POITOU, FRANCE – The price of bitcoin has topped $4,800.
What this means, we don’t know.
“It’s like the tulip mania… just a bubble,” said a friend last night.
“Well… yes and no,” we cautioned against a rush to judgment.
“It may be a bubble… but it is not just a bubble.”
Father Knows Best
In June, one of our sons urged the family to put some money into bitcoin and at least one other cryptocurrency.
We tried to dissuade him, warning the young folks that it was “pure gambling”… and “rank speculation.”
We made it clear that Father Knows Best – bitcoin is no place for your savings.
We were fairly confident it would blow up in their faces… but we went along, judging the inevitable loss as a smallish price to pay for moral instruction.
So far, though, they have learned the wrong lesson.
“Our investment has doubled,” was the report this morning.
“Uh, it’s not an investment,” we replied.
“Okay, but it’s the best speculation we ever made.”
Bitcoin was the subject of conversation last night: How does it work? How high will it go? Is it just used by money launderers and drug dealers?
Another of our boys, Henry, was on hand to reply.
“There are now more than 1,000 cryptocurrencies,” he led off.
All sorts of new ones have come on the market… each with its own particularity.
There’s Monero (fully anonymous), Dash (instant payments), Ripple (interbank settlements), Litecoin (day-to-day transactions), Ethereum (fully programmable)…
One – PutinCoin – is named after a national leader. Some of these currencies are backed by gold. Others include benefits, such as the WhopperCoin in Russia. It gives Burger King customers credits that can be used at the fast-food chain.
And last week, Estonia announced that it would consider launching an official, government-backed cryptocurrency, the “Estcoin.”
“It is a bubble,” Henry continued, “in the sense that a lot of people are expecting things that will never happen.
“For example, take the blockchain, the technology underpinning all cryptocurrencies. It is not likely to create a whole new form of ‘smart contracts’ – contracts executed by computer code – as some people think.
“The blockchain works for currency transactions, but it probably won’t work especially well for automatically resolving insurance contracts or property titles.
“People extrapolate wildly. It was like in the last century, when automobiles were invented. People thought we’d soon have flying cars. But it’s 100 years later, and we still don’t. Because the technology only allows cars to roll, not to fly.
“And there was the dot-com bubble… when people thought that having information readily available would revolutionize the world.
“They thought that people in some remote African village would tap into the internet and build their own 3D printers. Instead, they just play games.
“That’s another thing that will never pan out – 3D printers. They’re gadgets… not things that will revolutionize production.
“And remember the craze about nanotechnology? Apparently, some Japanese research firm had built a miniature machine… as small as a grain of rice. And they were going to be able to recreate the whole world, one molecule at a time. What happened to that?
“You might say the same thing of artificial intelligence. People have been talking about it for years. But nothing ever comes of it. Real intelligence is hard enough to come by. Artificial intelligence – we don’t even know what it is.
“So, there are going to be some big disappointments and some big losses in cryptocurrencies, too. And maybe the whole thing will blow up.
“But from what we’ve seen so far, the blockchain does work… for money. And money is valuable.
“Not because it is backed by the government. Or backed by gold. Or backed by a bank. It is valuable because it works… as digital cash. Tulip bulbs never did. That’s why this is new. And exciting. And nobody knows where it will end up.”
Henry recently interviewed one of France’s experts on cryptocurrencies, Philippe Herlin. Asked where the price of bitcoin could go, Herlin replied:
What price will it eventually hit? Some say about €100,000 ($120,000). That would be a market worth just $2.5 trillion. Not much compared with other asset markets.
It’s just equal to the total assets of French bank BNP Paribas… or the French national debt. So, €100,000 is an attainable figure. Bitcoin is an asset that gains value over time. Even at €100,000, there is still potential for growth. This prediction is not unrealistic.
“The most interesting thing,” continued our son, “is that nothing… not dot-coms… not gold… not even tulip bulbs… has ever made so much money.
“And nothing like this has ever happened before. Satoshi, the guy who is supposed to have invented bitcoin, has some $2 billion worth of the coins. They were worth nothing eight years ago. He’s never touched them. Why not?
