Today I have two key thoughts for you. The first is on the price of Bitcoin. The second is on Bitcoin versus other cryptocurrencies. If you are interested in my public course, there are seats left in the last section (see my note at the end).
As I write this, Bitcoin has dropped below $20,000 and I’ve been reading a number of Twitter feeds saying it’s time to get out now before the market drops even more. I’ve also seen a number saying it is time to load up on Crypto now. I wish I could promise you which way it was going, but really no one knows. I will share my thoughts with you and tell you what I’m doing – to help you think these things through. As always I recommend you DYOR (Do Your Own Research) and take actions that are appropriate for you.
With the disclaimer out of the way, I think there is significant risk that Bitcoin price could drop significantly even from here. I think $12-13k or lower is highly unlikely, but possible. I think $15-17k for a bottom is very possible. I think it is also possible that we never get lower than $19.5k again. I think actions by the US Federal reserve, a possible recession in the US / Europe /China, a housing market bubble burst, and even the Mt. Gox selling of 137,000 bitcoin may drop the price in the short term. Also, I expect the volatility to continue, so even if it goes low, then bounces back up over 25k, that doesn’t mean it can’t go back to the lows (even lower lows). I expressed this as short term, so I should be clear that I view short term as the next weeks to months, possibly well into 2023 before I think the longer term factors will push the price significantly higher.
Longer term, I think there are a number of very positive signs. First, regulatory clarity seems to be coming (slowly). Next, mainstream financial institution adoption is increasing with Fidelity now supporting Bitcoin in the 401ks they offer and Blackrock (one of the largest asset managers in the world) now helping institutional investors with crypto. Countries around the world are expanding crypto efforts, with Central African Republic adopting Bitcoin as legal tender (joining El Salvador) and also creating the Sango a Central Bank Digital Currencies (CBDC). Currently there are 11 CBDCs that have launched with many more in pilots and research / development. I’m not a fan of CBDCs in general (I’ll discuss that more in a future email), but it does reflect the rising awareness and acceptance of cryptocurrency. The long term case for bitcoin price going up is driven by the strict limit of only 21 million Bitcoins with increasing demand to own them. In just the US there are over 21 million millionaires. If each one wanted a full bitcoin there aren’t enough. If you include companies wanting to put some bitcoin on their balance sheet (TSLA has over 10,000 and MSTR over 105,000), the demand goes up even more. And that’s only the United States. The US population is less than 5% of worldwide population. Finally the next reward halving will occur in 2024 and historically that reduction in new Bitcoin mined pushes the price up.
So what should you do? There are folks who think they are smarter than the market (maybe some are) and will place their bets trying to time trades to maximize profits. For me, I believe in the long term Bitcoin will be successful, but I don’t think I’m lucky enough / good enough to time the short term swings. I think the most important action to take now is to learn more about Bitcoin – what it is, how you can use it, what it will do in the future. In addition to continuing to learn more, I’m also teaching others as well. For investing, I continue Dollar Cost Averaging (DCA) my buys via Strike. I get part of my paycheck paid in Bitcoin this way. If you want to do this, you can use my referral code (J7FBQK), and we both get a small bonus. I’ve also rolled over a portion of my qualified retirement savings (IRA) into Bitcoin. It has gotten much easier to do that then when I started, but it is still not yet an easy process. If you would like help with learning about Bitcoin, using it or investing, please reach out to me.
The second key thought for you this week is Bitcoin versus other cryptocurrencies. For the past couple years I felt that there was a strong case / opportunity for the alternative coins and tokens. I knew there was no way all the 20,000 plus would be successful, but thought there might be a moderately large number of winners. Over the last year, I have come to the belief that really there is bitcoin and everything else. For everything else, I think there may be a small number of alternative currencies that succeed but they will be the very rare case. I used to think that the distributed ledger technology would be really key and find a multitude of use cases, providing support for many alternatives, but I no longer think that is true. I think there may be some cases where it is helpful, but fewer than I thought before.
Distributed ledger technologies (block chain) are required for systems to be truly decentralized, distributed and not managed / owned by a single entity or small group. But if the focus is on performance, running many transactions per second and it doesn’t need to be decentralized, it is much more efficient to running a single ledger (database) with the centralized trusted entity. Most (almost all?) crypto currencies today are managed by a single company or small group of developers / investors. So if the system is going to be centralized, why endure the inefficiency and extra cost / overhead of distributed ledgers – just admit you are in charge and run the system efficiently. Some cryptocurrencies claimed they were needed because of limitations in Bitcoin (transaction time, cost, smart contract support), but those are being addressed in “Layer 2” solutions (such as Lightning) running on top of Bitcoin without needing an entirely new crypto. Most of the projects created using crypto really don’t need their own token. The biggest advantage for them to create a crypto currency is that they get to ‘print money’.
Many projects follow this model:
- We are going to do this really cool thing.
- So we create a new token to use in our environment while doing the cool thing.
- Because our project is so cool everyone will want our token and the value of it will skyrocket.
- People purchase the token thinking the project is a really cool thing and token value will surely go up.
- Development / Marketing Team and early investors sell tokens and take profits.
- Project never really takes off
- Later purchasers of tokens lose much of their money.
Not all projects go like this, but a surprisingly high number do. In most cases, if the project team did not issue a token, but just used Bitcoin, or even fiat money, their really cool thing would look the same, and for most participants it would actually be better because the ‘in project’ money would not be controlled by the project, but would have real value outside. NFTs and the Metaverse have different but similar issues. I will spend more time in another email with my thoughts on them.
As a result, there are now very, very few projects other than Bitcoin that I am doing anything with at all. For folks getting started with learning about and investing in crypto today, I think it’s safer and better to start with Bitcoin and not go past that until they’ve done sufficient research to feel comfortable with investing elsewhere. This is noticeably different than my thoughts last year or even several months ago. Then I thought investors might be better served by diversifying their portfolio over a number of top market cap coins. I now think the risk of non-Bitcoin crypto is much higher relative to the potential return and Bitcoin is the place to be. If you are interested in what I think those very few projects are, ask me and I’m happy to discuss them in more detail later.
As I said above, it’s time to learn about Bitcoin and crypto. My final Lehigh Carbon Community College course for the year has not sold out yet, and I’d like to fill it up now. The class is done by zoom, so even if you are not in the Lehigh Valley area of Pennsylvania you can participate. It will be two Tuesdays, September 20 and 27 from 6:30pm to 8:30pm EDT each evening. For more information or to register for any of those, call 610-799-1197 (press 3 for non-credit courses) and someone will be help you get registered. Any questions or concerns do email me or call me and I’ll get you sorted out.
I love helping people with crypto. I have a dedicated email just for answering crypto questions. Email me at Questions@YourPersonalCryptoAssistant.com any question you have, I’ll answer it. If you need more help, I teach classes and consult and can help you that way. Personal instruction and assistance is my specialty –if you or anyone you know is looking for more than an email response to a question I can also provide one on one consulting and have a number of classes / consulting packages. This email is strictly for your education and entertainment, I don’t offer financial, legal or tax advice. You need to evaluate your own situation and risk tolerance and DYOR (Do Your Own Research). Do not put any money into crypto that you are not willing to lose.