Clarity on Crypto’s Biggest Threat: Government

I have long believed that the biggest threat facing cryptocurrency is government.

Most countries don’t appreciate competition from private markets when it comes to currency. Nearly all governments have operated with a central bank-controlled monopoly on money for a century or longer.

And after China shut down its domestic crypto exchanges and banned initial coin offerings (ICOs) last year, the fear was that other countries around the world would follow suit.

This regulatory risk factor has been stalking cryptocurrency markets ever since. It’s the No. 1 concern I hear about from our subscribers and other crypto enthusiasts.

Fortunately, we now have more clarity on this issue. In many countries where crypto trading is popular, discussion has shifted away from rumors of bans to talk about smart regulation.

In a U.S. Senate hearing this month, Commodity Futures Trading Commission Chairman J. Christopher Giancarlo was surprisingly upbeat about the future of U.S. crypto markets. Here’s a quote from the hearing…

“Do no harm” was unquestionably the right approach to development of the internet. Similarly, I believe that “do no harm” is the right overarching approach for distributed ledger technology… With the proper balance of sound policy, regulatory oversight and private sector innovation, new technologies will allow American markets to evolve in responsible ways and continue to grow our economy and increase prosperity.

You can read Giancarlo’s full written testimony here.

However, Giancarlo and Securities and Exchange Commission Chairman Jay Clayton struck a more cautionary tone about fraud in the market. They’ve already acted to stop a few cryptocurrency operations that were allegedly operating like Ponzi schemes.

Here’s an excerpt from a joint statement by Clayton and Giancarlo…

The CFTC and SEC, along with other federal and state regulators and criminal authorities, will continue to work together to bring transparency and integrity to these markets and, importantly, to deter and prosecute fraud and abuse. These markets are new, evolving and international. As such they require us to be nimble and forward-looking; coordinated with our state, federal and international colleagues; and engaged with important stakeholders, including Congress.

Similar developments are happening around the world. South Korea, a major crypto hub, has backed off a rumored ban on crypto trading. Government policy coordinator Hong Nam-ki said the following, as reported by Reuters

The government’s basic rule is to prevent any illegal acts or uncertainties regarding cryptocurrency trade, while eagerly nurturing blockchain technology.

This is exactly what I’ve been hoping for. We need regulators to step up and prevent bad actors from tarnishing the industry.

Regulation has the potential to legitimize the nascent cryptocurrency markets. Done correctly, it would clear the path for institutional buyers to step in and rocket the market higher.

Of course, there’s still the risk that governments could reverse their opinions. But based on what we’ve seen so far, I would argue that this is the most positive development we’ve had in years.

I cannot overstate the importance of the clarity we’ve gotten on the government/regulatory risk situation.

This prospect of widespread bans has been a looming threat hanging over the crypto world. For now, that threat has passed.

Crypto Markets Rebound Strongly

With the biggest near-term threat to crypto largely overcome, markets have reacted to this bullish news appropriately.

During the low of the sell-off on February 6, bitcoin briefly dipped below $6,000. We last saw prices that low just before Thanksgiving 2017.

That same day, I sent out a note to First Stage Investor subscribers titled “Crypto Markets: Nearing a Bottom?”

In the alert, I noted the following…

We are reaching a retracement point where, historically, a bottom forms… So if you believe in the long-term fundamentals of cryptocurrency (as I do) and have been waiting for a chance to buy the dip, now seems a fine time to do so across our recommendations.

So far, it looks like we may have called it (near) the bottom. Bitcoin is trading back above $10,000 as I write this, with most altcoins following bitcoin’s lead.

I continue to believe we’ll see new all-time highs in crypto this year.

Here’s how I think about it: 99% of the world is still on the sidelines. And other than a handful of early institutional adopters, 99.99% of the professional investing world remains on the sidelines as well (venture capital funds, hedge funds, wealth managers, family offices, etc.).

There’s no question in my mind that the potential rewards still far outweigh the risks.

The difficult part remains holding through nasty corrections and buying the dips when it seems as if the crypto world is ending. If you can discipline yourself to do that, you’re well on your way to making money in crypto.

Good investing,


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Source: Early Investing 

Buy 3 These Three High-Yield Funds to Shelter Your Money from Volatility

In my last two articles, I’ve focused on tech sector investments. (Specifically, an industry-leading companywhose critical products are driving several huge tech trends, plus a diversified way to play one of today’s fastest-growing industries).

