Chris’ note: Our cofounder Bill Bonner is in hot water with our readers over his comments about crypto volatility. Bitcoin has fallen as much as 55% from its peak… and has since bounced 17%.
Over at his free Diary e-letter, Bill wrote that “the more a currency goes up or down in price, the less valuable it becomes.” And some bitcoin fans weren’t all too happy. As one reader fired back in the mailbag, “Bill Bonner is dead wrong on crypto.”
So today, I’m sharing part of a conversation I had with Bill and our crypto expert, Teeka Tiwari, in October 2017. Back then, bitcoin was trading at about $5,500. And Bill saw bitcoin as highly speculative… and in a bubble.
But he and Teeka saw eye to eye on a lot more than you might expect. (As always, you can have your say by writing us at [email protected].)
Chris Lowe: Bill, you’ve been writing about bitcoin quite a lot recently. And your coauthor at The Bonner-Denning Letter, Dan Denning, has recommended readers speculate on bitcoin with just 1% of their portfolios. What’s your take?
Bill Bonner: I’ve been watching, studying, and thinking about money for a long time. I’m coming at this from the angle of money. And money is a very interesting and nuanced phenomenon.
Gold has proven useful as money. We have traditionally used it as money because it works as money. Gold is durable, fungible, divisible, and portable. And it is restricted in supply. Those properties make it a very good money.
For instance, you can grow a crop of tomatoes. The tomatoes will be gone in two weeks. But you can sell those tomatoes while they are still fresh… receive payment for them in gold… and enjoy the fruits of those tomatoes 50… 100… or even 1,000 years later. That’s the beauty of gold.
I see that – theoretically, at least – bitcoin is the same. It’s also divisible, fungible, durable, portable, and limited in supply – all the properties of gold.
But it also has one more thing that gold doesn’t – you don’t have to put it in storage and hire a guard to watch it because it’s secured on the blockchain.
Another key feature of gold and bitcoin is they are tethered to the real world – the world of time. It takes energy – in the form of computer processing power – to “mine” new bitcoin. The more you mine, the more time and energy it takes to mine the next one.
You could fill a library with what I don’t grasp about the technology behind bitcoin. But in a purely theoretical sense, from what I understand, bitcoin could be an even better form of money than gold.
The financial industry has become parasitical since the dollar came off the gold standard in 1971. It uses fake money to con billions of dollars out of the Main Street economy… and shifts it to Wall Street and the Deep State.
Cryptocurrencies, on the other hand, are not state-run or state-controlled. That’s got to be a good thing.
Will they stand the test of time, as gold has? That I don’t know…
Teeka Tiwari: Bill is right. Bitcoin is challenging the way we think of money. As Bill has been writing, we live in a time where the idea of money is changing more dramatically than at, perhaps, any other time in history.
Up to now, we’ve had an unwavering faith in the U.S. dollar. But that’s changing because of the huge experiment going on among central banks.
They’re creating an enormous amount of new money to try to “stimulate” the economy. That goes above and beyond anything anybody has ever imagined. People are looking for an ultimate store of value – something central banks can’t manipulate.
That’s why we’re starting to see large pools of capital move into cryptocurrencies. If we had a currency whose value we could depend on… or if we had central bankers that were rational… cryptocurrencies wouldn’t have survived for 10 minutes.
Their growing popularity is a direct response to policies that are designed to trash the value of fiat currencies. That’s why now is the time to get involved in cryptos.
Chris: Bill, you wrote in the Diary over the summer about investing some of your family money in cryptocurrencies. What’s been the upshot so far?
Bill: Well, we have a family investment account, and I let my children – now all in their 20s and 30s – do some of the investing. I figure I’m not going to be around forever… and they’ve got to learn how to invest.
But when they came to me with the idea of investing in bitcoin, I was shocked by how much they wanted to put into it.
Cryptocurrencies are not an investment, in a classic sense. You can’t study the books, like you would with a normal business. There are no earnings… or profits… and that kind of thing.
So I warned the children that I thought this was more like gambling. I told them that if they were going to do a little gambling, that was fine, but that they had to understand that they could lose all the money.
Anyway, they did make the gamble. And so far, it has paid off. The family crypto portfolio has roughly doubled. One of my sons told me today that he was doubling down on his investment in bitcoin.
I don’t know if it turned out to be the formative experience I’d hoped for.
Teeka: There are some eye-watering gains to be made in the crypto space. In the recommended portfolio at Palm Beach Confidential, we’ve booked gains of 207%… 1,004%… and even 14,354%.
[Teeka’s Palm Beach Confidential model portfolio is currently showing gains on open trades of 9,232%… 24,991%… even 29,136%. That last one is enough to turn every $1,000 grubstake into $292,360.]
So it’s natural to make the comparison with gambling. But the difference between buying a lottery ticket… or playing roulette… and buying a cryptocurrency is cryptocurrencies have real-world value as decentralized, global payment networks and stores of value.
I think a better description of the opportunity right now in crypto is asymmetric investing. That’s where you can take a trivial sum of money and turn it into life-changing wealth.
It’s the old question of whether it’s better to risk 100% of your money for the prospect of a 10% gain… or risk 10% of your money for a 100% gain. Crypto is definitely in the latter category.
You invest a modest sum. Then you let it run. I’ve been using this strategy for two years now at Palm Beach Confidential. And I’ve been helping subscribers take cryptocurrency accounts of $500… $1,000… $2,000 and turn them into $5,000… $100,000… $200,000… even $600,000.
That’s the beauty of being early in a space like this and using asymmetric risk investing techniques.
Chris: The gains in crypto are head-turning. Bill, you’ve warned that the cryptocurrency market is in a bubble. Is that still your view?
Bill: I can barely turn on my car radio and get the right station. But this reminds me of the late 1990s. People were putting money into dot-com stocks they didn’t understand. Companies were coming out of the woodwork with bizarre-sounding names… big promises… business plans… and nothing else.
If you look at a chart of bitcoin, it certainly has the look of a bubble. If you don’t know what you’re doing, you should stay out. If you can’t afford to lose the money you put into bitcoin, then you shouldn’t be in it.
Although I believe in it in a theoretical sense, I certainly wouldn’t bet the farm on it.
Chris: Teeka, what’s your take on whether bitcoin is in a bubble and how to deal with that?
Teeka: Bill is right. Whenever we had a new technology – whether it was railroads, the telegraph, the automobile, radio, TV, or the internet – we got over-exuberant.
But as a newsletter writer… and former money manager… my job is to make people money. I’ve been in this game over the 1980s, the 1990s, the 2000s… and what I’ve learned is that you can make enormous amounts of money in a bubble.
So I always tell my readers, “Okay, we’re going to go to the party, dance, and have fun. But whatever you do, don’t drink the Kool-Aid.”
Chris here again – Teeka first recommended bitcoin to paid-up subscribers of our Palm Beach Daily and Palm Beach Confidential advisories in April 2016.
Back then, you could buy one bitcoin for $428. Today, one bitcoin will set you back about $33,000. So that’s a 7,610% gain for Teeka’s subscribers who acted on his recommendation.
When Teeka first recommended it, the bitcoin network had a market value (sum value of all bitcoins in circulation) of about $7 billion. And in February of this year, it crossed the $1 trillion mark for the first time.
That’s a mind-blowing leap in value. Now, Teeka believes he’s found a new “trillion-dollar trade.” And he says it’s a chance to capture 100 years of stock market gains over the next 18 months.
That’s a big promise, I know. But I’ve seen Teeka make big promises before… and make good on them. To find out more about what Teeka’s next trillion-dollar trade is about, read on here.
July 1, 2021