Recently I’ve had a ton of guys asking me my opinion on Bitcoin, Cryptocurrencies and blockchain. I want to give you my thoughts based on close to four years a prop trader, my time in financial sales and a decade and a half of studying financial markets.
First off, I want to seperate Blockchain and Cryptocurrencies. Blockchain is an incredible technology, it’s insanely disruptive and will continue to be. I see Blockchain being implemented across many industries like land titles, healthcare, finance, banking and many others. Heavyweights like Mark Cuban and Richard Branson also agree.
With that said, Bitcoin and Cryptocurrencies, although they rely on Blockchain tech, are completely different animals on which I have mixed views.
My Thoughts On Bitcoin And Cryptocurrencies
- Bitcoin is innovative, disruptive and interesting tech
- Bitcoin is massive with a market cap of $162 Billion, equal to General Electric
- Virtual currencies delivered an insane return in 2017 of 1620%
- Crypto has more anonymity than owning traditional currency
- Better protection against hackers at least the cryptocurrency, especially if you hold in an offline wallet
- Useful for buying things online that you want to order anonymously
- Also useful because you don’t have to worry about credit card info being compromised
- For the super smart, with a big rig, mining bitcoin is an option, one you don’t have with currency
- Mining is also an ingenious way of controlling the supply of the currency/rarity
- Bitcoin can be used as a hedge against corrections or collapse of traditional currencies
- Unregulated without gov’t interference (I’ve also listed this as a con below)
- Limited as a means of exchange to certain places online (at least for now)
- Limited data as compared to 200 years of USD data and longer for GBP and gold
- Not backed by gov’t power, might be positive to some, but no one is enforcing it’s use
- Might not exists 30 years from now, USD and GBP almost certainly will
- Unregulated without gov’t protection
- We don’t know who created it although there are many theories
- If you’ve done your homework you know who owns the central banks and how they operate
- More anonymous than a bank, but I don’t believe in total anonymity online
- Not as anti establishment as believed: Bill Gates and other heavyweights support it
- Not immune to hacks, Mt. Gox hack, $450 mil in bitcoin lost and likely stolen
Bitcoin As A Trade
- As an ex pro trader, I def do not recommend active trading (gambling) in any shape or form
- I made a lot of money trading but it didn’t last and I was lucky
- We also had lightning fast execution, supercheap trades, and arbitrage opportunities
- None of those opportunities exist anymore, cowboy traders have been replaced by algo traders
- Actively trading your own account as an amateur is a disaster waiting to happen
- And please, please do not buy some scumbag’s scam Bitcoin trading system
- Even as a longer term trade, it’s still a NO for me on Bitcoin
- You have only a few years of technical chart data to play with
- No idea of the longer term ranges and patterns (as opposed to 100+ years of S&P data)
- You also have no fundamentals to play off of (Earnings reports, inflation, news on stock etc.)
- I definitely don’t recommend trading (gambling) Bitcoin or trading anything
Bitcoin as an investment
- Warren Buffett says “You can’t value bitcoin, because it’s not a value-producing asset.” and I agree
- At least in the traditional value investment model (Buffett/Munger/Ben Graham)
- It also doesn’t have a moat, or protection leaving it ripe for competitors
- As of now there are 2,000 cryptocurrencies including Ethereum and Litecoin
- Just because Bitcoin was first, doesn’t mean it will exist 10 years from
- Broadcast.com made Mark Cuban a billionaire, 17 years later it doesn’t exist
- You can look to the internet tech bubble to see 1000 of other non existent companies
- Whereas as a company like Facebook, which launched well after the boom, became dominant
- With that said, as a speculative buy and hold it’s an option, just not one that I like
- The idea is investing on the idea of bitcoin as a future means of exchange
- With that said, without chart patterns stretching back 100 years, you’re shooting in the dark
- At least with the tech bubble you had 100 years of data to go off off
- And you know that Equities/S&P crash every 8 to 15 years
- With Bitcoin you’ve got 5 years
- And at 10K a coin, buying the top of the market will hurt you
- Without chart patterns going back 100 years, its so hard to see if you’re not buying in at the top
- You could do a small buyin and dollar cost avearge in for the next 30 years but I still don’t like it
- With an index fund this is a move (although not my favorite)
- But that’s because you know the S&P will be here 30 years from now
- Because the index is based on the top 500 companies that produce real, tangible wealth
- Bitcoin could easily be delisted or regulated to death a decade from now
Ideas On The Future Of Bitcoin And Cryptocurrencies
- First off I make no predictions and have know idea what the future of Cryptocurrencies is
