This Is Where the Unstoppable Crypto Market Is Headed
Editor's note: Cryptocurrencies are unlike any other investment...
The complicated and often volatile nature of bitcoin and other digital assets can make them intimidating to new investors. But our resident crypto expert Eric Wade says this technology isn't going away anytime soon – and one valuable feature of cryptos makes it worth holding on through good times and bad...
In today's Masters Series, a combination of the July 23 and November 17 issues of our free DailyWealth e-letter, Eric explains a unique "piece of the puzzle" that sets cryptos apart from any other asset class... reveals what the short-term trend in bitcoin is indicating today... and details the smart way to maintain your crypto portfolio...
This Is Where the Unstoppable Crypto Market Is Headed
What's so powerful about cryptocurrencies?
Blockchain, cryptos, tokens, all of it... What's so powerful about them that in the middle of this past summer's 50% correction, not only were people holding on tight (or buying more) – they were actually debating whether we were even in a bear market?
In what other asset class would there be a question about this? In what other asset class do we sit around for 30... 60... 90 days of rope-a-dope markets and keep rolling with the punches?
In today's Masters Series, I want to share a glimpse into why crypto investors are willing to hold through all of this volatility – and one big reason why this asset class is completely different from anything else in the markets...
What is it about cryptos that makes them worth holding on to as an investment? We'll start by talking about an issue that isn't discussed enough... mining.
Mining cryptos can be tough. And depending on several factors – if you're mining a popular coin, or if you have old equipment, or if your electricity is expensive – it can be hard to make a profit from mining, too.
But it can also be just downright difficult to get the hang of. It can take thousands of different configurations to mine a particular coin with a particular algorithm.
Miners need computers with multiple graphics cards. It could take three computers working all day to crank out $3 per day of Ethereum, for example. Forget setting up the machine – most people don't even have the patience for mining. So mining doesn't get much discussion. Even if you ran one of these computers all year, you'd only have just about $1,000.
Yet mining not only makes cryptos different from everything else on the planet... it makes them unstoppable.
Folks who want to mine crypto can use tools and websites to find out if it's worth it. The websites can account for factors like processing power, the cost of electricity, and which exchanges people are willing to look on. They then come up with what's worthwhile to mine, calculating the revenue and profit per day.
In this way, miners can accumulate coins cheaper than the market price. And here's the payoff...
In our example from before, you'd end up with $1,000 worth of coins that have never touched an exchange. If you wanted to, you could build your own wallet, have the algorithm mine the coins into that, and then they'd be yours... free and clear.
This is what makes crypto unstoppable. Again, it takes patience. But it's available to anyone.
Would-be miners can go on eBay and easily find the equipment they need. And then, they can accumulate crypto on their own... having never touched a bank at all.
This is the independent nature of cryptocurrencies. It's what makes this asset class different from anything else.
We see this whenever the powers-that-be try to put a stop to crypto. Mining isn't super profitable now. But mining bitcoin did become much more profitable in the recent past – because China tried to stop it.
Mining profitability shot up because hash rates, which measure computational power per second, dropped. So we can see that if individual governments ever did try to stop this unstoppable technology, miners would clean up.
The fact that you can have off-the-grid cryptos is one of the facets that makes this technology so valuable.
And boy, believe me... if someone has gone through the time, the energy, the work, and the patience to learn how to mine and set everything up for themselves – of course they're not ready to give it up just because the price drops.
This is only one piece of the puzzle. But you can see why a 50% drop isn't where the crypto story ends... not by a long shot.
We as crypto investors deserve all the upside we get. And it's not because we're lucky. I don't believe anyone in this space succeeds out of pure luck.
It's patience... and tenacity. And most important – it's evidence that when it comes to cryptos, we are truly holding lightning in a bottle.
Don't get me wrong... When you look at the cryptocurrency market today, it seems like a lot of people are making easy money.
That makes some folks excited. And it makes others nervous.
I recently spoke at our 2021 Stansberry Conference in Las Vegas. It was an incredible experience – and a way to see firsthand what people are thinking. In my position, you come away with different impressions...
On the one hand, you spend the week with brilliant, well-informed, up-to-speed investors... Then, you get in a cab or go talk to someone on the street. People who you didn't expect to talk to you about cryptos are asking, "Hey, what do you think this coin is going to do?"
When you see smart people getting in – like you, and the folks at our conference – that's good. But as Joseph Kennedy is thought to have said... "If shoeshine boys are giving stock tips, then it's time to get out of the market."
I don't even know where you could find a shoeshine boy these days. But when folks on the street start talking about the hot asset class of the moment, most of us think, "Should I start scaling back a little bit?"
It's one of the most tried-and-true indicators. And some people just outright run for the door.
With that said, you might be wondering where this market is going. So I'm going to share a chart with some answers...
Let's look at the Bitcoin Realized "Hold On for Dear Life" ("HODL") Ratio. This ratio measures the length of time that the owner of a wallet is "HODLing" their bitcoin and the number of bitcoin compared to the last time their bitcoin moved wallets.
Specifically today, we're looking at it in terms of its 50-day moving average ("50-DMA"), a way to measure its short-term trend.
A lot of people look at the HODL ratio as a macro indicator of what's going on with the crypto market. If you look at the chart below, you'll see its peaks tend to coincide with peaks in the price of bitcoin (sometimes with a slight lag).
However, the HODL ratio (the light blue line) didn't peak when bitcoin's price (the dark blue line) peaked earlier this year. Take a look...
The red zone above is our indicator for when this HODL ratio is in danger. (It has nothing to do with the price line.)
As you can see, the ratio didn't reach the red zone during the 2020 to 2021 run-up of bitcoin to $60,000 – not even close. And sure enough, the quick fall to $30,000 after that looks like a mere blip on the chart now... Unlike the actual peaks of the past several years, it was a quick recovery for bitcoin.
What's even more interesting, though, is where it stands now. While bitcoin is at all-time highs, the HODL ratio is nowhere near the red zone... It's in a middling stage.
What does this mean for crypto investors?
First, make sure you're not investing more than you can afford to lose... and maintain your portfolio intelligently.
Based on what I was able to talk with people about in Las Vegas, our readers aren't shy about taking some money off the table from time to time. That's good. Taking profits occasionally is an intelligent strategy as cryptos continue to soar.
But all the indicators – including the HODL ratio – are saying the crypto market has more upside ahead. So keep an eye on your risk tolerance... But stay long.
Good investing,
Eric Wade
Editor's note: Eric believes there's plenty more upside ahead in the crypto market – and he says an unprecedented event that's guaranteed to happen in January will give investors a rare chance to make decades' worth of gains in as little as three months...
Eric recently shared the story of this wealth-accelerating event... and discussed the details of six specific cryptos with the potential to jump at least 1,000% each as a result. He says if you miss what's about to happen in January, you might never see another opportunity this big again. Learn more here.