As Bitcoin Surges To New Record Highs, 5 Lessons For Every Crypto Investor

Once again the stories of the death of Bitcoin appear to greatly exaggerated.

image courtesy of CoinTelegraph

Overnight Asian demand sent the cyrptocurrency to a new record high at $17,934 (Bitstamp).

Ethereum is off from its $750 highs, but rallying again today...

Today's preice action in ETH and BTC show the ususual trade-off...

And while buying every dip and HODLing makes everyone seem like a genius, DataTrek Research's Nicholas Colas has 5 Bitcoin Lessons For Every Investor

Whatever you think of bitcoin and crypto currencies, there is plenty to learn from their ascent, even if it is still a small part of the global financial system. Forget the noise of “Biggest bubble ever” – the market cap of the NASDAQ was $3.7 trillion in 1999 and fell 70% (a total of $2.6 trillion) by 2002. That puts the total of $500 billion in all crypto currencies outstanding into the correct context.

Still, even if you are in the “Bitcoin Bubble” camp, don’t let that blind you to the lessons of what has happened in the past few years. It is tempting – but wrong – to simply dismiss a 5-digit bitcoin price as the illogical mania of crowds.

Here is a list of 5 instructional points where bitcoin has a bigger story to tell.

#1 Decentralized technology – where no one is “in charge” - can both create and hold trust. Recall that bitcoin launched in January 2009, in the depths of the Financial Crisis. US stocks would not bottom until March of that year, and at the time no one knew how – or if – the global financial system would survive. That sounds like hyperbole now; it wasn’t then.

 

Combine that vacuum of faith with the growth of mobile technology and high speed Internet around the world, and bitcoin was at the right place at the right time. Early adopters were a mélange of libertarians and tech nerds, each of whom saw their own reflection in the bitcoin mirror.

 

Bitcoin’s rise from there is similar to any FANG-y stock story. Global adoption of new technologies led to Facebook’s dominance in social, Google’s in search, and Apple’s in hardware/software. What is different with bitcoin is that it has no CEO, no board, and no proprietary physical assets. But that has proven to be a feature, not a bug. No one “needs” to be in charge… And that’s new and notable.

 

#2 Get out of your head. One thing I have noticed about Bitcoin’s most vocal naysayers: they are almost all wealthy westerners. They cannot imagine why the world needs a crypto currency backed by nothing but computer code and the faith of the masses. For them, steeped in the status quo, it simply makes no sense.

 

Personal story here: my parents fled the Cuban Revolution in 1960 with $200 and a suitcase. They weren’t allowed to take anything else, or transfer funds overseas. They arrived in New York with no place to live and no work. My mom didn’t speak English.

 

Step outside the safe confines of western democracies, and my parents’ history is a relevant and cautionary tale. Similar stories happen every day, across multiple continents. Of course there is intrinsic value in a decentralized store of value that governments cannot control or confiscate. To think otherwise is myopic.

 

#3 Have a Little Faith. Bitcoin and other crypto currencies are notoriously volatile, but few investors/traders seem to care. There is even an self-identifying moniker in crypto circles – HODLers (Hold On For Dear Life) – that captures this sentiment. Don’t sell on any dip, and add to your position if you can.

 

This confidence comes from a deep-seated faith, and it is something that equity investors in particular can learn from. A wise reader once told me, “The lows for US stocks in 2009 weren’t caused by people giving up on stocks – they were caused by people giving up on America”.

 

You’d think that after +70 years of consistent long-term value creation, US equities wouldn’t have to prove time and again that they are money-making investments, and America is a safe country in which to invest. Bitcoin’s rise shows such faith is possible; equities – and the US - have the track record to merit the same level of confidence.

 

#4 You never know where you will find the next Big Idea. We started looking at bitcoin in 2013 after reading about it on Zerohedge. Learning more meant studying the structure and uses of the Dark Web, boning up on computer-driven cryptography, and plowing through fringy tech websites.

 

In contrast, no large investment bank bothered with bitcoin. Financial news sites gave it a passing look when drug dealing website Silk Road was a thing, and when Japanese exchange Mt. Gox imploded.

 

Basically, the entire world missed the story. Too weird, too sketchy, too geeky, too.. strange. And in that is an important lesson: you need to go off the standard intellectual grid to make outsized returns. Some will pan out, and others won’t. But without any exposure, your returns are guaranteed to be zero.

