Here’s Why Crypto Is Correcting… and Why It’s Temporary

Last week, I was at my son’s friend’s birthday party, and one of the dads there brought up crypto.

We were discussing various coins when another parent overheard and broke into the conversation. “I hope you guys don’t own any bitcoin, because that thing is crashing hard!” he said with a grin.

I nodded politely and acknowledged that crypto is going through a rough patch, with prices correcting practically across the board.

Then I asked the other dad if he knew what a bitcoin cost a year ago. He didn’t.

So I told him that bitcoin was trading for around $948 one year ago. And that despite the recent pullback, bitcoin is still up around 9X to 10X over the last 12 months.

The entire crypto market, as tracked by Coinmarketcap, has risen from around $15 billion early last year to around $400 billion today.

I don’t know of any other asset that even comes close to these returns. And the further back you go, the more insane the returns get. When I first bought in the spring of 2013, bitcoin was trading for $84. And it had just run up to that price from around $5 only months before.

My point is that if you paid attention only to mainstream news sources, you might think bitcoin was trading at multiyear lows. It’s “crashing,” “plummeting “… it “won’t survive.”

I believe this pullback is completely natural. Here’s why…

A Natural (Yet Nasty) Correction

I look at the crypto market like this: 15 steps forward, nine steps back.

When an asset increases in value 20X, as bitcoin did last year, it’s only natural for some owners to take profits. Others who bought in at $15,000 or $19,000 are likely panic-selling.

This is simply how markets operate. Weak hands are shaken out during these times.

Yet a significant portion of the investors who bought in over the last year will hold strong. And they will continue to hold for years because historically, that’s the most proven way to make money in crypto. This is the sturdy base of crypto owners, and it continues to grow steadily.

Let’s look beyond price action for a moment and recognize that huge developments are taking place in the crypto world.

First, governments appear to be closer to regulating crypto markets. If done correctly, this will be a very positive development.

The fact that South Korea, for example, is banning anonymous cryptocurrency trading, is arguably a good thing.

We need trust to make these new markets work long term. And that will never happen if naysayers can point to crypto as a haven for hackers and criminals.

So, just as banks are required to verify accounts under “know your customer” laws, cryptocurrency exchanges around the globe are now moving in that direction as well.

We also got news this week that Robinhood, the commission-free stock trading service with millions of users, is moving into the crypto markets. Soon, users will be able to buy and sell crypto with zero commission.

Still, there’s clearly some other factor holding cryptocurrency markets back. And it’s not what you might expect…

Exchanges Are Growing Too Fast

A primary factor in the crypto pullback that most people haven’t recognized is this: Most exchanges are growing far too fast.

So many people are entering the market that many exchanges have had to shut down new user registrations. Most others can’t keep up with customer support.

Bittrex, Bitfinex, CEX. IO and Binance (four of the largest crypto exchanges in the world) have been forced to deny new customer accounts due to explosive growth.

Binance, for example, added 240,000 new accounts in a single hour on January 10. It has since stopped accepting new accounts and only recently began allowing a small number of new users per day.

Coinbase, the largest U.S.-based exchange, continues to experience major growing pains. Its customer support is flooded, and it can’t verify new accounts fast enough.

Exchanges simply can’t keep up with the massive influx of new crypto investors.

Naturally, this has put a damper on markets. When the flow of new buyers is bottlenecked by exchange capacity, it’s of course going to cause a temporary pullback in prices.

Behind the scenes, however, crypto exchanges are furiously upgrading their systems and hiring to meet demand. Due to security requirements and the fact that exchanges are now required to verify all customers, this takes time.

The point is that exponential user growth is a great problem to have. Exchanges are working diligently to accommodate new users, and I suspect that soon, most of them will reopen new account registrations and clear their customer service backlogs.

When this happens, I expect to see a sharp rebound in crypto markets. And then we can begin the next leg up. If we get more clarity on government regulation, even better. There’s also the X-factor of institutional buyers, who I still believe will start moving into the crypto market in the next few months.

By the end of the year, I’m fairly certain we’ll look back at this dip and say, “Damn, that was a great buying opportunity.” But in the midst of a nasty correction, the opportunity is hard to recognize.

It seems like the end of the world for crypto, but I assure you… it’s not.

We’re still at the very beginning.

Have a great weekend, everyone.

