August 4, 2020
As we were listening to the Capitalism in Crisis event last week, we were struck by an observation made by cryptocurrency expert Eric Wade…
There are already more millionaires in the world than there will ever be bitcoins. If all of the millionaires in the world, all 46 million of them, suddenly decided they wanted bitcoin and split it up equally, they’d each get less than half of a bitcoin…
That’s why you don’t need to put a lot of money in this space to do very, very well.
The scarcity of bitcoin is what makes it a deflationary asset. In other words, the value is designed to go up and up over time as the asset becomes more and more scarce.
And that’s not the only way that Eric says that bitcoin and other cryptocurrencies will go mainstream. More details in the article below…
Publisher, American Consequences
How Crypto Will Quietly Go Mainstream
By Eric Wade
We will soon see another bull run in bitcoin and cryptos of a magnitude that will put even the dot-com bubble to shame. New millionaires will be minted… likely even billionaires.
In fact, thanks to a single metric – scarcity – I believe that within eight years, bitcoin could be worth 100 times as much as it is today.
And the major catalyst ushering in this new age was the bitcoin “halving” event earlier this year…
Halving refers to the payouts, or rewards, that bitcoin miners receive for securing the network. By cutting the rewards in half, bitcoin’s “inflation rate” – the flow of new bitcoin entering the market – drops as well. This means bitcoin, as a currency, gets stronger over time as its inflation drops.
Anticipation of the 2020 halving dominated crypto-related headlines for more than a year… That’s because these halvings only happen every four years. When the latest halving happened on May 11, bitcoin’s inflation rate fell to about the same as the U.S. dollar (1.8%).
Previous bitcoin halvings have roughly marked the starting point for huge run-ups in the crypto’s price. After these events in the past, bitcoin has soared as much as 8,000%.
And we can expect the same situation this time…
One model, known as the “Stock to Flow” (“S2F”) model, looks at bitcoin’s scarcity by dividing its supply (its “stock”) by its annual production or inflation (its “flow”). Since bitcoin’s future supply is known, we can use that calculation to project future price ranges.
By that model, bitcoin could hit $100,000 sometime in the next four years and $1 million per token within the next eight years. You can see what we mean in the chart below…
Variations on the S2F model show the price of a single bitcoin rising as high as $288,000 within the next four years. Of course, all these models are based on what has happened in the past and what we know about the future. That means they’re far from guaranteed.
But my own calculations are similar. And on a stage in front of hundreds of investors last October in Las Vegas, I predicted that, “Bitcoin will rise from $10,000 to $1 million in our lifetimes.”
Why am I so bullish?
Because S2F doesn’t account for the macro-economic backdrop. And that backdrop is in tatters.
The COVID-19 pandemic has pushed us to the edge of an economic abyss…
- The U.S. unemployment rate soared to 13.3% in May. That’s higher than it’s ever been before in my lifetime… and even my parents’ lifetimes.
- Companies across all sorts of industries – from rental-car giant Hertz, to supplement seller GNC, clothiers Neiman Marcus and J. Crew, and fracking pioneer Chesapeake Energy – have already filed for bankruptcy. Thousands of additional companies will follow.
- And states that were just starting to reopen are shutting down again.
To stop the COVID-19 pandemic from turning into Great Depression II, governments around the world are using unprecedented money printing to keep their economies afloat.
For now, that printing is a lifeboat. But lifeboats can only last so long.
Eventually, extraordinary money printing leads to extraordinary inflation.
Billionaire investor Paul Tudor Jones published a market note earlier this year called “The Great Monetary Inflation.” In it, he noted that $3.9 trillion in money has been printed by central banks since February. That’s equal to 6.6% of global economic output.
Printing like this is sure to devalue currencies, he wrote. And this setup reminds him of gold in the 1970s – where the precious metal soared 571% from August 1976 to January 1980.
It’s a musket shot over the heads of fund managers everywhere. They can’t see someone like Tudor Jones making moves like this and ignore it.
Bitcoin is gaining acceptance as an insurance policy against economic turmoil. Combine that with bitcoin’s falling inflation, and you have the recipe for an explosive move higher. And that’s just part of the story…
Entering the Crypto 2.0 Era
For many outsiders, the crypto story starts and ends with bitcoin. They don’t know there are more than 8,000 other cryptos out there that do a wide range of things, from earning you discounts on services to letting you trade digital costumes between video game worlds.
Up to now, most of those use-cases have just been ideas… radical theories about how things might work in the future.
The people who invested in those cryptos were speculators. They were buying and selling cryptos not to use them for their underlying purposes, but out of the hopes they would go up in the future.
Now, we’re entering a brand-new era… one I call “Crypto 2.0.”