 

#5 Imagination. There is an old Hindu saying that goes something like this: “From a drop a water, you should be able to imagine ice, steam, glaciers, rain, oceans, and waterfalls”.

 

Think back to when Amazon just sold books - their “Drop of water”. A few farsighted individuals could imagine everything that would come next. But not many. And certainly none of their competition had an inkling until it was too late.

 

Regardless of where crypto currency prices go, remember the water drop. The use cases so far have varied, from the illegal to the sketchy to the current popular trading craze.

 

All this is as powerful a cautionary tale as I can imagine. It echoes through the expansive challenge of equity investing even more than the narrow confines of crypto currencies. Technology writ large is a largely ungoverned force for societal change. It can engender high levels of trust very quickly, in the right framework.

 

What comes next for crypto currencies, we have no idea. But we know a drop of water when we see it.

We’ll close out with a quote from Bruce Lee, who in an alternative universe would have made a great investor: “You must be shapeless, formless, like water. When you pour water in a cup, it becomes the cup. When you pour water in a bottle, it becomes the bottle… Water can drip, and it can crash. Become like water, my friend.”

Comments

Ramesees shitshitshit Fri, 12/15/2017 - 10:06 Permalink

$1bn in a $282bn market.  Yes, I agree that all those tether are located on the exchanges that set the price, meanwhile the vast, vast majority of BTC are not on exchanges at all.   Did you see Tether was worth $1.06 the other day? When that happens, you can know that the price of BTC is going to go up on Bitfinex because they're going to issue more tether. The question is: When the price of Bitcoin and other crypto falls, are they actually going to destroy the excess tether in the system (else USDT would be worth $0.95 or lower), or are they going to let Tether linger?

In reply to by shitshitshit

Perimetr tmosley Fri, 12/15/2017 - 12:13 Permalink

Bitcoin and cryptos are a brilliant psyop being used to set up a global, digital financial systembut it will be run by the banksters, of course.They need the innovation and participation of the public to develop the system to the point where it can be easily implemented.What better way to do so than let the value rise exponentially?  Everyone gets sucked in, the software developers find the best solutions to implement.They have everyone's account balances on file, no worrieseither they expropriate bitcoin and rename it (along with the other cryptos) or just used the established systems for their own official digital currencies.by the way, have you gotten your chip yet?

In reply to by tmosley

overbet tmosley Fri, 12/15/2017 - 13:20 Permalink

All these haters saying it will crash to zero are the same mentally challenged folks who have been saying gold will rally. I mean serisouly you have no credibility on that fact alone. Now add in the fact that most of them have no understanding or have taken any time to educate themselves on BTC to even have a valid opinion.The total depth of their analysis is this: It went up too fast. Ive never heard of this type of asset. Its going to crash. Wow let me hire you to be my financial advisor. 

In reply to by tmosley

Laowei Gweilo shitshitshit Fri, 12/15/2017 - 10:21 Permalink

Bloomberg just posted the other day that 40% of volume were just a 1000 whales.DBank just posted yesterday Japanaese salarymen are another 40%.Korean denominated BTC trading is, what, another 15%.... That don't leave a lot left over for attributing this to anything -- whether it's institutional, structural, speculative, retail -- that is supposed to be changing Western finance. What happens when that new Korea tax (on consumers) and the new ban on all trading (for banks) hits the Korean 20%. Or if/when Japan follow. You've got a 1000 whales -- who contributed most of the $6 billion total inflows that this 250b market was created from - basically agreeing regularly 'trade' and setting up sell walls  to help the momentum going.Not hard for 40% the market of whales to 'feed' the 50-55% of the market of JPN and KOR speculators to keep the market going every night -- and if you ever notice, it IS, always, overnight.

