2018’s “Crypto Winter” Will Soon Thaw, And Bitcoin Will Surge.
By Eric Wade
Editor’s Note Eric Wade makes a detailed and carefully reasoned argument for a “crypto comeback.” Is Eric right, or is crypto dead as a smelt? We at American Consequences frankly don’t know. But we think what Eric has written is worth reading.
I can’t name names… but this fall, I was at a conference with a high-profile crypto developer. When I asked him about cryptocurrency prices, his posture changed and his voice dropped half an octave.
“I don’t even look at that stuff anymore. I can’t. It’s too painful.”
Another friend confided that he locked himself in a room to cry. Several others sold everything… every last token and coin they’d ever owned.
Last year’s sell-off was so brutal it did more than hurt people’s finances. It bruised their egos. It made them question why they’d bought crypto at all.
Now, they’re selling… but I’m buying.
I bought more crypto in 2018 than I did in the previous three years combined. That’s because this story is far from over.
Years from now, people will look back on 2018 as the before-and-after point in the cryptocurrency markets.
Years from now, people will look back on 2018 as the before-and-after point in the cryptocurrency markets.
I believe the price of bitcoin will reprice at around five to 10 times its current level this year. All those so-called “fanatics” who’ve been predicting bitcoin values as high as $40,000, $500,000, even $1 million… they’ll stop sounding so crazy.
The bruised egos will heal. And they’ll buy back in.
But first, something very important is going to happen.
Fixing Bitcoin’s First Fatal Flaw
Bitcoin seemed like a great idea when it first came out. But it had a flaw all along… it’s almost impossible for the average investor to buy.
It was never designed for mass adoption by regular people… It was designed for a small community of crypto geeks like me, who buy and sell computer memory cards as a hobby.
This stuff is natural to me. I’ve been studying cryptography since I was a kid growing up outside Los Alamos, New Mexico. My parents worked at the nuclear laboratory there. I was the boy in the corner with the cryptography books.
And for die-hard crypto guys like me and Vitalik Buterin, the ethereum cryptocurrency founder who I’ve spent time with, there’s one thing we’ve always dreamed of – that cryptos will overthrow the ordinary financial system and become a widely used currency.
It hasn’t happened yet. But that’s not because people don’t want to own and use it. It’s because they can’t. Cryptos were made for computer guys.
Buying, storing, moving, and protecting your bitcoin is so complicated some people have lost their entire investments because of a simple typo. Most investors have stayed away – even if they want the huge returns cryptos are capable of – because bitcoin is just too complicated.
Now, it’s time for bitcoin – and cryptos – to grow up.
How One Startup Will Change Everything
Soon, no one will remember all the exasperating and complicated steps you had to go through to get your hands on cryptos. The idea of bitcoin “wallets” will be as outdated as dial-up modems. Bitcoin will be fully integrated into the financial system.
This sea change could start as soon as early 2019.
That’s when a startup called Bakkt plans to launch (pending final regulatory approvals). You might not have heard of Bakkt yet, but you will.
It was started by the team that runs the New York Stock Exchange – Intercontinental Exchange (ICE). ICE runs the most important futures markets in the world, as well as the “clearing houses,” which are where your money and stocks get exchanged when you make a trade.
ICE is precisely what the world of crypto has been missing: a trustworthy “custodian.” A place where you can buy bitcoin with the click of a button… A place that’s insured, secure, and worry-free.
The original “custodian” designation has been around for 60 years. If the bank is going to hold your stocks and bonds for you, it has a basic obligation to keep them safe. It keeps records. It makes sure your stocks don’t get lost or stolen.
Today, we take that infrastructure for granted. The record-keeping is seamless. Our brokers generate tax statements for us at the end of the year automatically.
We have confidence that stocks we buy today will be there tomorrow. There’s almost zero chance of Apple shares disappearing from your account.
But with bitcoin, it’s more complicated because it was designed to be “decentralized” (which means no government, bank, or organization is in charge of it). Anyone with a computer can be part of the bitcoin network so buyers can – and do – get hacked. But Bakkt says it has the answer…
ICE is building Bakkt right under our noses, but it’s trying to keep it quiet. You see, along with banks, brokers and private-equity funds, Bakkt is a buyer behind the scenes.
It needs bitcoin. It can’t launch an exchange without it. That’s how it becomes the market-maker. That’s how bitcoin goes from the geeky fringes to a massive online digital trading platform.
The market-makers need their own supply. A huge supply.
For Mom and Pop to trade bitcoin on Bakkt – Bakkt must supply it instantly. To do that, it has to hold it.
Bakkt Is Only the Beginning
Every transaction that happens on the bitcoin blockchain is public. You can see what people are doing. You can see how they’re moving money around.
You might not know who’s doing it, but you know how many wallets are getting created. You know how many bitcoins are transferred from one account to another.
Last year, the number of transactions went up.
We’re in one of the worst bear markets in bitcoin’s history, and yet there’s all this underlying activity.
Let that sink in. We’re in one of the worst bear markets in bitcoin’s history, and yet there’s all this underlying activity. Bitcoin are being moved and accumulated in a handful of wallets… and then staying there.
In other words, a small number of people are stockpiling a huge amount of bitcoin. They’re doing it quietly. They’re doing it without pushing up prices. The cheaper they can get their bitcoin, the better. That’s because they’re preparing for something.
Who are these mysterious buyers? And why are they buying?
In the coming months, massive amounts of money could start flowing through Bakkt. That’s why the whole market could re-price at a much higher level within days.
And Bakkt is only the beginning. Fidelity is working on a similar platform. So is Citigroup. Other companies are buying their way in. Goldman Sachs partnered with BitGo (a blockchain security company)… Japanese investment bank Nomura partnered with Ledger, who makes hardware to protect cryptos.