Over that time, of course, the stock market has also decided that it’s finally time for a good, old-fashioned bout of volatility.

So today – and in the spirit of not panicking – I want to step away from growth-based tech and follow up on Tim Plaehn’s article on Monday by giving you a couple of ways to combat adversity. Investments that will keep passive income rolling in, even when the market takes a dip.

Let’s get to it…

“Complete Morons”

When the S&P 500 closed last Thursday, it officially entered “correction” territory, having dropped by over 10% from its January 26 peak.

In the process, five of the S&P’s 11 sectors also dropped by over 10%, as the index lost $2.5 trillion of its value.

The culprit?

“Complete morons,” according to CNBC’s Jim Cramer.

You’ve heard of the CBOE Volatility Index (VIX) – which measures the level of fear or complacency in the market, based on short-term S&P 500 options activity.

But you may not have heard of the VelocityShares Daily Inverse VIX Short-Term ETN (Nasdaq: XIV). It aims to return the opposite of the VIX – and is one of the investments that Cramer says is responsible for the precipitous drop, due to uninformed speculators betting against volatility through investments they knew little about… and losing big.

The fallout was so great that XIV plummeted from a high of $141.39 on January 26 to $5.30 today. As a result, Credit Suisse, which sponsors the fund, announced its liquidation and XIV will cease trading next Tuesday.

When volatility hits, don’t get left holding the bag on these risky investments. There’s a much better way…

Case Closed

A few months ago, I touted the benefits of closed-end funds (CEFs) as hybrid between ETFs and mutual funds. To recap briefly:

  • Like ETFs and mutual funds, CEFs invest in a portfolio of underlying stocks. These stocks give a CEF its Net Asset Value (NAV).
  • CEFs are actively managed and trade like stocks. There are a limited number of shares available, which are priced intraday – either at a premium or discount to the NAV.
  • The “closed-end” part comes from the fact that CEFs are closed to new capital after they’re launched. A fund must subsequently use leverage to raise new money. Because leverage is a percentage of total assets, there’s a risk-reward factor, which affects performance.

But here’s the key point relative to the current climate: They’re less affected by volatility because they don’t create new shares.

They also pay healthy average dividends of around 8%. Check out these ones…

Liberty All-Star Growth Fund (NYSE: ASG): You want diversity? This fund has it – both by industry and asset class. For example, it has strong holdings in tech (28%), consumer cyclicals (18%), industrials (16%), healthcare (15%), as well as financials and real estate.

It also splits across market caps, with 47% midcaps, 23% small caps, and 17% large caps, with the rest distributed among mega caps and microcaps.

The fund is up 27% over the past 12 months, compared to 12% for the S&P 500. Right now, ASG trades at a very slight premium – just $0.15 above its NAV. But it offers a robust $0.44 per share annual dividend (paid quarterly) – a 7.8% yield.

BlackRock Health Sciences (NYSE: BME): From diversity to specificity. This fund focuses exclusively on healthcare, with most of the portfolio dedicated towards large-cap stocks like Pfizer, Merck, Gilead Sciences, Bristol-Myers Squibb, Amgen, Biogen, Celgene, and Johnson & Johnson.

In terms of capital appreciation, the fund has notched gains in eight of the past 10 years, ranging from 5.5% on the low end to 42% at the top end.

And if you like your dividends more often, BME pays them monthly and boasts a 7.1% yield. The fund is also trading at a 4.5% discount to its NAV, with a 1.1% expense fee.

Clough Global Opportunities Fund (NYSE: GLO): As the name suggests, this fund offers a more global outlook, with around 22% of the portfolio containing non-U.S. stocks. This includes the likes of Samsung, Alibaba, Broadcom, and the Swiss-based CRISPR Therapeutics.

Technology, healthcare, and financials make up the bulk of the sector denomination and it’s weighted towards bigger companies, with around 55% of the portfolio comprising large-cap stocks.

The fund enjoyed an impressive 2017, notching a 35% return.

Dividends are paid monthly and GLO currently spits back a beefy 11.7% yield. Even better… it’s trading at a 9.3% discount to its NAV. However, its management fee is a little more expensive than the other two funds, with an expense ratio of 2.2%.

Ultimately, diversified closed-end funds like these offer a much better way to shelter your portfolio from volatility, versus the riskier, more direct ways that we’ve seen investors try to play the market recently.

And remember… even if the stocks fall with the market, you’ve still got an all-important income stream coming in.

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Source: Investors Alley