In reply to by shitshitshit

Laowei Gweilo kochevnik Fri, 12/15/2017 - 10:52 Permalink

And do you feel FIAT is better since? =pNot a reassuring analogy hhhhhhEither way, not saying anything about the trend. hey, make a buck if you can, man .... if crypto can redestribute a bit of wealth from banksters trying to cash-in, to early adopters, that's cool.  and there's a distinct different conversations between why crypto will grow, and just why one 'IPO' on that tech may be growing.point is just, if you are going to ride the wave, be mindful of who's actually controlling the tide. cuz it's defintely ain't no western mania lol there may be a western mania but it's barely a fraction of one percent of actual $ volume loljust watch the trades... the huge dollar trades constantly made every hour. tens of millions. those aren't mania traders lol.  and despite that, the '40% of the market are whales' has stayed pretty even ... funny how they can trade millions every hour, and yet none of them seem to actually be enterting or exiting the market /sips on some lipton tea

In reply to by kochevnik

Buckaroo Banzai Laowei Gweilo Fri, 12/15/2017 - 12:41 Permalink

The problem with your logic is, it assumes that the whales are pumping the BTC price in order to make an orderly exit to dollars.OK. Maybe we should step back and try to imagine what motivates the whales in the first place?The vast majority of "whales" are the people who literally invented BTC, or became actively involved with it shortly after its invention. These people got into BTC because they wanted to create a viable alternative to the fiat currency mess. In the aftermath of 2008, they rightly recognized that the (((global financial system))) was going to literally destroy the world economy if steps weren't taken to render it obsolete.So tell me why, exactly, they would want to liquidate their BTC for dollars--the things they explicitly created BTC to avoid using? Beyond, of course, sensibly taking some occasional profits to enjoy their lives in the interim between now, and the time when the dollar is finally destroyed and cryptocurrencies take over.

In reply to by Laowei Gweilo

Automatic Choke Buckaroo Banzai Fri, 12/15/2017 - 13:25 Permalink

Why?    Simple:   greed.Yes, they have high motives, but the exponential price rise is staggeringly beyond their expectations.   They can take money off the table right now.  Sure, they don't like fiat, but that fiat is liquid today, so they can turn it into real estate, purchase businesses, even whole islands if they want.  They can build their off-grid fortresses in Galt's Gulch and stockpile it with 10 year's supply of Rice-a-Roni.  They never expected these sorts of riches, they were experimenting with a noble alt-currency cause.Yes, it would be nice if they were true to their cause and kept holding it all.....but they are human, and the temptation to take money off the table is inhumanly large at this stage. 

In reply to by Buckaroo Banzai

ZH Snob shitshitshit Fri, 12/15/2017 - 11:31 Permalink

Lesson #1Pissed you didn't get in on the cheap BTC days?  Now find it too high?Well, even though BTC will go much, much higher, I would recommend Litecoin.  It is positioned like BTC 2 or 3 years ago and still quite affordable.  It will have the lightning connection to BTC, which means people will be able to transfer BTC to LTC with no cost, then spend the much faster crypto.  Charlie Lee is also working on software to make it work like a token (such as Etherium).

In reply to by shitshitshit

Son of Captain Nemo Fri, 12/15/2017 - 09:57 Permalink

REPOST

Ninja Jew(s) of worthless "1s" and "0s" stealing worthless $$$!!!

NO WONDER THEY NEED THE BIGGEST WAR TO LOOT EVERYTHING ELSE THEY CAN'T CONTROL WITH "UNSOUND MONEY"?!!!

P.S.

To "Satoshi"...

The only way it will ever work out for you is if BTC is either traded for PHYS or you get 2/3 of everyone in China, Russia and Iran to transfer their wealth in those currencies for it which none of U.S. believes will be happening until the likes of the Pedo creature from South Carolina get there dream of mass extinction (http://www.zerohedge.com/news/2017-12-14/lindsay-graham-warns-70-chance-...)

GIVE U.S. ALL YOUR RUBLES, YUANS AND RIALS OR "ROCKET MAN" GETS IT!!!

MAKE A WISH AND "BLOW OUT" THE CANDLE!!!

rphb Fri, 12/15/2017 - 09:58 Permalink

Well it is an illogical mania of the crowd. But it is tempting to think that there is logic behind it.Of course, when it eventually crashes, everyone will claim that they knew it was a scam all along.

11b40 HockeyFool Fri, 12/15/2017 - 17:02 Permalink

If the grid goes down, so does everything else.  If you have money in the bank, it stays in the bank.  If you have money in the market, it stays in the market.  If your favorite gas station has gas in the ground, it stays in the ground.  If you have food in the freezer, you better eat it fast, unless you have a solar powered generator, whichvery few do.

In reply to by HockeyFool