In an interview here 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 zoomed to a record high up near $65,000.
In short, the blue-chip digital currency was already halfway to Dave's target.
But that peak has been followed by twin sell-offs, the first in late May and the next one in late June - both of them wrenching. Crypto prices have crashed: Bitcoin has traded as low as $29,031 - a peak-to-trough decline of 55.2% from the record peak of $64,829 hit back in April.
"The Crowd" is panicking - with the so-called "weak hands" folding. But "strong hands" with a long view could see this as nothing short of an opportunity.
So in the face of such ugliness, I reached back out to Dave for an update and posed several questions:
- What's happening here?
- What's next for cryptocurrencies?
- What should investors do to protect themselves?
- And how should folks identify the best profit plays to cash in on.
The key takeaway from my latest talk with Dave: We've seen this ugliness before - and it presages a rare "second chance" at a tradable asset that's ultimately headed higher.
"It's funny to me that every time Bitcoin drops you start seeing a lot of 'gloom-and-doom' talk," Dave told me. "Some investors new to crypto will panic sell, take a big loss, and then complain that it was all a scam. But if you don't realize that Bitcoin is volatile by now, you haven't been paying attention. Selling during a crash like what we've just had only locks in losses. Yes, Bitcoin crashes - but those crashes, sooner or later, are followed by spectacular rallies. You just have to be patient and try not to get too emotional about the gains you lost. You'll get it back, and more. When Bitcoin recovers, it tends to rocket past previous highs. So what's going on right now - and I know it sounds trite, but it's true - is a tremendous buying opportunity."
Let me share the rest of my talk with Dave...
Decrypting Cryptocurrencies: Round Three
WPIII (Q): Let's start with a pretty basic question: What the dickens is going on here? We've had two hard sell-offs in a month... why? Why have prices plunged? What does it all mean?
DZ (A): That "WTD" (what the dickens) question is a good one, Bill. That's usually the first thing people want to ask in a situation like this.
WPIII (Q): They want clarity...
DZ (A): [Nodding] Absolutely.
The fact is, we've got several factors converging here... combining in a way that tipped crypto prices into a downward spiral - which then accelerated into a full-blown crash.
It all started in mid-May, when Elon Musk tweeted that Tesla Inc. (NASDAQ: TSLA) would no longer accept Bitcoin as payment for vehicles.
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This tool for finding winners in a little-known slice of the crypto market might be the easiest way to cash in on crypto.
That alone would have been enough to send shudders through the Bitcoin market. But then he commented about how concerned he was that Bitcoin mining - in particular, the vast amount of electricity it uses - was accelerating the burning of fossil fuels.
That got people talking about how much energy Bitcoin mining uses and sounded the alarm that Bitcoin is damaging the environment.
So even though Musk specifically said that Tesla had no intention of selling the Bitcoin it holds on its balance sheet, the damage was done. You know as well as I do that investors "interpolate."
WPIII (Q): And they react to the extreme... with knee-jerk emotions.
DZ (A): [Nodding] Exactly.
And a lot of folks viewed Musk's tweet as a sign that he'd soured on the No. 1 cryptocurrency.
That ignited the "knee-jerk" response you're talking about: The price of Bitcoin promptly fell 17%, dragging many cryptocurrencies lower along with it.
WPIII (Q): Yeah, Musk's tweet pushed cryptocurrency markets to the brink. But then China came along and shoved them right over the cliff.
DZ (A): Exactly right, Bill. A week after Musk's tweet, 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 merely a confirmation of existing policies that were put in place 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): No wonder prices were falling.
DZ (A): But that's not all. There are a lot of speculators in crypto who use a ton of leverage. In some cases, they're leveraged as much as 100x. When prices start falling, these folks need to get out of the market - and fast. Their panic-selling adds fuel to any significant market downturn. Many got completely liquidated, anyway. I remember reading a story that said $6.5 billion worth of Bitcoin positions was wiped out in 24 hours.
The Secret to Crypto Windfalls
Starting with $1,000 and cashing out with potentially tens of thousands in the bank in a few short years can be very simple.
The Secret to Crypto Windfalls
Starting with $1,000 and cashing out with potentially tens of thousands in the bank in a few short years can be very simple.
WPIII (Q): Wow. But all that happened a month ago. Bitcoin sunk gain this past week. What was that all about?
DZ (A): There were some jitters over the potential for tighter regulation in the United States for one thing. And a risky DeFi [decentralized finance] project promoted by Mark Cuban crashed from $65 to zero in a day. But the biggest culprit was - you'll be shocked - China.
[Both start laughing]
WPIII (Q): Yeah, baby, didn't see that one coming...
