The Three Stages of Bitcoin

Posted On Jan 2, 2018 By Dave Gonigam

  • Every asset class goes through three stages of growth
  • The man who dissed the internet in 1998 just dissed bitcoin!
  • Here comes Corporate America’s 2018 windfall
  • The peculiar protests in Iran that lifted oil past $60
  • Trump’s 2018 priority for a currency and trade war (not Iran, Korea or China)
  • Here comes another shutdown showdown… the “border search exception” to the Fourth Amendment… a Silicon Valley legend’s big bitcoin bet… and more!

“The boom in cryptocurrencies is following the same script that has played out over, over and over again,” says our resident “crypto millionaire” James Altucher.

We dive into the Agora Financial team’s 2018 predictions with one that’s already familiar to you — James’ recent call for $1 million bitcoin by year-end 2020. But this morning we’re going to step back a bit and examine the whys and wherefores.

First things first: Bitcoin trades as we write for $13,920. It’s doing some “backing and filling” after the flirtation with $20,000 in mid-December:

Bitcoin Consolidates

From $1,000 to $20,000 in less than 12 months, bitcoin had climbed too far too fast. Some “consolidation” is inevitable. But it’s not “the end.” It’s anything but, James says — with the benefit of hindsight from previous market booms.

“You see, every boom follows a sequence of three stages,” he explains. “Every single boom throughout history has followed this script.

“The stock market boom in the roaring ’20s… the tech boom in the 1990s… the housing boom in the 2000s.

“First, only early enthusiasts are courageous enough to invest in the new trend. That’s Stage 1. Then institutional investors (the so-called ‘smart money’) jump in. That’s Stage 2. Finally, the public joins the party, triggering a massive explosion in price. That’s Stage 3.

“If you know how to use this roadmap, you could make an absolute fortune.”

To illustrate these three stages, let’s turn back less than a generation to the dawn of the World Wide Web.

“In the mid-1990s, most people didn’t even know what the internet was,” James reminds us. “In 1994, NBC’s morning show Today had a segment where one of the anchors asked, ‘What is internet, anyway?’

Katie Couric and Bryant Gumbel in a moment so notorious,
BMW revived it for a Super Bowl commercial in 2015

“While most people were dismissing the technology as a fad, early adopters like myself were heavily investing in it. In 1995, I correctly predicted every company would need a website. So I started my first internet company to help big corporations get online.”

In short order, James was building websites for the likes of American Express, HBO and Disney. “That was Stage 1 of the boom.”

Stage 2 arrived in late 1995: “Only when Netscape went public did people outside Silicon Valley start taking the internet seriously,” James goes on.

“That’s when institutional investors started joining the party, with pension funds and venture capitalists making a fortune when companies like Yahoo and Amazon went public. The additional flow of money from the ‘smart money’ helped pushed tech stocks even higher.

“But the public was still not participating. In June 1998, for example, mainstream economist Paul Krugman predicted the internet’s impact on the economy would be no greater than the fax machine.

“It wasn’t until 1999 that the masses finally started to invest heavily in tech stocks,” James reminds us — and that was Stage 3.

“With more people jumping into the market, tech stocks jumped even higher, attracting more and more people wanting to get a piece of the action. And that was the third and most explosive stage of the boom, with the Nasdaq soaring more than 85% in 1999 alone.”

Cynics call this the “mania” stage. We choose not to be cynical today, because…

James says cryptocurrencies are still in Stage 2. “The public is still not invested. That’s why right now is so special. If you get in before the masses, you could see astronomical gains.”

But don’t take it from us — take it from Paul Krugman, the fellow who said in 1998 that by 2005 the internet would have no more significance to the economy than the fax machine. (2005 was the year that brought the launches of YouTube, Pandora Radio and Etsy.)

Yesterday The New York Times published a hand-wringing column in which Krugman wrote, “Sooner or later, something will go wrong, and we’re very poorly placed to respond when it does. But I can’t tell you what that something will be, or when it will happen… what if Bitcoin actually starts to have some systemic importance before everyone realizes it’s nonsense?”

Point being, “The masses are not participating in this boom. Not yet!” says James.

“To this date, fewer than one in 10,000 people have invested in bitcoin. Just ask your friends, spouse and neighbors what they think of ethereum, litecoin and monero. I bet they’ll have no clue what you’re talking about.

“That’s because the masses are not participating in this boom. Not yet! Remember, the biggest gains in any bull market throughout history only happen when the public joins the trend. It’s the masses that will push cryptocurrencies to the moon.”

[Ed. note: As James is fond of reminding us, 95% of all cryptos are doomed to fail — if they’re not outright scams.

But there’s one little 24-cent crypto on James’ radar that he believes has blockbuster potential… and he’s keen to tell you all about it. If you got busy over the holidays and haven’t checked your email for a while, then it’s highly likely you’ve not seen this video yet. We urge you to check it out right away.]

After a rough finish to 2017 Friday afternoon, the major U.S. stock indexes are all in the green to begin 2018.

The Nasdaq is strongest of all as we check our screens — up 1.25% and only 10 points away from 7,000.

Granted, the Nasdaq was pushing 7,000 two weeks ago and never did make it. But Alan Knuckman, our man in the Chicago options trading pits, says that matters not. “Stocks have pulled back and set us up for better buys after a whopping two weeks without any new highs… Trump’s historic tax cuts will boost most American corporate earnings lines by at least 20% in 2018 — sending stocks soaring still from their current levels.”

