Bitcoin has quickly risen to challenge the oldest monopoly on Earth — money.
Policymakers and central banks are free to print it, tighten its supply, tinker with interest rates and set capital reserve requirements — all of which make currencies dance.
Governments have enjoyed such power since the first civilizations in Mesopotamia emerged over 5,000 years ago.
But as Bitcoin threatens this perverse monopoly, we’re getting another round of (very predictable) blowback.
After outlawing initial coin offerings (ICOs) early last week, Beijing now wants to unplug certain cryptocurrency exchanges, which pundits predict would crush the cryptocurrency revolution.
Heck, Forbes went as far as saying…
“[China] is just the beginning rather than the end of recent efforts by big governments around the world to turn Bitcoin back into what once was — an exotic currency for the tech savvy and romantic radicals.”
Are world governments truly planning regulatory attacks against cryptocurrencies?
Of course they are!
But this “Crypto Genie” isn’t going back into his bottle.
Below are five reasons why the cryptocurrency revolution has only just begun.
Reason #1: There’s Too Much Money to Be Made
As the world’s first “cryptocurrency” trading between nerds, Bitcoin began life as an experiment.
Nearly a decade later, more than 800 digital currencies trade around the world.
And the crypto market is now worth more than $150 billion.
To be sure, that’s only a fraction of the $76 trillion global stock market capitalization.
But no other asset class has seen faster, bigger gains than cryptos — especially in the last year.
Bitcoin has gained 584% in the last 12 months — besting the S-amp;P 500 45 times over (13%). And Ethereum, Bitcoin’s rapidly growing crypto rival, has gained a whopping 2,377% in the last year.
That’s more than 180 times the gain of the large-cap index over the same period.
Heck, Goldman Sachs analyst Sheba Jafari predicts that Bitcoin alone will rise another $700 before cooling off — a 15% gain from current levels.
You can bet that every institutional investor on Earth is champing at the bit to get a piece of the crypto action.
And with their backing, Bitcoin and other cryptocurrencies will continue to reach new heights.
Reason #2: Its Appeal Is Too Great
As I mentioned before, cryptocurrencies have far outgrown their humble roots.
What basically began as geeky trading cards have morphed into one of the most disruptive forces on Earth.
Everybody wants them.
Investors hungry for healthy returns on their capital — and weary of upside in pricey stocks — are piling into cryptos.
With 1,000% gains possible every day in some names, who could blame them?
Privacy buffs love the ability to make anonymous transactions on the web using cryptocurrency. They also love being able to store their wealth online. This way, their money is “close,” but far enough away from the greedy hands of the federal government. And that’s not just the case here in the U.S.… but worldwide, as well.
Libertarians love the decentralized nature of cryptocurrencies. There’s no central bank that’s printing money as they see fit devaluing the currency.
And sadly, people in countries ravaged by hyperinflation like Venezuela — where the IMF predicts the price of goods will rise by 720% by the end of the year — rely on Bitcoin mining to put food on their tables.
As you may know, the tyrannical Venezuelan government is cracking down on bitcoin. But these miners are putting their own lives on the line because the rewards are too great to ignore.
Bottom line: Cryptocurrencies filled a massive void in the global economy, and the benefits are too great for people to ignore.
Reason #3: The Only Tax Haven Left?
Since the Foreign Account Tax Compliance Act of 2010, governments have shut down many boltholes where taxpayers hid their money, such as Switzerland.
If governments could be trusted, this wouldn’t matter. But they can’t…
Britain’s 98% tax rates and the United States’ 91% tax rate in the 1940s are evidence of this.
And the extra power that Big Data provides has made them even greedier for control over our lives, while their demand for more money is never-ending.
Cryptocurrencies, the best of which are truly anonymous, are a solution to this.
Money can be kept discreetly, in a secure store of value, on which transactions cannot be traced.
Authoritarian governments like China may try to shut them down, but they won’t succeed. They are truly too big to stop at this point. It’s a great blow for human freedom.
Reason #4: Built to Dodge Regulation
Since 2010, overregulation has nearly killed the initial public offering.
IPOs in the U.S. were only 13% of the world total in the first half of 2017 — compared with 31% in 2013.
Overregulation has also killed new U.S. bank formation…
Few national banks have opened since 2009 — compared with 100 annually before 2007.
ICOs, on the other hand, are largely unregulated. They take place worldwide. And they’re a highly efficient way to finance new economic activity.
Since entrepreneurs don’t like the costs and delays of regulation, cryptos offer them a new way to thrive.
The benefits cryptos offer make them bulletproof. Don’t expect them to go anywhere but up.
Reason #5: Don’t Fight the Feedback Loop
Bitcoin has taken on a life of its own. Or as I said a few weeks ago, it simply refuses to die!
The reason is simple: Cryptocurrencies benefit from a virtuous feedback loop.
Mainstream interest heats up as prices climb, which brings in new buyers, which drives up prices even more.
If you have any doubt this force is at work, think how quickly Bitcoin went from $2,000 to $4,000.
At the same time, savvy institutional investors are treating cryptocurrencies as a new asset class, thereby establishing their legitimacy — and again attracting more buyers.
Last but not least, the increased interest is driving new initiatives to increase the utility of Bitcoin and other cryptocurrencies.
In the last two months, four cryptocurrency projects raised a staggering $660 million. That’s just a recent tally.
Once complete, the new features these cryptocurrency projects unlock are destined to draw in even more buyers.
This virtuous cycle isn’t going to stop, either.
As Adam White, head of cryptocurrency exchange GDAX, says, “We’re going to see greater utility of the network. Now people can use Bitcoin as a way to transit value more easily, more quickly, more cheaply. And that tends to attract new users to the network.”
That’s not to say the path for prices will be straight up from here.
Volatility will reign, just as it does in any new emerging asset class. But the long-term trajectory is solidly up and to the right. Bitcoin has staying power.
Or as venture capitalist Fred Wilson put it: “Bubbles always attract people who are chasing the easy money. And those people come and go. But crypto is about a lot more than making money. And the people who are into crypto because of the mission, a global decentralized platform for innovation, are going to be around after this bubble bursts, and the next one bursts and the next one bursts.”
What’s the best to play the boom? Well, if you’re looking for the most explosive gains, just like in the stock market, you need to think small.
I’m talking about investing in the microcap equivalent of cryptocurrencies. There’s virtually a fresh, under-the-radar opportunity for quadruple-digit gains (that’s not a typo) minted every week. The next one is scheduled to hit today. Don’t miss out!
Ahead of the tape,
Chief Investment Strategist, Wall Street Daily