“You’d think he’d want to take some of his money off the table. Maybe he’s dead. Or maybe he’s lost the password to his bitcoin ‘wallet.’
“That’s one of the new things about bitcoin. They come out of nowhere. But they can go back to nowhere too.”
Editor’s Note: Our go-to cryptocurrency expert is colleague and former fund manager Teeka Tiwari. Teeka spent all of last year traveling the globe, meeting cryptocurrency insiders, and learning everything he could about this crypto market.
Teeka believes there’s plenty of upside ahead for bitcoin, but he’s also found three other crypto plays, including one he calls the “next bitcoin,” that are already up an average of 2,314%. Get all the details right here.
Editor’s Note: Yesterday, Editor at Large Chris Lowe showed you that the dollar has been on a relentless decline this year. Below, colleague and 30-year trading veteran Jeff Clark shows why the greenback could be preparing to change course.
Investing Insight: Is The Dollar Gearing Up for a Bounce?
BY JEFF CLARK, EDITOR, Jeff Clark’s Market Minute
It has been a rough year so far for the U.S. dollar.
The U.S. Dollar Index ($USD) peaked at 103 on the first trading day of 2017. It has been trending lower ever since.
On Monday, the index closed near 92 – its lowest point of the year. The dollar is now down almost 11% in 2017.
But it looks to me like the buck is gearing up for a bounce.
Take a look at this chart…
For all of 2017 – during the dollar’s relentless decline – whenever $USD dropped to a new low, the key technical indicators (like the MACD and RSI) also dropped to new lows. This sort of “confirming” action in the indicators is a sign of a strong downtrend – one that was not ready to reverse.
Now, though, the indicators are telling a different story.
The dollar dropped to a new low on Monday. But both the MACD and RSI are well above the lows they hit earlier in August. This “positive divergence” tells us the strength of the downtrend is fading. This is an early sign that the dollar may be ready to reverse and start moving higher.
Of course, technical divergence by itself isn’t enough to justify aggressively buying the buck. It’s usually best to wait for some small display of strength – like having the dollar gap lower one day and then slowly reverse the loss and close higher on the session. That sort of move, at the end of a long downtrend, often exhausts all the sellers.
And that is exactly what happened on Tuesday. $USD gapped lower – down 0.5%, which is a big daily move for a currency – and then slowly reversed and closed up 0.1%.
This action, combined with the positive divergence on the chart, is a pretty good indication that the buck is ready to rally.
– Jeff Clark
P.S. Every morning the market is open, my Market Minute newsletter tells readers where the action is headed for the day… including which sectors to watch and which to avoid.
If you’re an active trader, it’s a valuable tool for preparing your day. If you’re not an active trader, you’ll learn tips that’ll make you a vastly better investor. To automatically receive the Market Minute for free right in your inbox, click here.
A VIX Creator: We’re Looking at Volatility All Wrong
The CBOE Volatility Index (the VIX) is often called “Wall Street’s fear gauge.” It’s designed to reveal the levels of volatility in the stock market. But according to one creator of the VIX, we’re looking at this fear gauge all wrong.
Bitcoin: The New Hedging Tool?
As Bill wrote above, bitcoin climbed above $4,800 for the first time recently. Most traders view bitcoin as a speculation. But now, investors are using it for a different reason: to hedge against geopolitical uncertainty.
The U.S. Is Not Prepared for the Coming Cyberwar
Cybercriminals are growing in strength. It’s projected that the damage done by cyberattacks will triple in the next five years. Colleague and tech expert Jeff Brown shares the details of the coming cyberwar.
In today’s mailbag, readers weigh in on the real culprit behind the Texas flood.
I am a university professor and local elected public official in Houston, Texas. I would add one more factor to your most excellent analysis: roads and highways, paid by federal funds (i.e. other people’s money), which encourage urban sprawl and expansion to areas that would otherwise remain unpopulated. Rarely, if ever, is flood control considered when these roads are planned and built.