(On some days, Alan is a man of few words and this appears to be one of them. We’ll count that as his 2018 forecast.)

After pushing past $1,300 an ounce on Friday, gold is up to $1,310 now — a level last seen in mid-October. To some degree, today’s move is a function of dollar weakness; the dollar index just slipped below the 92 level, testing a low reached in September.

West Texas Intermediate Crude is holding above $60 this morning, perhaps in part because of what’s happening in the world’s No. 7 oil producer…

Reuters Top News Tweet

The trouble started last Thursday. Exactly what’s driving the protests is hard to say; they look nothing like the massive 2009 demonstrations that broke out after an election tainted by fraud.

This time there’s no single obvious grievance, and the protesters are largely people who’ve not been politically active until now. “In fact, no major reformist figure has come out in favor of the protests,” says Trita Parsi of the National Iranian American Council, “and some activists have even spoken out against them.”

One thing seems certain: Messages of support from Washington will give the Iranian government the ammo it needs (so to speak) to discredit the protesters as American patsies. Naturally, the U.S. president has been tweeting furiously in support of them since Sunday…

For the record: Only 17 days till the next “partial government shutdown” looms.

Either Congress has to pass a budget and set a new debt ceiling… or pass another kick-the-can measure, as it did twice last month. The Treasury continues to engage in accounting tricks to stay under the current debt ceiling of $20.493 trillion… but it will run out of room to maneuver sometime in the spring.

“My prediction is that 2018 will be a bad year for Mexico’s economy as American politicians scapegoat the country ahead of the midterm elections,” says Jim Rickards.

With Congress’s fixation on tax reform in recent months, the issues of currency and trade wars — popular topics during Trump’s campaign — were largely sidelined. Now that the tax code’s a done deal, Jim expects the issues to make a comeback… “with a vengeance.”

Midterm elections are less than 10 months away and “politicians will try to curry favor with the electorate by taking action against countries they feel have unfair relationships with the U.S.” But it would be a mistake for politicos to crackdown on Trump’s usual suspects when it comes to lopsided trade: China and South Korea.

“For the moment, Trump can’t confront South Korea because we need their help in the coming war with North Korea,” says Jim. Ditto for China… “Avoiding a shooting war that could spin out of control into World War III is more important to the White House than scoring some points with tariffs and trade limitations.

“That leaves NAFTA,” Jim goes on. “The U.S. has already hit Canada hard with new tariffs on its major exports to America — lumber and aircraft. So who’s left to bear the brunt of new trade sanctions? You guessed it — Mexico.

“A major confrontation with Mexico over their trade surplus with the U.S. is coming.”

Jim’s conclusion: “Expect new tariffs aimed at the Mexican manufacturing and textile sectors. They will hurt the Mexican economy and force Mexico to devalue the peso to compensate for higher tariffs.”

That’s not Jim’s “big” forecast for 2018, by the way — we’ll give that fuller attention later this week when we can do it justice. You won’t want to miss it.

“Where does the federal government find/receive/get/grant the ‘authority’ to alter the Constitution without a successful amendment process?” a reader inquires after our most recent discussion of the “Constitution-Free Zone” up to 100 miles from the border.

“Really, if the oath of office means anything, then it means that when our happy political hacks assume powers not granted by the states or the people (10 Amendment) then they are committing a crime! I know, I know, that was ‘resolved’ during the Civil War (not very civil), with the result being ‘might makes right.’ So purely on the hypothetical, where do they get the authority? Or do we just bend over and grant them free reign?

“Have a great new year and I thank you for the creativity and thought you put into your work.”

The 5: Over the decades, the Supreme Court carved out a “border search exception” to the Fourth Amendment.

“Customs officers,” according to an FAQ from the American Civil Liberties Union, “have the right to stop, detain and search any person or item.” The only thing they can’t do is single you out on account of your race, gender, religion or ethnicity.

But as noted here on Friday, the government has adopted an expansive definition of “border” — extending 100 miles inward. Thus, Customs and Border Protection has been known to set up checkpoints along Interstate 91 near White River Junction, Vermont — 97 miles south of the border with Quebec.

“Dave, your wonderful response Friday to the proponents from both extremes of the political mess the U.S. is in at the moment was perfect,” writes our final correspondent. “I continue to be amazed by some of the thoughts expressed by a few of your readers.”

“Yes, you don’t take sides and just tell it like it is, so thanks from an Aussie who lived in the USA in the Nixon era and enjoys your 5. Keep writing and Happy New Year.”

The 5: Likewise, mate!

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Just in from The Wall Street Journal: “One of the biggest names in Silicon Valley is placing a moonshot bet on bitcoin.” The paper says Founders Fund — Peter Thiel’s venture capital outfit — has accumulated “hundreds of millions of dollars” in bitcoin.

That’s affirmation of James Altucher’s long-term bitcoin outlook, for sure. But far away from the bright lights of bitcoin, James has discovered an up-and-coming cryptocurrency with even bigger potential for faster gains. And at only 24 cents, it’s easy to accumulate without a big outlay.

How can he be so confident? Because he’s seen it happen before. Details here.


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New Daily Issue Posted 2 Days Ago By Dave Gonigam

While the market sorts out the latest presidential pronouncements, we’re going to spend most of today exploring some random items that crossed our desk this week. They’re all related somehow to business or finance or commerce… and they all come under a category we’ll call “You Are Not Free.”

Read This Daily Issue