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In an interview back in early January, my friend, Money Map Press colleague, and cryptocurrency expert David Zeiler predicted that Bitcoin would triple to $100,000 by the end of 2021. At the time, the crypto bellwether was trading at about $31,400.
By mid-April - just ahead of the stock market debut of cryptocurrency exchange Coinbase Global Inc. (NASDAQ: COIN), an opportunity we also detailed for you - Bitcoin had zoomed to a record high up near $65,000.
In short, the blue-chip cryptocurrency was already better than halfway to Dave's target.
Then came the sell-off.
Prices went into free fall last Wednesday almost all the way across the board; most plunged a gut-wrenching 30% in less than 24 hours. Prices rebounded, though, with Bitcoin going as high as $42,160 by Friday.
Over the weekend, the selling resumed and picked up steam; Bitcoin had fallen as low as $31,200 by Sunday afternoon before rebounding past $37,700 at midday May 24.
So, to say cryptocurrency is on a "roller coaster ride" doesn't quite do it justice. In the face of such ugliness, I reached back out to Dave and posed two questions:
- What's next for cryptocurrencies?
- And what investors should do to protect themselves, or - even better - to identify the best profit plays to cash in on?
The key takeaway: We've seen this ugliness before - and it presages a rare "second chance" at a tradable asset that's ultimately headed higher.
"While some crypto investors - especially the newbies - are panicking ... and even throwing in the proverbial towel... this is a strategy that's only going to lock in losses," Dave told me. "As they say on crypto Twitter, now is the time to have 'diamond hands,' not 'paper hands.' Veteran Bitcoin investors understand that crashes like this one aren't all that unusual in the crypto world. Drops of 30%, 50%, and even 80% have happened multiple times in the brief decade that crypto has existed. But every... single... time, crypto prices not only retraced their earlier highs - they went on to achieve new record peaks. And I believe that's what we'll see here again - making this one heck of a buying opportunity."
Let me share the rest of my talk with Dave...
Decrypting Cryptocurrencies
WPIII (Q): Let's start with a pretty basic question: What the heck happened with cryptocurrencies? Why have prices plunged? What does it all mean?
DZ (A): A good question, Bill. That's usually the first thing people want to know in a situation like this. The fact is several factors combined to cause prices to start falling - and then accelerate into a full-blown crash.
The trouble started about a week ago, when Elon Musk, the Tesla Inc. (NASDAQ: TSLA) CEO and recent "Saturday Night Live" host, tweeted that the electric carmaker would no longer accept Bitcoin as payment for vehicles.
Now, Musk specifically said that Tesla had no intention of selling the Bitcoin it holds on its balance sheet. But you know as well as I do that investors "interpolate." And far too many folks viewed Musk's tweet as a sign that he'd soured on the No. 1 cryptocurrency. The price of Bitcoin promptly fell 17%, dragging many cryptocurrencies lower along with it.
WPIII (Q): Yeah, the fact is that Musk's tweet pushed cryptocurrency markets to the brink. And China shoved them over the edge.
DZ (A): Exactly right, Bill. On Tuesday, several Chinese agencies reiterated years-old policies that banned several cryptocurrency services. Those policies prohibit financial and payment entities from providing any crypto-related transaction services - and ban initial coin offerings (ICOs).
Crypto-focused news sites such as CoinDesk and CoinTelegraph correctly reported the announcement from China as a confirmation of existing policies from actions taken in 2013 and 2017.
WPIII (Q): But once again, we're talking about folks who just don't get it...
DZ (A): [Nodding] Yes... right again, Bill. As usual, the pundits and mainstream news outlets that don't fully understand Bitcoin and other cryptocurrencies reported the announcement as a fresh "crackdown" or "ban" by Beijing.
Here are just a few sample headlines I saw:
"China bans financial, payment institutions from cryptocurrency business" (Reuters) ...
"Bitcoin's obstacles mount amid China cryptocurrency warning" (Bloomberg) ...
And ...
"China cracks down on crypto business, saying 'speculative' trading 'seriously infringing' on financial order" (Forbes) ...
WPIII (Q): It's not a big shock that folks would dump cryptos after seeing those barking headlines ...
DZ (A): Yup, they panicked. That these news items were inaccurate - heck, Bill, they were downright wrong - soon became irrelevant.
Panic set in, and the stampede to the exits was on.
WPIII (Q): [Shaking his head] Man, oh man... And I know from experience how these "events" take on a life all their own.
