Our Expert Analyst Is Getting Bullish On Crypto Again. Here’s Why…
A few days ago, we told you it’s time to venture back into the cryptocurrency waters.
Last week, I told you about how Capital Wealth Letter readers had the chance to follow Jimmy’s crypto prediction in 2021 and make a 400% gain. But after several setbacks, Jimmy warned readers to stay on the sidelines.
That’s all about to change, according to Jimmy. That means whether you’re a seasoned investor in this space or a novice who wishes they hadn’t missed the previous big runs in crypto, we’re all about to get a “second chance” …
In the interview below, Jimmy and I discuss the basics of cryptocurrencies, an overview of the bad press in the industry (and why some of it may actually be good news), the latest bullish technical developments, and more. My questions are in bold…
Jimmy, explain to our readers the basics of how cryptocurrencies work…
Cryptocurrency is purely digital. It’s just zeros and ones (known as “bits”) on a computer network… hence the name “bit”-coin.
Being purely digital isn’t as radical a departure from today’s currency as it sounds. In fact, it’s estimated that 92% of the world’s currency is digital. In other words, only about 8% of fiat currency is physical money.
Think about the U.S. dollar… No physical bills exchange hands when you swipe your card to purchase groceries or even write a check. The value exchange (money for goods) happens behind the scenes on a network with your bank communicating with a merchant provider who then communicates with another financial institution. And then everybody hopes to collect at some point.
Think about how convoluted this is and how easily it can be (and is) defrauded. We’ve all probably had a check “bounce” — whether it was one we wrote or one we were cashing.
If we pay with a credit card, there’s no verification that those goods will actually get paid for by the cardholder. Sure, the store still gets its money and doesn’t care, but now the financial institution that issued the credit card must collect the funds.
Cryptocurrency solves a lot of these problems.
Cryptocurrency exists entirely outside of the traditional banking system. It doesn’t rely on banks to manage accounts or verify transactions. As a result, there are no middlemen, such as JPMorgan Chase or Visa.
Thanks, now let’s get to some of the headwinds in this space. Can you provide a brief summary?
All the major players in the space, like Coinbase, Kraken, Gemini, and Binance, have been pestered by regulators. Crypto’s top banking partners — Silvergate and Signature — were shut down or seized by the government.
Then we have politicians like Senator Elizabeth Warren, who are hell-bent on waging a crusade against crypto. (She’s even raising money from donors, telling them she is building an “anti-crypto army.”) And Warren’s recent bill — a comprehensive regulatory framework for cryptocurrencies — was postponed. A few politicians are playing ball, though, and some would argue that regulation (of the right kind) is needed in this space.
Of course, I’d be remiss not to mention the current banking crisis. I won’t walk through all the details of the banking crisis. I talked about it here and here.
Despite all this, you just told your premium readers that you’re dipping your toe back into the cryptocurrency waters. Why?
Surface-level thinking might lead one to believe that cryptocurrency is doomed. But I don’t think that’s the case. Here’s why…
First, the U.S. government doesn’t go after — and try to regulate — something unless there’s value there.
Next, the innovation in crypto isn’t slowing down. In fact, many large, established companies are ramping up. Here are a few examples:
- The peer-to-peer payment platform Venmo, which is owned by PayPal (Nasdaq: PYPL), now allows (as of this month) users to buy and send crypto. So, over 70 million Venmo users can transfer crypto like Bitcoin or Ethereum to other Venmo users, external wallets, exchanges, or any other PayPal account.
- Mastercard (NYSE: MA) is launching what it calls Crypto Credentials. The goal is to set up infrastructure to help customers interact with businesses using blockchains easily and safely.
- Visa (NYSE: V) is looking for developers to join its crypto team to help build out its “ambitious crypto product roadmap.”
These are big players joining the crypto space. And to me, that’s a big win (and a bullish sign) for future crypto adoption.
And finally, let’s go back to the banking crisis. According to a report from Bank of America, since the banking crisis began in March, we’ve seen $538 billion in deposit outflows from banks. Where did all that money go?
Some went into bigger banks like JPMorgan Chase (NYSE: JPM). Some went into money market accounts, or Treasury Bills, which offer higher annualized returns than bank deposits.
But I believe some of it also went into crypto. You see, in the week following the collapse of Silicon Valley Bank and Signature Bank, Bitcoin jumped 40%.
The banking crisis spooked people. And they wanted a safe place (away from government hands) to put their money. Some put money into gold, and others put money into Bitcoin.
If anything, the banking crisis highlights the benefits of a decentralized currency that can’t be manipulated by the government or the Federal Reserve.
You also mentioned that despite the headlines, the rapid innovation in this space continues. So what are some signs of optimism, specifically about Bitcoin, on the technical side of things?
I can think of a few, but there are two big ones: the hash rate and the “halving.”
Bitcoin’s hash rate hit an all-time high back in April, and that’s a bullish sign. The hash rate is a way to measure how much computing power is needed to mine Bitcoin.
Why does this matter? Well, the hash rate measures things like how active Bitcoin miners are and how secure the network is. An increase in hash rate means two things:
- The miners are getting back in the game. After a terrible 2022 that saw many miners go bankrupt or turn their machines off because Bitcoin was crumbling, they are getting back into the game. Bitcoin is up over 50% this year, and miners are turning their machines back on. This shows that miners are confident in Bitcoin in the near term. It also means…
- Bitcoin’s network is getting more secure. Miners all compete to solve hard, complex problems. The first ones to get them correct win and get to mine that specific block on the network. The higher the hash rate, the harder the problems, and the more difficult (and costly) it is for someone to hack the network.
As you can see in the chart below, the hash rate has more than tripled from its 2021 lows:
But it’s not just Bitcoin’s hash rate and big players like PayPal and Visa that has me bullish on cryptocurrency…
Then there’s Bitcoin’s “halving.” Like the Olympics, it happens every four years.
This is when the reward for mining Bitcoin gets cut in half. Many proof-of-work systems (which Bitcoin is) are set up to reduce the rewards given over time. In the early days (2012) of Bitcoin, those who mined a block of bitcoin were rewarded with 25 Bitcoin. Then the halving in 2016 reduced the reward to 12.5. In 2020, the reward dropped to 6.25.
The next halving will see it cut to 3.125 in 2024.
Why should I care? The halving has been a significant price catalyst in the past. Take a look at how Bitcoin has reacted to the last three halvings:
- In 2012, bitcoin jumped 385% leading up to the halving and 8,000% in the year following it.
- In 2016, bitcoin climbed 142% leading up to the halving and 284% in the year following it.
- In 2020, bitcoin rose 17% leading up to the halving and 559% in the year following it.
As you can see, the halving is a huge catalyst for Bitcoin. If history is any indicator, the 2024 halving will push Bitcoin to new highs.
The possibilities of massive returns with Bitcoin are enticing. But we have to remember that this isn’t an asset for the faint of heart. We know — and witnessed — the vicious cycles that Bitcoin goes through. It’s volatile.
But get this… over any four-year rolling period, bitcoin has never been down.
That’s right. Over a rolling four-year period, you wouldn’t have lost money in Bitcoin. The worst period was between December 2017 and December 2021. And Bitcoin managed to return 150%.
Editor’s Note: As we’ve just discussed, there are a lot of reasons to be bullish on cryptocurrencies. And if you want to get in before it takes off on its next wild ride to new highs, you’re in luck…
Jimmy and his research team have just released a new briefing on cryptos, covering everything you need to know… from how to buy crypto, how to store it, and his top three crypto plays right now. Go here to learn more.