By that, I mean cryptos have moved beyond the theoretical. They’re moving away from pure speculation. And now, many of them are income-producing assets. Quite literally, bitcoin and other cryptos can now create cash flows that put money in your pocket today.
Investors are buying cryptos like they might buy a duplex down the street. They’re turning them into low-maintenance cash cows that earn them money while they sleep. And in the sections that follow, I’m going to show you the top three ways investors are putting their crypto to work…
No. 1 Way to Put Crypto to Work: Lending
The simplest way to earn yield on your crypto is by lending it out.
In the early days of crypto, that meant connecting directly with a borrower and agreeing on a loan term and rate. Today, several services make it much simpler. You can deposit your crypto and instantly earn yield without having to find or interact with borrowers.
Some lending platforms are companies running websites or mobile apps. These are called “centralized finance” (“CeFi”) platforms. Others are blockchain-based smart contracts that execute automatically when certain terms are met, which we call “decentralized finance” (“DeFi”).
And lending crypto is becoming more and more important for three big reasons…
First, users may want to tap their crypto equity without selling it and generating a tax liability. For example, you could borrow some money against your bitcoin holdings, then pay back the loan over time. In effect, you’ve tapped the “value” of your bitcoin without spending or selling it (and generating a tax bill on your capital gains). It’s like a home equity loan with your cryptocurrencies as collateral.
Second, a borrower might need a specific token for a short period and intend to pay it right back. For example, users can borrow tokens that they need for an online game, or they might want to hold a token to participate in a governance vote. For example, just a few months ago, DigixDAO (DGD) token holders voted to shut down the decentralized autonomous organization (“DAO”) and distribute the money it held. Voting is power.
Finally, borrowing platforms offer a way to leverage trades. For example, users can borrow against their Ethereum (ETH) holdings to buy tokens in another project without selling their ETH tokens. Or they can borrow a token they want to bet against, then sell that token with the hopes of buying it back cheaper in the future. This is a popular strategy for hedging and short selling. On a larger scale, crypto exchanges borrow crypto to lend to their customers for margin trading and shorting, and crypto funds borrow it to leverage their positions.
The Crypto.com app has more than 2 million customers who use it to borrow, buy, or lend out cryptos. And the yields are attractive, as shown in the table below… up to six times more than a comparable savings account or certificate of deposit at a bank.
The interest rates on decentralized services like Compound.finance and Aave.com are far more volatile as they react in real time to supply and demand. But both platforms regularly feature yields north of 10%, or sometimes 20% or more. That’s helped them attract tens of thousands of users.
As a whole, DeFi platforms now hold more than $1.5 billion in crypto deposits.
Generally speaking, there is no FDIC insurance for cryptocurrency investments – even the programs backed by assets. Some wallets and apps offer insurance or guarantees on some specific cash balances, but these assurances vary widely.
Make sure you understand the risks of each platform before you begin using it. We do not ever recommend putting 100% of your holdings in any one service.
No. 2 Way to Put Crypto to Work: Staking
To understand staking, you need to know a bit about how cryptos work.
Bitcoin runs on something called a “proof of work” (“PoW”) consensus mechanism. With PoW, the network is secured by powerful computers performing difficult calculations. As long as a network can attract enough participants, it’s remarkably secure. Bitcoin, for example, is the most powerful computing network in the world.
But PoW comes with significant trade-offs. It requires vast amounts of energy and sophisticated computers, and it’s difficult to scale. That probably won’t be a problem for bitcoin as new “layers” are built that allow cheap, nearly instant transaction speeds.
For other cryptos, though, the plan is to convert to a new consensus mechanism called “proof of stake” (“PoS”). With PoS, the network is secured by users “staking,” or locking up, their crypto as a pledge that they won’t cheat the system. If users try to cheat, they lose their tokens. If they operate honestly, they earn more tokens.
You can think of staking like renting out your house on Airbnb. You still own the house, but you’re giving up control over it for a short period of time in exchange for a financial reward.
Staking doesn’t require powerful computers, so it’s much cheaper and less energy intensive. It also promises faster, cheaper transactions, and most important, better scalability than PoW – all things crypto needs for mass adoption.
The world’s second-most valuable crypto, Ethereum, is planning to shift to a staking model in the coming months. That will give ETH owners the ability to stake it and earn a yield on it. That will essentially make ETH an income-producing asset, which could make it much easier to value… and bolster the case for holding it long term.
Market forces will determine the yield on ETH, but several other cryptos already pay nice yields today, including KAVA (KAVA) at 21%, and Harmony (ONE) and Tezos (XTZ), which both pay 5%.
No. 3 Way to Put Crypto to Work: Yield Farming
The final (and quite possibly the easiest) way to earn yield on crypto is by converting your dollars into “crypto dollars” or “stablecoins.”
