Cryptocurrencies are dead…
Or that is what many would have you believe.
The recent price decline in the nascent asset class has brought out the usual motley crew of haters, skeptics, insiders and permabears.
Naturally, the sea of negativity is making a lot of people nervous, particularly here in Australia.
In fact, we were the first to search for the term ‘crypto is dead’ on Google!
Relax mate, I say…
Because I’ve seen this movie before.
He is not dead, in fact, quite the opposite.
Still, it never ceases to amaze me how skeptics always take victory laps in any downturn, despite being wrong about the best-performing asset of the last decade (even the last two years!).
And yet they do.
For example, check out these two tweets from serial crypto critic Nouriel Roubini, alias Doc Doom:
Notice the dates at the bottom?
The first tweet was from last week, the second was from the 2018 bear market!
I was wrong then; he will be wrong this time.
Now, the thing is, Nouriel Roubini is pretty negative on everything… not just cryptocurrencies.
As the old saying goes, you predicted 10 of the last three recessions!
And frankly, I wouldn’t trust their opinion too much when it comes to allocating my capital.
Take this piece from CBS News back in 2011:
‘by Roubini fails to accurately predict the market It shouldn’t have been a surprise. Just 14 months earlier, on March 26, 2009, when the S&P 500 closed at 814, Roubini made this forecast: “US stocks will fall and the government will nationalize more banks as the economy contracts through the end of 2009.”
‘Today we know that despite Roubini’s warning, the market had just 17 days earlier started one of the biggest bull markets in over 70 years!
‘One would think that this mistake would have taught Roubini a bit of humility when it came to forecasting.‘
Look, I’m not here to pile on one particular tipster. We all make mistakes from time to time, me more than most.
What does offend me, however, is that the mainstream media publishes views as if they came from some kind of authority.
I mean, at least mention how many times (and it’s a lot in Nouriel’s case) a high-profile expert was wrong or his track record.
Something by which we can judge the validity of his criticism.
I guess, as this meme shows, the mainstream media has no interest in looking into that sort of thing:
And it is no exaggeration to say that most of the mainstream media has a huge bias against the crypto industry.
I mean, last week, the financial times posted a headline saying that Singapore will be ‘relentlessly tough on crypto‘.
This fueled a narrative that Singapore was completely against the industry.
However, if you managed to get to the paywall to see the exact quote, you’ll see that the title left out a crucial word.
The real quote was that Singapore will be ‘relentlessly hard on bad players in crypto‘.
What a difference those two words make!
And the Singapore regulator itself called it ‘blow job‘.
Unfortunately, you cannot trust the mainstream when it comes to crypto because it is disrupting the cozy monopolies that they themselves feed off of.
So back to the cold hard facts…
Bitcoin enhanced wallet wins
Let’s forget about opinions, mine or anyone else’s, and look at the facts for a moment.
Take a look at this to get started…
If you had allocated only 5% of your total portfolio to Bitcoin [BTC] near the height of the last crypto bull run in 2017, i actually would have gotten better returns than someone who didn’t.
This graphic shows how:
As you can see, a 5% allocation to bitcoin would have given you a 10% higher return than a typical portfolio of stocks and bonds.
And remember, this is comparing the ‘worst case’ outcome – I’m comparing investing near the top of a bull run in 2017 to the current huge recession we find ourselves in, so no one can accuse me of choosing dates.
However, here is the real trick…
You would get this huge outperformance for less risk based on industry-preferred risk measurement metric (acute ratio is higher for the bitcoin-enhanced portfolio).
You can see the results in the table at the top right.
I can’t guarantee it, of course, but I’m pretty sure doing the same thing now and adding a few bitcoins to your portfolio will result in even better returns in the next four years.
Especially given that we are now at the bottom of the price cycle.
Riding the S curve
Here’s another fact naysayers like to avoid.
Whether we like it or not, a lot of people are interested in cryptocurrencies… and it’s growing every year.
In fact, bitcoin is just following its typical S-curve process:
And between extreme cycles of greed and fear fueled by immense price volatility, adoption marches on relentlessly.
In fact, unlike most industries, price is usually a leading indicator in crypto.
As venture capital firm a16Z recently noted:
‘The prices are a hook. Numbers drive interest, which drives ideas and activity, which in turn drives innovation. We call this feedback loop “the price innovation cycle,” and it has been the engine that has propelled the industry through multiple distinct waves since Bitcoin’s inception in 2009.‘
Every cycle sees new true believers, those who survive the recession join, and that means adoption only goes one way.
Take a look at this graph that compares the rate of adoption of cryptocurrencies to the Internet:
If this trajectory continues, there will be a billion cryptocurrency users by 2025!
But none of this raw data is stopping crypto critics…
Like I said at the beginning, like clockwork, every time we have a low phase, they come out and say ‘I told you so’!
Surprisingly, even they play the same role in every cycle. They use the same arguments that the critics used in the recessions of previous cycles.
Backed by nothing.
Like I said, I’ve seen this movie before…
Does that mean there are no big risks?
Of course not!
But just as the dotcom revolution was based on a paradigm shift in what was possible, so is crypto.
Undoubtedly, many ideas will fail. But some will be successful. And they will drive new ways of doing things.
Exponential changes are always hard to imagine in the moment, even when they seem obvious in hindsight:
Many people simply cannot handle the fact that cryptocurrencies can simultaneously be a game-changing technological and monetary innovation, as well as a dangerous new frontier for unsuspecting investors.
The key is to go in with your eyes open, research and manage your risks… just as you would with any investment.
Sure, you can sit on the sidelines like many did after the dot-com crash of 2000, but then you’ll miss out on what I think is the greatest monetary innovation of all time.
Something difficult to accept for many is that the opportunity exists hand in hand with fear and doubt.
In fact, the strangest paradox of investing is probably this…
Hated Investment ideas are often the better friendly because every skeptic is a future buyer at much higher prices.
And right now, there are a lot of skeptics.
A contrarian investor would see this moment as an opportunity…
Editor, money morning
P.S: One opinion on crypto I hear is an investment company with a great track record of investing in emerging technology. Venture capital firm a16Z has just raised $4.5 billion to invest in web 3.0 blockchain technologies. You may read more about its reason for being here.
Ryan is also the editor of new money investor, a monthly advisory aimed at helping investors reap the first-mover advantage as decentralized finance and digital money take over the world. For information on how to subscribe and to see what Ryan is telling his subscribers right now, Click here.