Adam Sharp
Co-Founder, Early Investing

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Source: Early Investing 

2 Reasons You Need to Dump Apple Now

Apple (Nasdaq: AAPL) just set a record for the most profitable quarter in the company’s history. Not surprising since Apple executives said in November that they were expecting its “biggest quarter ever” and a return to double-digit revenue growth for the first time in years.

But not all is well with the world’s largest company by market capitalization. One needs look no further than the stock’s relative performance to the S&P 500 index over the last three month period. Apple has been a definite laggard.

I expect that relative underperformance to continue. Here are two reasons why:

Reason #1 – Overpriced iPhoneX?

Apple may have made a classic mistake and priced the new iPhoneX too high, thinking its fans would pay any price for its phones.

This phone is the first from Apple with an organic light-emitting diode (OLED) display. It also features facial recognition and wireless charging. But many complain it lacks groundbreaking new technologies when compared to some of Apple’s previous models. In other words, the same old complaint under the leadership of Tim Cook – a lack of innovation.

The iPhoneX price starts at $999 here in the U.S. And in the very important China market, the cost starts at a whopping $1,334! This is crucial since, in December, the flagship Mate 10 Pro from China’s Huawei was launched at a starting price of just over half the cost of the iPhoneX. In the latest survey of Chinese consumers, Apple still lags Huawei in what brand their next smartphone purchase will be. As recently as 2015, Apple was named by twice as many consumers as Huawei was.

What really caught my eye though was the article last week in the Nikkei Asian Review that revealed Apple had told its Asian suppliers it was slashing its production target for the iPhoneX by half for the first three months of 2018. Production was slashed because sales had failed to meet Apple’s lofty expectations. If sales are faltering, that means the whole Wall Street tale about the iPhoneX supercycle was a myth.

And let’s not forget that there continues to be intensifying competition in the premium smartphone market. Alphabet (Nasdaq: GOOG) officially closed its $1.1 billion deal with HTC Corp., adding more than 2,000 smartphone specialists in Taiwan. This is expected to help Google chase Apple in the increasingly cut-throat premium handset market.

Reason #2 – Smart Speaker Delay

In relation to the entire innovation question, I do wonder what Apple’s next act will be after the iPhone? The iPhone is still responsible for about 70% of the company’s revenues.

One bright hope was the smart speaker market. After all, Apple’s Siri was the leader in the virtual assistant space. But it has now taken a back seat to smart speaker products from both Google (Home) and, of course, (Nasdaq: AMZN)and Alexa. Amazon’s Echo speaker was launched in 2014 while we still wait for Apple’s entry.

Apple’s HomePod smart speaker will finally be launched on February 9, after missing the Christmas selling season. But unlike the debut of the iPhoneX, Apple Watch Series3 or AirPods, pre-orders for the HomePod have not sold out ahead of the launch date.

That is likely due to the relatively high price tag (again). The HomePod will sell for $349 while you can get a speaker from Amazon for $50 to $150. This market will be extremely important long-term as the hub in many people’s homes. Canalys Research forecast that sales for smart speakers will soar by 70% in 2018 to 56.3 million. In other words, it is the biggest consumer electronics products since the smartphone.

Performance will matter when it comes to the virtual assistants in our homes.

Tests comparing Alexa to Siri to Google Home’s assistant have shown Google the winner in general knowledge with Siri performing the worst. And when it comes to shopping, Alexa was tops with the HomePod again bringing up the rear. The only areas where the HomePod came out on top was in regard to privacy and music.

Apple’s Future

Another growing negative for Apple is that sentiment toward the company has shifted, albeit slightly so far. The whole incident regarding the company intentionally slowing down its older devices was handled very poorly. So poorly in fact that now Apple faces a wave of class-action lawsuits as well as regulatory inquiries from both the Department of Justice and the Securities and Exchange Commission.

Money-wise, the investigations will be nothing Apple can’t handle. But the danger is there of a major sentiment shift against Apple from both the public at large and the investment community.

If sentiment further shifts, you may see Apple’s stock continuing to underperform the general market.

For me, that turns the race between the stocks of Apple and Amazon into a very real one. Already, Amazon is within $190 billion and closing very rapidly. . .the gap at the end of 2017 was $326 billion. And I expect to close further in 2018, unless Apple begins to innovate again, justifying the premium pricing on its products.

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Source: Investors Alley