What we’re witnessing is a technological cold war involving traditional financial institutions. These companies know the crypto industry’s going to be massive. And they’re quietly positioning themselves to take advantage of it.
They’re preparing for the next wave of new buyers. And the next wave will be bigger than anything we’ve ever seen.
I’ve seen the preludes already.
Looking back at 2013, we saw the first major wave of new crypto investors. Back then, the market jumped from thousands of participants to millions.
Wave two came in 2017. The market size catapulted from the millions to the tens of millions.
And starting in 2019, the market’s going to go through a third wave.
This time, it’ll go from tens of millions to hundreds of millions. And we’re going to see one of the biggest supply crunches of our lifetimes.
Fixing Bitcoin’s Second Fatal Flaw
By design, the total world supply of bitcoin will only ever reach 21 million. Over time, we’ve been climbing toward that number as more bitcoin are awarded to the mining computers that power the bitcoin network.
Right now, there are technically 17.4 million bitcoins in existence.
But guess what?
That’s bitcoin’s second fatal flaw. If you lose access to your bitcoin, everyone else does, too. They’re gone forever.
What we’re witnessing is a technological cold war involving traditional financial institutions.
Nearly 3 million bitcoins have already been lost. They were put into virtual “safes” by an owner who then lost the key. They’ll never, ever come out. People lost their passwords, or they lost their “wallets” completely. There’s no recovering from this.
Another 2 million bitcoins have been stolen. Their status is unknown, but they’ll probably never return to the market.
And another 1 million belong to bitcoin’s creator, Satoshi Nakamoto. That’s a pseudonym. Nobody knows if Nakamoto is a person or a group. But these coins are likely gone forever.
So that’s 6 million coins already off the market. That means about 35% of the world’s current supply is gone… And bitcoin hasn’t even gone mainstream yet.
Meanwhile, another 2.5 million bitcoins are in the hands of the most fanatic crypto backers. They call themselves the “hold on for dear life” crowd and have no intention of ever selling.
Put it all together, and 8.5 million bitcoins are missing. That means nearly 50% of the roughly 17.5 million existing bitcoins aren’t available for trading. They aren’t available to Fidelity or Goldman or ICE. They aren’t available to the pension funds and endowments that want to get their hands on them. And they aren’t available to you and me.
So, what happens when everyone goes to buy bitcoin at once?
Market forces kick in. It’s supply and demand. And there simply won’t be enough supply to meet demand. That’s how we’ll see bitcoin values soar five or 10 times, practically overnight.
A World Beyond Bitcoin
I’m excited to see bitcoin reprice in 2019. But there’s something I’m even more excited about…
Bitcoin is fundamentally challenging the way banks process financial transactions. When the network launched a decade ago, it was the first time in history we could use a peer-to-peer network to send money around the world. There are no middle men… no escrow accounts… no payment processors… no charge-backs… no banks signing off on your transactions.
It’s the biggest single change to global finance since Richard Nixon took us off the gold standard in August 1971.
But what bitcoin really created was a way to send value over the internet. From that perspective, crypto’s potential grows exponentially.
Suddenly, we can apply that same technology to the stock market. Instead of swapping shares, we can turn them into tokens. Then, they can trade on global exchanges 24/7. We can give holders online voting rights. We can prove ownership. We can automatically pay dividends.
And we can tokenize everything. Real estate, gold, even loyalty points at the gas station. Right now, there are 2,000 cryptos in the world. But we need to prepare for a world with millions of cryptos.
And that’s not all.
What if we added a programming language on top of all these tokens? We could create “smart contracts” – or computer code that executes financial transactions automatically. Some call it “programmable money.”
Here’s an example…
An airline passenger might buy an insurance policy before her flight. If she lands more than two hours late, she wants to be reimbursed. With smart contracts, that can happen automatically.
And this isn’t a hypothetical example. There’s a French company called Fizzy that’s already doing it by using ethereum to reimburse passengers.
Potential 1,000%-Plus Gains
Bitcoin is like the “reserve currency” of the crypto world. A lot of crypto transactions are priced in bitcoin, so if bitcoin gets more expensive – and it will – everything else reflects that gain.
Smaller cryptos have market caps that are a tiny fraction of bitcoin’s… 1% of the size in some cases.
Think about it in terms of large-cap stocks and small-cap stocks. It takes a lot of money to move Apple 10% higher, because it’s an $800 billion business. That means $80 billion must flow into Apple to produce that gain.
Compare that to a business with a $50 million market cap, though – one that’s less than 1% the size of Apple. Those kinds of stocks go up 10% higher all the time. They can double or triple in a day in some cases.
This plays out the same way in the crypto markets. For example, there was a month in 2017 when bitcoin went up about 50%. But one small crypto went up 3,990% – 88 times the gains.
A couple months later, same thing. From early November 2017 until around Christmas 2017, bitcoin went up 110%. But one of the tiny cryptos I follow, called verge, went up 4,000% in the same time span – 40 times the gains.
This is exactly what we’re going to see in the smaller cryptos in 2019.
Interested in Learning More?
Crypto expert Eric Wade says that last year’s sell-off was one of the best things that could have happened for crypto investors. Prices today are as low as they were before the market shot up
at the end of 2017.
But there are more than 2,000 cryptos out there. And 99% of them are junk.
Eric has spent thousands of hours analyzing the ones that show true potential. And he’s boiled them down to six. (You can learn more about them by clicking here.)
Eric Wade is an analyst, editor, and investor who began picking stocks and trading futures contracts in college, eventually becoming a Certified Financial Manager at the largest American retail brokerage.
His cryptocurrency career began by mining bitcoin and other cryptos, and he has become a successful investor and analyst in this space.