All posts by Andy Gordon

Why “Early” Means Extremely Low Cryptocurrency Prices

This week is the 30-year anniversary of the 1987 crash. Can you believe it?

Appropriately or ominously (depending on your view), the market continues its eight-year march up the charts.

Nowadays, it’s setting records with each new high it hits.

Are investors nervous? Should they be?

This bull market is old by historical standards. At 102 months, only the 115-month bull market of the 1990s lasted longer post-WWII.

If that doesn’t make one a tad nervous, the stock market has been undergoing a shocking under-the-radar reduction: from 7,500 publicly listed companies in the 1990s all the way down to fewer than 4,100 today.

I could go on. It’s almost too easy to poke holes in the current bull… not enough job growth, a large (and growing) amount of public debt, flat wages, etc.

But the ultimate arbiter of how the economy is doing is the market itself. And the only trend that counts is the current trend.

In the short term, the trend is your friend.

So I’m not going to worry about tomorrow or next week. The market has made utter fools of those who do.

But that won’t stop me from asking an increasingly critical question for investors…

What is the long-term upside of the public stock market? Or put another way…

When the bull degrades into a bear (and at some point it will), what are the pros and cons of staying in the stock market?

Red-Letter Day

Japanese stock investors recently welcomed a long-awaited milestone.

It took 21 years. But last week, the Nikkei stock market hit a new high. It blew past its previous peak reached on December 5, 1996.

The Japanese have learned the hard way what “slow and steady” means.

The opportunity costs of riding the Japanese market down and then up were significant.

What stock markets could they have invested in during those years? Let’s take a look at some numbers I dug up…

We know that the U.S. markets did well, even taking into account the 2000 to 2002 crash. But that pales in comparison to Indonesia’s and India’s market performance. They rose tenfold in the last 20 years. Even China’s up and down market went up by more than 3.5 times.

Investors Always Have Choices

Right now, there’s an incredibly dynamic market in its early days. I’m talking about cryptocurrencies.

Bitcoin and Ethereum are the best-known digital coins you may have heard of, but there are thousands more.

Any infant market (or infant company) draws skepticism. Is it real? Long-lasting? Overhyped?

It’s easy to write these opportunities off, because you’ll never have all the answers. You do a lot of digging and a lot of thinking to fill in the blanks. But you can never fill them in completely.

So most people don’t invest. This early is too early. It’s just too uncomfortable for them. Early investing isn’t for everybody.

But I’ve found that it’s by far the most profitable way to invest.

Early to late almost always means very small to very big (in terms of size) and very low to very high (in terms of price).

It’s as simple as that.

And it’s how you should view bitcoin.

It’s not easy because bitcoin’s price has risen a lot already. The market capitalization of bitcoin plus other cryptocurrencies has ballooned to about $150 billion.

That’s an eightfold increase just this year, according to CoinTelegraph.com.

It doesn’t feel early. Nor does it feel small.

But believe me, it is.

Cryptocurrencies today are about where cellphones were in 1992, growing fast and furiously… but with mass adoption still a decade away.

Bitcoin’s growing incredibly fast. Two billion dollars’ worth of bitcoin changes hands every day. And it’s increasingly used for remittances, payments and stored value (digital gold). Cryptocurrencies are making significant inroads in fintech, medtech and the Internet of Things.

Yet bitcoin and other cryptocurrencies haven’t truly scaled yet.

A few million people now use them. In the greater scheme of things, that’s paltry.

What happens when a few hundred million people use them?

What happens when institutional investors start putting money in them?

It’s too early to say. But we’re going to find out over the next two decades.

I look at the big picture. So where other people see high cryptocurrency prices, I see low prices.

The combined capitalization of all cryptocurrencies is still smaller than any of the world’s 100 largest stocks.

Bitcoin may be the largest cryptocurrency, but it’s only the 65th largest currency in the world overall. Some of the larger fiat currencies are highly problematic, which should provide a fertile area for future cryptocurrency adoption.

Early Means Low Prices, and Bitcoin Is No Exception

I remember when oil was climbing from double-digit prices to triple-digit ones. It was a crazy time.

I had the privilege of explaining what was happening every Wednesday morning on Fox Business News.

My dilemma?

Every week there were geopolitical events that justified yet another price increase. There were also other events that could have driven prices down.

But since they didn’t fit the narrative, they were largely ignored. I mentioned some of these events at first. But because they were having no impact on prices, I stopped. I was talking into a black hole. Nobody gave a fig about them.

Today’s narrative on bitcoin?

It’s in a bubble. Prices are extremely elevated. And buying at this juncture is buying high and buying foolish.

That’s NOT looking at the big picture. To be frank, it’s small thinking from small minds.

I remember when oil was going for $15 to $20 a barrel. Now it’s going for $50 to $60.

Compared to $15, it’s expensive. Compared to $147, it’s cheap.

