It’s happening again.
As if on cue, my phone rang on Tuesday morning. When I saw it was my friend Jordan, I knew exactly what he wanted to talk about.
Jordan is my friend who always buys at the highs and sells at the lows.
His phone calls are often a good contrarian indicator to what an astute trader should be doing. If you don’t have a friend or family member like Jordan, then you might be that person!
I vividly remember the call we had in mid-December. He was inquiring whether he should sell his stocks (in the middle of the crash).
At the time, the market had already pulled back 16% from its October highs. I told him to raise whatever cash he needed, but it wasn’t a good time to sell everything. There was too much fear in the air.
This was a week before the S&P 500 Index bottomed and rallied 25%.
I don’t get every call right. But I know with certainty that Jordan’s phone calls always arrive at an important inflection point in the market.
So when Jordan called on Tuesday morning, I knew exactly that he’d ask me if it was time to buy bitcoin…
The End of the Bust
If you haven’t been paying attention, bitcoin is the best-performing asset class of 2019.
The world’s largest cryptocurrency recently broke above $8,000. This means the price is up more than 110% since the start of the year, when it could have been bought for $3,750.
But it wasn’t always this easy.
Last year, bitcoin was a bloodbath.
After peaking near $20,000 in December 2017, bitcoin dropped 84% to a December 2018 low of $3,200.
Sometimes the end of the boom and the end of the bust make nice bookends. The final capitulation that occurred in December 2018 was a mirror image of the panic buying of December 2017.
In hindsight, when the bitcoin bears proclaimed it was headed to $0, that was the bottom.
When the financial news magazines were declaring “Bitcoin Is Dead” and running bitcoin obituaries, that was the bottom.
When investors who had been so excited to talk about their bitcoin investments a year ago were ashamed to admit they even owned it, that was the bottom.
When bitcoin stopped going down on bad news (such as an exchange hack or stricter regulations), that was the bottom.
The Biggest Themes for Crypto
All markets are in a perpetual cycle from boom to bust, from maximum greed to maximum fear. In the ashes of the latest bust, the next boom begins.
Bitcoin is no different. It’s a new asset class that’s swung from boom to bust four times in its 10-year existence.
It’s a new asset class that’s based on a technology that allows us to prove the existence of a digital good or message without the need for a centralized authority to keep track of who owns what.
That means the technology can be used as a currency (bitcoin).
It can be a programmable currency that powers smart contracts (ethereum).
It can be a decentralized computer that runs decentralized applications (Dfinity).
Of course, when my friend Jordan called, he was more concerned with the recent price and whether or not there was still upside…
So, I had to explain to him the three biggest themes in crypto this year:
- Real-world companies are building on blockchain. In the last few months, JPMorgan Chase, Facebook, PayPal and Microsoft announced their intentions to build on blockchain technology. While these blockchains and cryptocurrencies are mostly controlled by the companies, it introduces crypto assets and bitcoin to a whole new range of users and increases real-world adoption.
- Wall Street is making it easier to invest. Last year, the hype centered around a possible bitcoin exchange-traded fund approval. While it looks like the Securities and Exchange Commission won’t approve it anytime soon, traditional brokers are making it easier for investors to buy and sell bitcoin. On the institutional side, Fidelity (with $2.5 trillion in assets under management) is launching institutional bitcoin trading in the next few weeks. TD Ameritrade and E-Trade plan to roll out crypto trading for retail investors in the near future.
- People are spending bitcoin. The number of confirmed transactions per day is at an all-time high:
In the past year, merchants have made it easier to spend bitcoin in both the virtual and real world.
Starbucks, Whole Foods and dozens of other companies announced a partnership this week with Flexa, allowing cryptocurrency holders to make instant payments.
And a major Japanese e-commerce platform, Rakuten, allows shoppers to buy and sell goods with bitcoin.
The Bottom Line for Bitcoin and Crypto
Crypto is here to stay.
Like any other emerging asset class, it goes through boom and bust periods.
Last year was the bust. But now the bottom is in, and signs of real-world adoption are everywhere you look.
In terms of a price forecast, I will let you know when Jordan calls me about getting out.
Editor, Automatic Fortunes