencies, but it also means we’ll soon be buying and selling one-of-a-kind digital objects in video games, online art… potentially even anonymized data from things like our smart watches and web browsers.
Investing early in cryptos gives you the best opportunities to capture the biggest gains as more and more industries learn how to take advantage of them and the blockchain.
But that isn’t the only reason it makes sense for you to invest in cryptos… You see, you should also consider owning some cryptos purely for their speculative value.
Bitcoin was the best-performing asset in the world over the past decade. It wasn’t even close… Oil was down. Gold gained 23%. The S&P 500 Index climbed 190%.
Even the best stock picker in the world couldn’t beat bitcoin… The top American stock from January 1, 2010, through December 31, 2019, was Netflix (NFLX). If you had bought $100 worth of Netflix stock at the start of the decade, it would have been worth a whopping $4,277 at the end of 2019. But if you had bought $100 worth of bitcoin instead at the beginning of 2010, it would have been worth $9 million at the end of the decade!
And yet, bitcoin’s market cap is still only about $200 billion today. Dozens of individual U.S.-listed stocks are worth more than that.
In our view, crypto’s impact on the world will be as profound as the Internet’s. But while the Internet digitized information, crypto is digitizing value…
Today, you don’t actually own the digital dollars you can view in your bank account. They’re just entries in the bank’s database. If you face certain criminal charges, for instance, the bank can seize those funds before you go to trial.
But when you hold bitcoin in a crypto wallet that you control, you actually own it… No one can take it from you without your “private key” (a string of characters and numbers that’s essentially your password).
That will impact all the world’s currencies, stocks, and bonds. It will also create new forms of value that we can’t even conceive of in our minds yet.
We believe everyone should have at least a small position of their overall portfolios in cryptos. If bitcoin achieves its vision in the coming years, the industry’s market cap will one day be in the tens of trillions… And each bitcoin could be worth more than $1 million.
How do I buy cryptos? Is it complicated? Will I need to take any convoluted steps? Can I do it through my regular broker?
Buying mainstream cryptos – like bitcoin and Ethereum – is easier today than ever before…
First, you need to create an account with a crypto “gateway” – a place that sells crypto in exchange for fiat currencies – and pay for your purchase with a debit card or bank transfer.
The account-creation process is about the same as setting up an online bank account… In some cases, you may need to provide a utility bill or a picture of your ID.
Once you own the bitcoin or Ethereum, you can simply store it on the gateway (or exchange). However, we strongly recommend you transfer it to a crypto wallet that only you can access. By doing that, it ensures that you – and only you – can access your funds.
It’s worth noting that different wallets exist for different cryptos. That’s where it can get a little confusing, but Blockchain.com offers an easy-to-use solution for most major cryptos.
Acquiring smaller, more speculative cryptos may require setting up accounts on two different exchanges and transferring crypto between them. That’s because many of these smaller tokens trade on small exchanges that may not offer the ability to buy crypto with fiat currencies like U.S. dollars. So you’ll need to buy bitcoin or Ethereum elsewhere, then transfer it to the specific crypto exchange where you can trade it for your desired token.
In Crypto Capital, we always share our preferred exchanges and crypto storage methods with our subscribers for every recommendation we make. It’s a critical part of our research.
A lot of folks like to start with a tiny amount of money invested in cryptos… just $50 or $100, for example, so they can get comfortable with the process. That’s good advice…
Investing in cryptos – like any speculative investment – involves a small learning curve. That’s why a lot of people avoid the space entirely… But by deliberately sitting on the sidelines, they’ll miss one of the greatest investment opportunities in generations.
How do I limit my risk?
That’s simple… You should treat your bitcoin stake like any other investment.
As we just noted in our response to the last question, you should keep your bitcoin investments small and reasonable. Don’t invest more than you can afford to lose.
Take the time to educate yourself on safely storing your bitcoin. Always research smaller cryptos before entering a position, too. You want to be sure that it’s safe to own.
Because crypto is such a new and rapidly changing field, it has attracted plenty of charlatans. In Crypto Capital, our reports are designed to steer you away from scams… as well as educate and inform you on the most promising investment opportunities in the space.
As we mentioned, a lot of people start with as little as $50 to $100 in cryptos just so they can learn how everything works (as far as the process of the exchange, wallet, etc.)…
That’s perfectly fine!
Only buy amounts you can manage and only invest in cryptos you believe in. That’s an excellent way to limit risk.
I hope you’ve learned a lot about cryptos in today’s essay…
Bitcoin is a truly global currency. Banks or governments don’t need to approve its use. As a result, short of cutting people off from the Internet, folks can’t be stopped from using it.
And even better, as I said yesterday, we’re only in the early innings of the crypto boom…
You haven’t missed the boat at all. The best is yet to come. I hope you’ll come aboard soon.
Good investing,
Eric Wade
Editor, Crypto Capital
Publisher’s note: Bitcoin recently kicked off a huge new rally… It’s above $11,000 today – up more than 180% from its mid-March bottom. But Eric believes that’s just the beginning… He predicts that bitcoin could reach $1 million in our lifetimes.
That’s part of the reason why he participated in a special briefing with Stansberry Research founder Porter Stansberry last week. Eric and Porter detailed how cryptos and blockchain will change the world over the next decade… and explained how you can earn huge profits as the revolution unfolds. You can still watch the full replay right here.
Now here are some of the stories we’re reading…
Young investors are flooding into bitcoin in the pandemic, while the older generation can’t get enough of gold, a team of JPMorgan analysts said
Both gold and bitcoin exchange-traded-funds have experienced strong inflows in the past five months, as both age groups see the potential in alternative currencies, the note said.
First Mover: As Fed Nears Inflation Rubicon, Analysts See $50K Bitcoin in Play
“As more investors look to ‘digital gold’ as an inflation hedge in an increasingly digitized world amidst unprecedented government money printing,” the cryptocurrency research firm Messari wrote Monday, “we know that it won’t take much of an institutional allocation until $50,000 bitcoin is back on the table.”
Homicide Spike Hits Most Large U.S. Cities
A Wall Street Journal analysis of crime statistics among the nation’s 50 largest cities found that reported homicides were up 24% so far this year, to 3,612. Shootings and gun violence also rose, even though many other violent crimes such as robbery fell.
The end of history in Illinois
The news release from Ford’s own office is quite literally titled ‘Rep. Ford Today in Evanston to Call for the Abolishment of History Classes in Illinois Schools.’ Until Ford is satisfied with how the past is presented, it is best for schoolchildren to pretend the past does not exist at all.
Read our latest issues of American Consequences by clicking here.
And let us know what you’re reading at [email protected].
Regards,
Steven Longenecker
Publisher, American Consequences
With P.J. O’Rourke and the Editorial Staff
August 6, 2020