Seeing the big picture – and knowing how high oil can go – I’d never consider current oil prices expensive.

My favorite three words are “IT’S VERY EARLY.” There’s a long way to go.

I see bitcoin and cryptocurrencies as a huge irresistible investing opportunity. Think about it this way: People who invest early in so-called bubbles usually come out WAY AHEAD.

The long-term upside of the stock market? It pales in comparison.

I strongly suggest you diversify at least a small part of your investible savings out of public stocks and into cryptocurrencies.

The opportunity costs of NOT doing so are just too significant to ignore.

Good investing,

Andy Gordon
Co-Founder, Early Investing

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Source: Early Investing 

The State of Blockchain in Five Charts

It’s been a busy few months for all things blockchain. (If you’re interested in learning more about how blockchain works, I suggest you read my article to quickly get up to speed.)

CoinDesk captures the key trends and events with its just-issued “State of Blockchain Q2 2017” report. Click here to read the full 115-page report, which has dozens of charts and graphs.

For a quicker review, read my commentary below on some of the report’s most noteworthy findings.

600%-Plus Returns, and It’s Only September

This hyperbolic rise is not bitcoin-driven. Bitcoin has “only” risen by 320%. Earlier in the year, its share of the total cryptocurrency market was around 80%. Now it’s 40%.

It’s the other currencies – like Ripple, Litecoin and Ethereum – that have ignited cryptocurrency’s price explosion.

Historically, cryptocurrency prices have featured large swings in both directions. It’s obvious we’re in a big upswing right now, with Irma-like tailwinds pushing prices higher and higher.

It’s also obvious a correction is coming.

A Correction: How Soon? How Much? Everybody Has an Opinion…

A majority (58%) of those surveyed in the report believe we’re in a bubble, while 30% think we’re not. These are “blockchain enthusiasts” being surveyed, so there’s a bias toward optimism at play here.

A slew of ICOs is coming down the pike this month and next. They could very well drive prices much higher… or restrictions out of China could initiate a correction in the very near future.

Look, I’m no fortune-teller. Nobody knows how much longer this current climb will continue. Nor does anybody know what the extent of the correction will be.

But here’s the thing: It’s not something I’m losing sleep over. The cryptocurrency market will correct and then begin a new climb that will reach new highs. That’s the historic pattern. Nothing changes.

I’m not nearly smart enough to time the peak or the bottom. I’m keeping it real simple. As far as I’m concerned, the trend is your friend, and this trend is still pointing upward. So I’ll continue to invest.

And, post-correction, I’ll make sure to have cash on hand to take advantage of some nice price points as the market begins its next climb up the charts.

We should all remember this is no silly fad. Some of the most successful venture capital firms – including Andreessen Horowitz, DFJ, Sequoia Capital and Union Square Ventures – have made large investments in blockchain and digital currency companies.

Hundreds of potentially transformative new blockchain technologies are being developed, but perhaps none are generating as much excitement as Ethereum’s “smart contract” blockchain technology.

Don’t Ignore Ethereum

It’s hard to ignore Ethereum’s 3,800% price jump since the beginning of 2017. This period also saw an explosion of ether usage. (Ether is the currency that runs the Ethereum network.)

Transactions involving ether coins have come significantly closer to bitcoin transaction volume, but ether still has a ways to go. Bitcoin averages 291,000 transactions a day.

A big reason for ether’s rise? The explosion of recent ICOs, many of which raised money using the ether currency.

ICO Funding Starting to Outpace VC Firms

ICO funding in the second quarter easily exceeded money from venture capital firms. But look at the above chart (on the right) and you’ll see that VC funding still dominates blockchain fundraising.

ICOs can be volatile. And they’re not easy to participate in. But without them, regular everyday investors would be completely shut out of investing this early in exciting blockchain companies.

ICOs are like startup crowdfunding. Both allow you to invest very early. Likewise, in both cases, most of these young companies will fail. But the ones that get over the hump and put themselves in a position to experience hypergrowth?

They can hand – and already are handing – investors unbelievable returns.

But What About the Government?

The SEC will impose regulations. It’s just a matter of time.

The question is will they be fair or – and this is my great fear – overly restrictive?

If the regulations are balanced and fair, it would be a good thing that would provide much-needed regulatory certainty. If not…

Then the U.S. government would be putting itself on the wrong side of history, clamping down on capital investment flows to technologies that could grow into massive businesses and wealth generators.

In July, the SEC ruled that the Decentralized Autonomous Organization’s coins were securities and thus subject to the agency’s regulation. But the SEC offered no “bright-line” test as to what constitutes a security.

The SEC said each ICO must be considered individually.

So we’re waiting for more guidance from the government.

If this follows the same path as crowdfunding regulations, the government will be cautious, but it’ll allow ICOs to continue under certain conditions and as long as certain rules are followed.

It’s a big test for the government. And it needs to get it right.

Good investing,

Andy Gordon
Founder, Early Investing

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