DZ (A): [Chuckles] Beijing is pushing Bitcoin miners there to shut down operations. They've tried to discourage mining in the past, but they're really serious this time. And miners have been shutting down in large numbers.
WPIII: (Q): In fact, Dave, I saw a piece on the CNBC site that's really representative of what you're talking about... the headline was, "China Is Kicking Out Half the World's Bitcoin Miners."
What I thought was really great was the headline "kicker" - it added, "and a whole lot of them could be headed to Texas."
DZ (A): This is exactly what I'm talking about. Scare headlines or not-fully-baked stories that trigger the visceral responses by investors and traders.
A lot of these stories spook investors because it's true that 65% of Bitcoin mining is located in China.
WPIII (Q): Well, that does sound bad. Isn't that something investors should worry about?
DZ (A): Not at all. In fact, most people who've been in crypto for a long time see this move by China as good news. The Chinese mining operations aren't going to disappear. They're just moving out of China to places that are more crypto-friendly. That includes Texas, like you mentioned. It also includes such far-flung places as Kazakhstan, Canada, Northern Europe, and the United States. Bill, one shipment landed right here in Maryland. Some folks are also worried about the reduction in the Bitcoin mining capacity as Chinese miners turn off their machines. But even that's not a big deal. The Bitcoin network automatically adjusts as mining power increases and decreases. And the decrease will be temporary. The mining "hashrate" will start rising again as those Chinese machines land in their new homes and get plugged back in.
WPIII (Q): That takes us to the obvious question, Dave: What happens next?
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 - always - recover. In fact, not only do they recover - they go on to reach new record highs.
We talk all the time about the "investment case" for this company or that stock or some asset class. Bill, the "investment cases" for Bitcoin and several other top cryptocurrencies - including Ethereum (ETH), Cardano (ADA), and Polkadot (DOT) - have not changed.
And that means their prices will rebound in the months ahead.
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 - this is your chance.
It's like a huge sale. And everything is 30% to 50% off - but for a limited time only.
The thing is, you never know when or 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. Crypto rallies tend to be parabolic. If you've been thinking about getting into crypto, this downturn is a prime opportunity.
A Crypto Market Set to Explode
Tom Gentile's showing folks his tool for finding winners in a little-known corner of the crypto market with big profit potential.
A Crypto Market Set to Explode
Tom Gentile's showing folks his tool for finding winners in a little-known corner of the crypto market with big profit potential.
WPIII (Q): But don't go overboard.
DZ (A): Yes, Bill, I'm glad you brought that up.
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 in this case. 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): Not many people realize just how big the cryptocurrency revolution is going to be. It's literally going to reinvent finance. Different coins will play different roles.
Bitcoin has become a "digital gold" and is attracting more attention from institutional investors. I think someday it may even play a role as a reserve currency. Ethereum is the backbone of decentralized finance, a system that's replicating most of the functions of the banking system - but without banks.
A lot of this is possible because cryptocurrencies can run something called "smart contracts."
WPIII (Q): Can you explain for our readers what a smart contract is?
DZ (A): Sure. It's a program that executes on the crypto network when certain criteria are met. Let me give you an example. You could have a smart contract for a sports bet in which the money from both parties is "locked" in the contract until the game ends. The smart contract fetches the final score from a trusted online source and then forwards the pool money to the party that won the bet. But that's just one small example. Smart contracts are capable of much more than just giving us a new way to wager on sports.
Smart contracts are also the tech behind those NFTs - that's short for "non-fungible tokens" - that have drawn million-dollar bids for digital artwork, music, and videos. NFTs are a bit overheated right now, but the tech has enormous potential to change how works of art are bought and sold, among other things.
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 the company a market value in excess of $100 billion. It 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 ... for the reasons we've been talking about in these Q&A sessions we've been doing. 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. Just think: Brand recognition is high. It has a dominant market position. And the ease-of-use advantage the company possesses really should allow it to maintain that dominant spot for a long time to come. There are risks, to be sure. But the strengths and opportunities should pave the way for Coinbase to carry the day - at least for a while.
I know we told your Private Briefing subscribers to "Accumulate" this one, too.
COIN is down around $258 as we speak. But 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 as always, Dave, for your insights.
Coming Up Next
Navigating the cryptocurrency market can feel a bit like throwing darts at a board, especially when volatility comes to "crash the party."
That's why Tom Gentile, America's No. 1 Pattern Trader, developed a method for spotting winners in a little-known slice of the crypto market - through any market condition imaginable.
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This corner of the crypto market is projected to get a $14.2 trillion boost in the next four years - and Tom's just the person who can show folks how to tap into it for the biggest potential gains.
Virtually anyone can do this, starting with as little as $100. We'll show you how right here.
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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.