Why We Hold Crypto

Bitcoin’s adoption cycles have been fascinating to watch over the years.

Every time there’s a sustained rise in price, more people jump on board.

Some of these new buyers drop out after the first correction, or take a small profit and don’t come back.

But some grow to appreciate the deeper side of crypto – the monetary revolution aspect. This is the “hodl” (hold) crowd.

With each adoption cycle, the base of holders increases (after they’ve survived a few major corrections, the volatility gets easier to handle).

So… what are the holders waiting for?

Those of us in it for the long haul are making a long-term bet on mainstream adoption. We envision a future where the majority of people store a chunk of their savings in various cryptocurrencies.

Here’s a classic bitcoin meme that explains the thinking.

Why do we think that this is likely to happen?

The primary reason is that many of us have lost faith in the current financial system. We view it as unsustainable and increasingly fragile.

Here’s a cynical (and somewhat oversimplified) view of the current system.

We trust banks with our money. They gamble with it. Their gambling blows up in their faces. We bail them out (or the Federal Reserve does). And then the cycle repeats.

The more bailouts – and associated monetary tinkering – that go on, the more that currency tends to lose value (purchasing power).

Our economy starts to become dependent on artificially low interest rates, and we have to push them down lower, for a longer time, to get the same result. Savers are punished and (some) speculators with access to capital are rewarded.

The root of all these problems is that there is no real limit on the creation of additional fiat money. It’s far easier to run large deficits – and borrow – when money can be conjured out of thin air. The temptation to print, borrow and bail out creates a vicious cycle.

The whole system is built on top of a bad foundation. For all those reasons, it seems inevitable that it won’t last forever.

But with bitcoin, we don’t have to store our money this way anymore. Bitcoin created a new framework for digital money that cannot be counterfeited. It’s a breakthrough technology, and it’s “open source” (free to copy and use elsewhere). Now there are thousands of cryptocurrencies all competing for market share.

What about yield? Banks don’t pay much interest these days, but at least it’s something. How will crypto compete?

You can already lend speculators your cryptocurrency in exchange for a guaranteed return. (They get the monetary upside, you get a guaranteed rate.)

Today you can collect around 4% per year for loaning your bitcoin on Poloniex. That’s a yield similar to what a “normal” savings rate used to be.

Ethereum fetches a higher premium, at more than 13%.

It’s the start of an alternative financial system. And the systems are getting better, easier and more secure each day.

And get this: There are already companies that offer their employees a choice to get paid a portion of their salaries in bitcoin. One of them is Japanese tech company GMO Internet Group, which has more than 4,000 employees.

The Baskets Theory

There are two primary theories about how mainstream adoption will play out. The first is that a single dominant cryptocurrency will emerge. This view tends to be held by the bitcoin “maximalists” and other coins’ equivalents. The argument goes something like this: Bitcoin is the oldest, largest and most secure network, which makes it likely to emerge as the sole winner.

I fall into a different camp. I believe we will use “baskets” of cryptocurrencies in the future.

Wouldn’t it be better to store your savings in a basket of private, independent forms of money? If our goal is to get away from a single point of failure (local fiat money), why wouldn’t we spread out our risk across dozens or hundreds of cryptos (once the market is more mature and stable)?

I foresee at least a dozen large cryptocurrencies and tokens. Competition is great for this market, and it would be a shame to see a single dominant player.

What About Volatility?

Today, cryptocurrencies are notoriously volatile. This will change as the market matures and the majority of investors, savers and even corporations adopt them.

Stability will come in time, but don’t expect it soon. As long as there’s more new (net) long holders coming in over the long run, the (overall) positive price growth can continue for decades. Of course, it will be bumpy until stability settles in and crypto becomes true everyday currency.

There is another advantage to the “baskets of crypto” theory. If we hold a diverse group of coins, our risks are substantially reduced. If any one coin loses a significant amount of its value, it won’t hurt much and should largely be offset by gains in other coins.

So that’s why many of us continue to hold on to those cryptocurrencies we think can last, despite the occasionally nauseating ups and downs. And it’s why we’re constantly looking for the next big opportunities.

Today we’re in the largely speculative phase. It’s early, and the infrastructure is being built as we go. We don’t know for sure that crypto will succeed.

Then again, by the time we do know whether this experiment will succeed or not, prices will either be much lower than today or hundreds/thousands of times higher.

Crypto remains one of those rare, calculated risks with extreme upside and limited downside. I say “limited” because it’s limited to the size of your investment.

Act accordingly, and don’t bet money you can’t afford to lose. If you look at crypto this way, you’re less likely to get hurt and more likely to make money by adopting the long-term perspective.