Your essay on the Texas floods was not necessary in the wake of the personal disasters in Houston. I’m sure if you looked hard enough you could find many cities in our country that rely on government programs. I am in the South and I pay my share when disasters occur in other parts of the U.S. You should have more sympathy for the people in this disaster. This is not the time to score points! Maybe you should return to the U.S. and experience the true reality of the situation in Houston.
– Paul C.
You jump to conclusions that support your thesis regarding fiat money without regard to facts. Shale production makes up a small fraction of the oil business in Houston, the “Oil Capital of the World.” Even conventional onshore production of oil and gas is only a relatively small part of the story. The worldwide offshore industry is largely headquartered in Houston, but more importantly, it houses a major fraction of the U.S.’s refining capacity, and the petrochemical industry is even larger. Little of these were financed with your favorite punching bag.
– Ralph K.
I do not doubt your information regarding the “fake money,” developers, insurance, and oil industry connected with Houston, and it is true we need to consider what happens next and how it might affect the country as a whole. But why the Biblical reference?
No one, ark excluded, survived the flood. It covered the entire earth and the water came from beneath as well as from above. The population had no chance. Do you really think the amount of water that fell from Harvey is any comparison to the amount of water it would take to cover the whole earth?
– John L.
So, it turns out the shale oil business is a profitless scam? You mean just like Amazon and Tesla? For the last 50 years in this country, we have wasted tons of time, money, and resources trying to convince ourselves that things can be as we wish them to be as opposed to how they actually are. Yet we still go up Denial Alley. I’d say we have a lesson to learn, and we’ll have to learn it the hard way.
– Paul M.
Love your take on a major cause of the disaster in Houston. I live in a county with more than one hundred lakes, and we are aware of the risks associated with lowland development. I can never understand why folks would choose to build in/on a floodplain.
You’ve explained part of it by factoring in cheap flood insurance, low interest loans, and shady developers. It all boils down to the almighty buck and to hell with common sense. Of course, the blame will fall on Trump, conservatives, and climate change. Why not? The non-thinkers are always good for cheap entertainment.
– Greg S.
Meanwhile, the discussion on Donald Trump continues…
I think your view of Trump’s tariffs is myopic and misguided. Free trade is but a dream unless all parties play by the same rules, which they don’t. The U.S. has been in a lose/win situation for far too long, resulting in massive trade deficits with nearly all trading partners.
We should not fear a trade war. Tariff proposals as a countermeasure to theirs is a negotiation tool for an even playing field. Free trade will only become reality when all trade partners stop their manipulation tactics. How long do you do business with someone who puts barriers into two-way transactions?
– Erich K.
Trump represents the last gasp of the Boomer generation, with all the good and bad of that portion of our population. They grew up with the memory of their parents’ triumph in World War II, and their defeat of the Soviet Union in the postwar years. They are responsible for the decriminalization of some social no-nos, but also the militarization of our police forces, for example.
They respect power, and want to see it used against crime, for example, even if more policing seems to breed more crime. He is trying to use the power of his office to control Congress, but that doesn’t seem to be working very well either. Congress is now mostly composed of members of succeeding generations, and they have their own ideas about how to do things.
– Chuck B.
How can you be so disparaging about our hero Trump and this market? Here we have one of the greatest stock market rallies in history going on and our hero has the media, liberals (including numerous Republicans), progressives, Democrats, Deep State, and swamp critters all in a state of discombobulation. What more can a Trumpster ask for?!
The politicians in Washington have been keeping most voters in this state for many years. It’s not fair that Washington has been sticking it to us all these years and we couldn’t return the favor. Now we have our hero sticking it to them. Hallelujah!
As far as this stock market is concerned, you keep trying to make us look down. How can you be so mean? Don’t you know that as long as we don’t look down everything will be fine? At least in the movies that’s the way it works…
– Ken D.
In Case You Missed It…
On September 12, tech giant Apple is expected to reveal the newest version of its most popular product: the iPhone 8.
But not everybody knows how to make money from it… Here’s the real investment story through the eyes of a genuine “Silicon Valley insider.”