DZ (A): [Nodding] Yeah, it just "feeds" on itself. Prices are dropping... then, you have heavily leveraged traders getting liquidated as a direct result.
According to CoinTelegraph, $6.5 billion worth of Bitcoin positions was liquidated in just 24 hours. It just steepens... accelerates... exacerbates... the decline.
WPIII (Q): That takes us to the obvious question, Dave...
DZ (A): What now...
WPIII (Q): [Nodding] Yup, what now...
DZ (A): I'm telling my readers... and my followers... we've seen this before. In this... the "Crypto Decade"... drops of 30%, 50, and even 80% have played out more than once.
But cryptocurrency prices always recover. And reach new record highs.
Bill, the "investment cases" for Bitcoin and several other top cryptocurrencies - including Ethereum, Cardano, and Chainlink - have not changed.
And that means their prices will rebound in the months to come.
Truth be told, Bill, it's very likely they will reach new all-time highs before the end of the year.
WPIII (Q): Okay, so what's the "Action to Take" here?
DZ (A): You know what I'm really saying here, Bill?
If you watched Bitcoin and its crypto-brethren soar the last time around - and kicked yourself for not making a move - here's your chance.
It's like a sale... a doggone sale. And everything is 30% to 50% off - but for a limited time only.
The thing is, you never know how fast the rebound will be. It may take months for crypto prices to get back to previous levels. Or it could happen next week. If you really want exposure to crypto, this downturn is a terrific opportunity.
WPIII (Q): But don't go overboard.
DZ (A): That's right, Bill.
Cryptocurrency investing is riskier than stock investing. Only put in what you can comfortably afford to lose. As a rule of thumb, I'd say keep it to about 2% to 3% of your portfolio, especially if you're just getting started.
In fact, the "Accumulate" strategy you advocate really comes to mind here. Create a "foundational" position. And then add to that stake on pullbacks or as you get more cash.
WPIII (Q): Why are you so confident cryptocurrency prices will rebound from here and then surge back to new highs?
DZ (A): A surge of interest from institutional investors is setting the stage for a rally in a slew of small digital coins. You know Tom Gentile "across the hall" is researching those all the time - they've been known to throw off fast, double- and triple-digit profit potential in a matter of days sometimes.
And there are other triggers, too, like the rise of decentralized finance (DeFi) and non-fungible tokens (NFTs) on the Ethereum network and other crypto networks that enable smart contracts. A whole new economy is blooming in the crypto space, and it's only going to get bigger.
WPIII (Q): And Coinbase?
DZ (A): Same thing... look to "Accumulate" COIN on pullbacks.
WPIII (Q): Because?
DZ (A): The Coinbase offering back on April 14 was viewed as a stock-market validation of "cryptocurrency" as an asset class. And the Coinbase buzz led to a wild first day of trading: Although COIN had a "reference price" of $250 a share, the stock shot out of the gate at about $381. It briefly traded above $429 - giving it a market value in excess of $100 billion - and finally ended that energetic first day at $328.28.
This was a long-awaited stock offering - and the interest was huge. Truly huge. I mean, almost 17 million shares changed hands in the first 10 minutes. The Coinbase intrigue is easy to understand. Cryptocurrency investing will be a growth market for years to come... years. Millions of investors - not just in the United States, but all around the world - have yet to buy crypto. As a company that's already operating in more than 100 countries, Coinbase is perfectly positioned to cash in. Brand recognition is high. It has a dominant market position. And the ease-of-use advantage the company has will let it keep that dominance for some time to come. There are risks, to be sure. But the strengths and opportunities should let Coinbase carry the day - at least for a while.
I know we told your Private Briefing subscribers to "Accumulate" this one, too.
It's down around $230 as we speak... given that it was trading at $300 just a few weeks ago, I'd say this is a terrific place to start or add to your stake.
WPIII (Q): Thanks, Dave, for your insights.
Coming Up Next
While Bitcoin and many cryptos were plunging last week, Tom Gentile's Microcurrency Trader readers got the chance to close out three profitable "altcoin" cryptocurrency positions, including a four-month 300% winner and a two-month 150% winner. And that's just in the month of May. This isn't surprising when you drill down - when Bitcoin has jumped, some of these smaller coins have moved 142% in 12 days, 373% in 14 days... one even went 1,900% higher in a little over two months. You can click right here to learn more about Tom's winning crypto trading research service...
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About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.