Good investing,

Adam Sharp
Co-Founder, Early Investing

Can a $10 Bill Really Fund Your Retirement? The digital currency markets are delivering profits unlike anything we’ve ever seen. ​23 recently doubled in a single week. And some like DubaiCoin have jumped as much as 8,200X in value in 18 months. It’ unprecedented... but you won’t receive any of the rewards unless you put a little money in the game. Find out how $10 could make you rich HERE. ​

5 Low Risk Income Stocks Profiting from Stock Market Volatility

After a long period of low volatility, the measurement of stock price movement has moved much higher in 2018. Higher volatility is usually accompanied by big down days in the stock market. Over the last five months, the U.S. market has turned from a place of easy profits to one that has been tough on investor portfolio values. To make lemonade from lemons, consider those investments products that can pay you more based on increased volatility.

Measured volatility increases when the stock market goes down. The reason the metric was so low in 2017 is because down days were few and of limited magnitude. A recent article from Bloomberg highlighted the fact that in 2018 the average down day move of the S&P 500 this year has been 24% greater than the average up day gain. This is the largest gap since 1948. As I noted, down days result in increased volatility, so it’s understandable that even though the current S&P 500 is close to where it started the year, volatility has made stock investing more nerve racking. This year-to-date chart of the SPDR S&P 500 ETF (NYSE: SPY) graphically illustrates the volatility.

The widely quoted volatility index or VIX is derived from the prices of options contracts trading against the S&P 500. Many investors do not know that VIX is just a measure of options prices. This means that when volatility or VIX is elevated, traders who sell options are making more money. While options trading can be complicated and risky, there are income focused investment products that use option selling to enhance cash flow and support dividend payments from a portfolio that without options would not carry as attractive a yield.

You can find these buy-write or covered call products in the form or ETFs or closed-end funds. When you invest in one of these funds, you should look for recent dividend increases due to higher volatility, or if you buy shares in funds that haven’t yet increased payouts, sell the shares if you don’t get a dividend boost in the next quarter or two.

Here are five funds to consider:

PowerShares S&P 500 BuyWrite ETF (NYSE: PBP) is the largest buy-write ETF by assets under management. As an ETF, the fund tracks a specific index, in this case the CBOE S&P 500 BuyWrite Index.

This strategy consists of holding a long position indexed to the S&P 500 Index and selling a succession of covered call options, each with an exercise price at or above the prevailing price level of the S&P 500 Index.

The fund’s one, three and five year annualized returns have been 6.59%, 6.36%, and 6.57%, respectively. These returns reflect the ETF’s 5.0% yield plus most share price gains. Dividends vary significantly from quarter to quarter.

Nuveen S&P 500 Buy-Write Income Fund (NYSE: BXMX) is a closed-end fund that seeks to substantially replicate the price movements of the S&P 500 Index and by selling index call options covering approximately 100% of the Fund’s equity portfolio value with a goal of enhancing the portfolio’s risk-adjusted returns.

This fund has picked up more return from share price gains, averaging 10.7% over the last three years, against a 7% dividend yield.

Pricing is reasonable, with BXMX shares trading at a 1.3% premium to NAV.

Horizons NASDAQ 100 Covered Call ETF (Nasdaq: QYLD) is an ETF that tracks the CBOE NASDAQ-100® BuyWrite Index. As a result, this ETF will be more focused on the large technology stocks that make up a large part of the Nasdaq 100 stock index.

QYLD pays monthly dividends that have been quite consistent.

One-year and three-year average returns have been 12.3% and 10.3%, respectively.

The ETF carries a 10% yield, so most of your return will be the dividend payments.

Nuveen Nasdaq 100 Dynamic Overwrite Fund (Nasdaq: QQQX) is a closed-end fund using the Nasdaq 100 Stock Index as its basis for covered call writing.

Nuveen puts the “Dynamic” in this fund by selling call options on 35% to 75% of the value of the Fund’s equity portfolio –with a 55% long-term target– in an effort to enhance the Fund’s risk-adjusted returns. QQQX has put up an impressive 18.66% average return for the last three years while paying an approximate 6% dividend.

This is a buy-write fund that will give you a greater portion of the changes in the underlying stock index – either up or down.

QQQX is trading at a very stiff 15.6% premium to NAV.

First Trust Enhanced Equity Income Fund (NYSE: FFA) is a closed-end fund where the managers actively manage the stock portfolio and enhance income by selling call options.

The fund has produced a 6.8% average return for the last three years, and 9.5% per year over the last five years. Currently call options are out on 55% of the portfolio.

The dividend yield is a handsome 7.4% and the dividend rate has been increasing since 2013.

The shares are trading at a 6.1% discount to NAV.

Get up to 14 dividend paychecks per month from safe, reliable stocks with The Monthly Dividend Paycheck Calendar, an easy-to-use system that shows you which dividend stocks to pick, when to buy them, when you get paid your dividends, and how much.  All you have to do is buy the stocks you like and tell them where to send your dividend payments. For more information Click Here.