- It will however be very interesting to watch
- Crypto may continue to expand and take wealth away from traditional currencies
- Or the powers that be may crackdown, regulate or outlaw on crypto entirely
- If you’re in love with crypto you might not want to believe that
- But remember, governments have all the guns, and force is what matters in the real world
- It all depends on who’s behind the rise of crypto
- Odds are technocrats will be the first to embrace crypto
- Bill Gates has already lent his support
- The power structure went from kings to bankers and as moving towards technocrats
- I can see Microsoft, FB, Google and Apple getting behind crypto and creating their own currencies
- I’m sure technocrats would love to wrest that power from governments and bankers
- I can also see the measure banks adopting blockchain and currencies of their own
- Banks and Gov’ts are exceptionally powerful and I don’t see them going anywhere any time soon
- They will either adapt and adopt or work towards regulating/outlawing crypto
- With that said, those are only my thoughts and are pure speculation
- I learned from four years of 400 trades a day that no one can effectively predict the future
- You can only make informed decisions based on the information you have
- And the information I have on blockchain and crypto is extremely limited
- And conditions are so volatile, new and unpredictable that all I can offer is speculation
At this point I don’t plan on owning any bitcoin except maybe a small amount for online payments. Maybe in the future, if it becomes better accepted as a means of exchange. But that would only be part of a currency basket to hedge against a USD collapse.
I believe Bitcoin is in a bubble right now, but I have no idea where the top is. Bitcoin could be 30K a coin next year or 2K. All I know is everyone and their brother is talking about buying Bitcoin and that usually means bubble.
I’m not making a prediction either way, but I can’t pull the trigger on such limited information. More importantly, you have to look at your financial gameplan first (read this article):
- Get your income up
- Get your savings/emergency cash/runway up
- Get control of your income/building your money machine (your high margin business)
- Get to six figures or the devloping world equivalent (40k in Asia)
- Continue to save 25% of income
- Maxing out your reinvestment in your high margin business
With a service business you can easily get 1000% returns on your reinvested cash. You can also use your savings to buy supplies in bulk on a quarterly/yearly schedule . Another great savings tactic/investment is paying your rent a year in advance.
Once you have all that together you’re out of survival mode and comfortable. Then and only then can you really start looking at investing.
But even then, have you maxed out your investment in your high margin business?
My buddy was making $4,000/month as a car broker, off $500 in Google Adwords marketing. I know coaches getting the same return. And if you have an info products business like me, it’s even better, the $300 or so I spend on developing a book is returned to me easily on the first day of the launch.
You can also do things like hiring an online marketing team, or a cold caller/emailer to free up your time for your most profitable/productive activities.
Your high margin, low/no inventory business is the greatest investment you have. It’s literally a money machine with predictable profits – the opposite of a speculation.
And if you do want to speculate, it has to be with money you don’t care about or need, after you’re well above survival mode and living in financial freedom and comfort.
If you’re net worth is $5,000, dropping $2,000 on a speculation (gamble) is insanity, that’s 40% of your net worth! That’s your rent money.
Even if your gamble turns out to be correct and you make $20,000, it sets a dangerous precedent. Because you’re not going to stop, you’ll play again and next time you’ll take a hit that maybe you won’t be able to punch out of. When you adopt a gambler’s mentality, no amount of money you make is ever safe.
If you’ve got a six figure business and 100k in the bank, and set aside 4 percent of your net worth every year for speculation, and have iron discipline, that’s a different story. Because you know that’s your throwaway money that you don’t care about losing.
And you go in with an exit plan and stop loss, ie. you drop $4,000 on the trade, with an exit of $40,000 or a 1000% return, and a stop loss of $1,000 or a 3k loss. Or maybe it’s just a 4k buy and hold with a 30 year timeline and a stop of 0/delisting of Bitcoin.
You just need to recognize that’s a totally different mentality from most guys hopping into Forex, Etrading or Bitcoin. I’m telling you, trading is brutality and amateurs have no business in it. No one I came up with is still trading and there must have been thousands of guys who came through our doors. Don’t let FOMO get you into trades you can’t afford to be in.
But again the choice is yours, but hopefully you can weigh the information here with an open mind.