Stablecoins are cryptos that are pegged to the value of other assets (most commonly, the dollar). For example, Tether (USDT) is a crypto that’s pegged to the price of the dollar. One USDT token should always be tradeable for $1… or $1 worth of, say, bitcoin or Ethereum.
The demand for stablecoins has been extraordinary. Once you’ve converted your dollars into USDT, for example, you can immediately earn a fantastic yield on it.
That’s largely because platforms need liquidity, and they’re willing to offer you incentives if you provide it. That incentive may come in the form of an interest rate, or a brand new crypto that people can’t acquire any other way. As more and more people have started using stablecoins to chase yield, it’s even gotten a nickname: “yield farming.”
Earlier, we pointed to Crypto.com as a great place to earn yield on your crypto. It pays out yield on stablecoins, too. You can convert your dollars to stablecoins directly on Crypto.com’s app and begin earning double-digit yields on them without getting exposure to the volatility of cryptos like bitcoin.
Now, there are regulatory, fraud, and operational risks with stablecoins.
For example, lending platforms could misappropriate or lose their funds. And the parent company of Tether is the subject of at least two lawsuits in New York. Decentralized stablecoins like DAI (DAI) have also been undercollateralized at times.
But by and large, the industry has rapidly upped its game. Stablecoins like USD Coin (USDC), Paxos Standard (PAX), and the Gemini dollar (GUSD) have taken regulation-first approaches. Not only do they meet regulatory requirements by the state or federal agencies required by their jurisdictions, but they’re also externally audited… so you know they’re holding the reserves they say they do.
The table below shows the maximum yields you can earn on various platforms for stablecoins.
The broader market hasn’t recognized this amazing opportunity yet. But with shrinking yields in virtually every other major asset class, it will. That means interest rates on stablecoins will eventually shrink. But for now, they’re a compelling way to grow your wealth.
From Speculation to Mainstream
There are three primary ways to earn yield in the crypto industry – by lending cryptos, staking them, or lending stablecoins. Each comes with unique advantages and risks, but they can all generate income for you today.
More than that, these services are changing the way the financial system works. Many of them run without banks or middlemen. And you don’t need permission to access them.
The era of crypto as solely a speculation is nearing a close. Today, we’re seeing signs that it’s realizing its vision and offering valuable financial services outside the banking system. It’s transformed from a bet to a cash cow.
Savvy investors aren’t just buying bitcoin… they’re finding ways to grow their wealth throughout the crypto sector. And they’re doing it just as the existing financial lifeboats take on water.
Publisher’s note: As the government pumps trillions’ worth of “fake money” into the economy, the wealth gap widens, and the economy grows more unstable.
We hoped you watched last week’s special event with Eric Wade where he addressed the state of the markets… and also revealed the nontraditional opportunity that could grow your money by 1,000% or more. If you missed this critical message, you can catch the replay here.
We’ve featured Eric Wade several times in the pages of American Consequences. If you’re interested in reading more, we suggest these stories…
On Being First… Again and Again
Today, there are about 5,000 cryptos out there, according to Wade. He likes “maybe about 30 of them.” He’s recommended a few dozen to his readers – and his top gain this year is a 1,320% closed trade… despite a lackluster market for cryptos in general.
Become a Blockchain Expert in Less Than Four Minutes
A good analogy is to think of the Bitcoin blockchain as a giant Excel spreadsheet that shows the complete transaction history and location of every bitcoin.
Now here are some of the other stories we’re reading…
Gold prices remain higher, but pull back from move above $2,000 an ounce as U.S. dollar firms
The yellow metal has enjoyed a rally to all-time records amid concerns about the economic impact of COVID-19 and the actions taken by governments and central banks to help mitigate the harm to businesses in attempting to curtail the spread of the pathogen.
America’s Saw Mills Didn’t See This Building Boom Coming
Even in the all-markets rally that has sent stocks, bonds, and commodities rising in unison since the economic shutdown, forest products stand out for how sharply their prices have climbed.
NYC has had more shootings so far this year than in all of 2019
A 24-year-old man who walked bleeding into Lincoln Hospital in The Bronx on Saturday night has pushed the city’s total number of shootings this year to 777 – topping the 776 recorded in all of last year, NYPD data compiled by The Post reveals. And it’s only the first days of August, with five more months before the year is over.
Clock is ticking on Trump comeback as early voting nears
The old adage that most of America doesn’t start paying attention to a campaign until Labor Day has been tossed aside in a year in which the novel coronavirus has killed more than 150,000 people in the U.S. and rewritten the rules of American society.
And let us know what you’re reading at [email protected].
Publisher, American Consequences
With P.J. O’Rourke and the Editorial Staff
August 4, 2020