I’m going to tell you the truth about altcoins and why you should buy bitcoin instead. And I’ll give you 3 cryptocurrency predictions.
I’m a thematic investor specializing in bubbles and my past predictions include accurately forecasting the 2008 crisis, the rise of gold starting in 2007, the rise of bitcoin starting in 2013, the rise of Ethereum starting in 2016, and the altcoin bubble in 2017.
Today I’ll give you three cryptocurrency predictions. If you’re new to cryptocurrency, there’s Bitcoin and all other cryptocurrencies are called altcoins.
The first prediction is…
Bitcoin will reach yet another all time high in price in 2020.
The reason for this is basic economics combined with the way Bitcoin was programmed to run. There are two things that increase the price of bitcoin or any commodity:
- Increased demand
- Increased scarcity
With Bitcoin there is a knowable event that happens every four years.
- When it happened in 2012, the bitcoin price increased over 9,000%.
- When it happened again in 2016, the bitcoin price increased over 2,800%.
- This same event is happening again in 2020 and analysts are predicting it could send Bitcoin to $30,000; $50,000; or even $120,000.
This event is called the halving and there are three things you need to know about the halving.
- It’s programmed into the Bitcoin software and the dates of the event are known.
- Bitcoin is a new kind of software that is unstoppable code. Nobody can stop the bitcoin software from running and nobody can stop the halving event from happening in 2020.
- The halving increases the scarcity of Bitcoin. Specifically, in 2020 the inflation rate of bitcoin will go from 3.73% per year to 1.80% per year. As we know from economics 101, increasing scarcity of a commodity increases its price.
That’s the first prediction: In 2020, we will see a new high for bitcoin price of at least $20,000. This isn’t a guarantee, but a very strong probability from a fundamental and technical analysis.
Prediction number two…
There will be no new altcoin season.
Right now many crypto experts are predicting a new altcoin season in which altcoins will grow in price more than bitcoin. This happened in 2017 after the last bitcoin halving. Some people are saying there will be a new altcoin season after the next halving event in 2020.
I believe these people are wrong – there will never be another altcoin season, for one glaring reason:
The altcoin season in 2017 was a bubble.
Cryptocurrency developers were raising money for blockchains when they didn’t any product, customers, or revenue yet. It was much like the dot-com bubble of 1999 in which companies raised money without having any product, customers or revenue.
After the first dot-com bubble, there was never a second dot com bubble. Similarly, after the first altcoin bubble, there won’t be a second one. Investors aren’t so foolish to fall for the same scam only a few years after getting burned.
By the way, in the beginning of the altcoin bubble in May 2017 I predicted that over 95% of altcoins would have a long term value of zero. Today, Bitcoin is down 50% from its all time high in 2017, but most altcoins are down 99% from their all time highs and once again my prediction was correct.
So why are so called experts promoting altcoins again? It’s really wishful thinking. A lot of people made a lot of money promoting altcoins before. Some people just make so many predictions, some of them are bound to be right. Then they cherry pick their history highlighting their one or two predictions that turned out to be correct and forget about the dozens that lost money.
It’s hard to sell a newsletter that just says “Buy Bitcoin” every month and it’s hard to raise money for a hedge fund that just buys Bitcoin and charges a performance fee. So at the end of the day, rent seekers have to justify their newsletters and hedge funds — and right now promoting altcoins is a convenient justification.
Let me clear: I’m not saying these are bad people. In fact I subscribe to some of these people as part of my research process — What I am saying is this…
It’s hard to navigate this complex economy and most experts are wrong most of the time. I’m wrong too sometimes, but I make far fewer predictions that turn out to be correct far more often… and it generally makes my calls very profitable overall.
My third prediction is…
A few altcoins will create massive value and change the world.
That probably sounds conflicting. How can altcoins create massive value and change the world when there’s no altcoin season in 2020? Two reasons. Reason number one, there is value creation and value capture. Sometimes value is created that is never captured. For example, look at wikipedia. It creates massive value for the world, probably to the tune of billions of dollars worth every year. But it doesn’t capture that value and instead it has to ask for donations on its web site. Google, Amazon, and Netflix don’t have to ask for donations because they are good at value capture.
Another example would be Napster and other early music file sharing platforms. They created massive value by giving anyone access to tens of thousands of dollars worth of music for free. But nobody paid them for it, so they didn’t capture much value. Today, Apple, Spotify and others are capturing some of the value that Napster spawned.
As we head into the digital world, a lot of value is created that isn’t captured. When I say a few altcoins will create massive value and change the world, what I mean is they might ultimately become services that are free or just don’t have a good way to capture a lot of value.
Bitcoin captures a lot of value because it is able to be used as money: a medium of exchange, a unit of account and a store of value. The fact that is has a supply cap, which increases its scarcity, makes it capture even more value.
On the other hand we can look at Ethereum, the biggest altcoin. It shows promise of creating a lot more value in the years to come, but it doesn’t have a supply cap. So it might not capture as much value as Bitcoin does. It also has plans to completely revamp its software, so that means it’s more experimental and at a much earlier stage than Bitcoin. Virtually all of the other smaller cryptocurrencies are at an even earlier stage than Bitcoin.
I hope that there will be a few altcoins that create massive value and capture massive value. This might happen. But my prediction is that one thing that will definitely happen is a few altcoins will create massive value and capture very little. In that case, such a cryptocurrency will release software that benefits to the world, but, like wikipedia, the cryptocurrency unit itself will not rise in value as much as investors hoped.
So how can you put this information to use? Take with a grain of salt new altcoin promotions. Remember Bitcoin became worth billions of dollars many years after it proved its staying power. There are no altcoins that have proven their staying power yet.
In full disclosure, I own several altcoins myself and hold altcoins in the cryptocurrency hedge fund portfolio I manage. I simply hold very small positions compared to Bitcoin.
If you hold altcoins you may want to think in terms of holding 10 times as much investment in bitcoin as you do in altcoins, or more. For my personal investments, this dovetails with my probability calculations in which Bitcoin is at least 10 times more likely to succeed and continue to capture value long term.
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