Bitcoin is not acting like a currency — but its potential as a wealth-generating asset is enormous
***Want to know where the market is going in 2020?
Find out tomorrow night at 7 p.m. (EST) at the Early Warning Summit 2020 featuring Louis Navellier and Matt McCall.
Next year is shaping up to have some major fireworks — between the trade war, the U.S. election, slowing global growth, and the potential outcome of this past summer’s inverted yield curve, the stock market could be setting up for a big move in 2020.
The question is “what’s the right way to position yourself today?”
Louis and Matt feel strongly about the answer, which they’ll be discussing tomorrow night.
This is a “must-attend” event for anyone with concerns about the market in 2020.
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***More millennials would rather own bitcoin than Microsoft
According to a recent report from Schwab, millennials keep 1.84% of their assets in Grayscale Bitcoin Trust (GBTC), which holds bitcoin directly.
In comparison, millennials reportedly hold 1.53% of assets in Microsoft.
As you can see below, millennials also prefer bitcoin to Disney, Netflix, Berkshire Hathaway, and Alibaba.
This past spring, Forbes reported on a study finding that 20% of millennials claim to own bitcoin … compared to just 2% for the “over 65” crowd.
That same study found that nearly 50% of the 18-34-year-old age group believes most people will be using bitcoin in 10 years.
Now, this is an interesting statistic, as it points toward a key differential in how one might view bitcoin …
***Is bitcoin a currency or an asset?
To “use” bitcoin, as the survey in Forbes references, it implies that bitcoin is a currency.
And, technically, it is. Some of the most popular companies that accept bitcoin are Microsoft, Wikipedia, AT&T, Expedia, Overstock — even Subway.
And in fact, this is much of the promise of bitcoin — a way to tap into the power of the blockchain network to help prevent hacking in retail transactions, bypass fiat currency, and make international retail purchases simpler.
But when we dig into the details, we find that bitcoin’s primary use as a currency is quite a way off.
Its value as an asset is too alluring.
***The strong hands holding bitcoin
To establish some context, let’s look at what bitcoin has done in the past two years.
If you had purchased bitcoin in early December 2017, you would have experienced the tail end of the crypto’s meteoric rise, only to see its value gutted over the following 14 months.
As you can see below, a purchase in early December 2017 held through February of 2019 would have lost you 71%.
But then, bitcoin took off again.
Investors who stepped up to the plate this past February saw a 280% gain in less than five months.
And yet, from that high, bitcoin has now pulled back 36%, as you can see below.
Now, a question for you …
After all this volatility, what percentage of bitcoins in the market do you think have been traded in the last six months? After all, these ups-and-downs can’t be easy to sit through.
It turns, approximately 51% of bitcoins haven’t changed hands in at least six months.
Even in December 2017, at the height of the bubble, the percentage of bitcoins that hadn’t traded in more than six months was about 40%.
Now, one more wrinkle …
The Wall Street Journal reports that only about 8.5% of all bitcoin wallets (which are the online accounts used to store bitcoins) hold 99% of all the bitcoins in circulation. This is barely changed from mid-2017, when that number was at 6%.
In other words, a tiny number of people hold a major percentage of bitcoin, and they’re not selling, despite all the ups and downs.
***So, what’s the significance of this?
About a month ago, we profiled bitcoin here in the Digest.
Our own Matt McCall, editor of Investment Opportunities, is a bitcoin bull. And he believes we’re on the verge of another major leg higher in its price.
One of the aspects of bitcoin that we highlighted from Matt was its strict limit on how many currency units will ever be created — only 21 million.
Unlike the U.S. Dollar, which can be printed ad nauseam (and thus debased ad nauseam), there will never be more than 21 million bitcoins in existence.
So, we have a finite number of bitcoins. But as we just found out, even among the few bitcoins that exist, a huge percentage of them aren’t trading — they’re being held by what we call “strong hands.” This refers to investors who don’t sell assets, regardless of volatility.
What this means is that a far smaller number of bitcoins, being traded on relatively light volume, are having a profound impact on bitcoin’s price.
And here’s the punchline …
This means that any event that leads to a scramble for those few bitcoins being traded would likely result in a major price explosion.
It turns out, Matt believes such a catalyst is coming soon, which means adding some bitcoin to your portfolio today, before this happens, would be a wise move.
***The need to place your bets today
There’s an event that happens uniquely to bitcoin, which most investors aren’t aware of. It’s called “halving.”
Matt recently explained to his subscribers that this event occurs when the reward for mining new bitcoins is cut in half. Every 210,000 blocks, the network goes through the halving. The next one is expected to take place in May 2020.
The reason this is a big deal is because it has happened twice so far in bitcoin’s history, and each time sparked huge rallies.
From Matt’s recent update:
(Halving) has happened twice before, and in both instances the price of bitcoin soared. The price action surrounding these halving events has been significant as well.
History doesn’t always repeat itself — but it often rhymes. The six months leading up to the first halving saw bitcoin prices explode from $5 to more than $12. That’s a 140% return! And the six months leading up to the second halving saw a price increase from $430 to $660 — a 53.5% gain.
But the real fireworks went off after each event. The year after the first halving saw bitcoin top out near $1,200. And a year and a half after the second event, bitcoin rallied up toward previous highs at $20,000. Those are profits of 9,500% and 3,000%, respectively.
“3,000%” is about one-third of “9,500%,” so even if we assume that this “thirding” of percentage gains happens again, that puts bitcoin on pace for about a 1,000% gain in the twelve months following the May halving. I think we’d all be quite happy with that.
Now, keep in mind, those potential gains are relatively short-term. Let’s step back and consider the much bigger picture.
***If bitcoin is truly destined to a be currency, then its ownership must skyrocket
You can’t have a vibrant, active currency unless a great many people can put their hands on that currency (and then value what it’s able to buy them more so than the currency unit itself).
That’s not what we have right now.
A concentration of bitcoin is held in just a few hands. Plus, those are “strong hands” which reduces the volume of bitcoin available to be purchased.
This limited active float means that even a mild increase in overall adoption could lead to a price explosion similar to what we saw in 2017.
There are no guarantees, but this is the definition of an “asymmetrical” bet. In other words, betting a little to potentially make a fortune.
Could bitcoin go to $0?
But could bitcoin climb to $1,000,000?
Under the right circumstances, sure.
Here’s bitcoin veteran Bobby Lee on that possibility:
Now, I’m not arguing that bitcoin will go to $1,000,000.
But if it does, from today’s prices that would be a gain of more than 133X.
So, what I’m arguing is that risking $1 to potentially make $133 dollars is an incredible “asymmetrical” bet.
If you like those odds, get your money placed before the May halving and just sit tight.
Now, returning to millennials for a moment …
As we noted at the top of this Digest, a substantial percentage of millennials own bitcoin, while the 65+ crowd doesn’t. However, we’re standing on the cusp of a massive wealth transfer, as the boomers begin passing and millennials inherit assets.
Now, if 20% of millennials invest in bitcoin, and they allocate even a small portion of their inherited wealth into bitcoin, what do you think is going to happen to its price?
Is that a bet you’re willing to put a small amount of money into?
***Keep an eye out
As noted earlier, Matt is our resident bitcoin bull. Stay tuned, as he’ll be coming out with a special crypto report very soon.
In the meantime, we’ll continue to keep you updated here in the Digest.
Have a good evening,