Why the Crypto Correction Is a Good Thing
Editor's note: Some folks say cryptocurrencies are crashing.
Others are saying the recent pullback is making for a great buying opportunity.
Regardless of which side of the argument you find yourself on, it's important to know what factors have been moving the markets... and what to make of the correction.
Today's Masters Series essay was published last month in our corporate affiliate Stansberry Churchouse Research's Asia Wealth Investment Daily e-letter. In it, our friend and crypto expert Tama Churchouse shares two reasons to be optimistic despite the pullback... and explains why the correction is ultimately good news...
Why the Crypto Correction Is a Good Thing
Forest fires, while potentially lethal and devastating to people and property in their path, are a crucial part of the natural cycle of forest ecosystems.
Fires remove dead vegetation and alien plants that compete with native species, stimulate new growth, trigger certain plants to release seeds, and actually improve wildlife habitats. They also remove diseased, decaying trees, making new for new younger ones.
In the world of crypto assets, a fire is raging right now. The crypto market has shed nearly $450 billion of market value since last month. (That's around 50%). Every crypto has pulled back.
The Spark
The spark was a long-overdue regulatory hammer blow starting to reverberate, from both Korea and China.
China is now intensifying its crackdown on crypto trading, specifically on exchange-like service providers. Chinese exchanges themselves have long been closed, since the previous regulatory onslaught last August and September.
A Chinese central banker was also quoted as saying that businesses providing any kind of market-making or crypto trade settlement services should also be shut down. Chinese central bank regulator vice governor Pan Gongsheng also said that mobile apps and websites offering trading services should be blocked, and that there should be an "orderly exit" for the crypto mining industry.
Korea, on the other hand, is focused on more regulation and oversight – an end to anonymous crypto exchange accounts, for example, and proper taxation – rather than shutting the market down.
I've been warning my Crypto Capital subscribers about an impending correction for a while now. Last month, I wrote...
The moves we've seen in the alt market recently have been extraordinary. There's a degree of frenzy, and of blind speculative mania, that has taken hold. I've seen projects that I know with certainty have no long-term future whatsoever see their market values double, triple, or more, moving into the billion-dollar plus category.
These are projects that I'm certain will fail.
The big shakeout is going to come. Don't be even vaguely mistaken about that.
No doubt there are plenty of folks panicking out there. Maybe you own a little bitcoin yourself, and are feeling nervous... and you've lost some money.
Of course, that's not good. But through the smoke and flames, it's worthwhile remembering that these fires do serve a greater purpose.
Why This Crypto Correction Is Good
First, they force people to start truly assessing what it is they own... or think they own. In a raging bull market when everything's going up, it's easy to throw some darts at the crypto wall with no research at all, bag some returns, and think you're a genius. As the cliché goes, a rising tide lifts all boats.
But let's say a cryptocurrency you own is down 30%, 50%, even 70%... and it happens in an instant. Chances are good that if you don't have that foundation of conviction, research, and understanding to fall back on, you'll sell, bag a loss, go home, and lick your wounds.
Corrections force discipline on an otherwise broadly unsophisticated market. And that's only a good thing in the long run.
The second benefit is that these fires clear out the dead wood... that is, the garbage of the crypto world. And there's no greater decaying oak than a crypto called Bitconnect.
Back in November, one of my Crypto Capital subscribers wrote to me asking about it. He noticed it had been doing extremely well, and upon further digging, came across an article online claiming that Bitconnect was some kind of "sustainable 2.0 Ponzi scheme."
I wrote at the time...
Another crypto I've highlighted, a pretty large market cap coin, it goes by the name Bitconnect, is genuinely a Ponzi-like scam coin... I think Bitconnect's days are probably going to be numbered.
If I look back on coin market cap here, you can see, this is a $2.5 billion Ponzi-like scheme. I don't know how much longer it's going to be around.
I have warned people about it. People say, "Well, the price keeps going up." Well, that's kind of what happens in a Ponzi scheme until it doesn't, and the rug comes out from under your feet.
It's interesting to see the regulators coming down and actually sending cease and desist to a specific crypto. We warned about this crypto in the past, so I hope you don't own any.
As of early January, Bitconnect traded for more than $430. A month later, it was trading for less than $5 – a collapse of more than 95%.
The sad part of this is that thousands of individuals, if not tens of thousands, have been wiped out. There was certainly no smart money in Bitconnect tokens. This was the preserve of the unsophisticated – who I suspect could least afford its demise.
Two billion dollars of "wealth" vanished into thin air.
Its very existence, however, was a black mark on the whole crypto sector in general.
The company behind it received multiple cease and desist orders. No one knows who is actually behind the platform. Its GitHub repository, where all open source blockchain code resides, is noticeable only for its inactivity. And if you're looking for a white paper to learn at least something about the inner workings of this coin, good luck finding one.
Oh, and according to its website, Bitconnect is "an interest-bearing asset with 120% return."
When all's said and done, these corrections will help this still-nascent asset class.
There's still a lot of dead wood to clear out. It's a painful process. But the market will be the better for it.
Good investing,
Tama Churchouse
Editor's note: Whether you're bullish, bearish, or totally clueless, you probably have plenty of questions about the crypto market right now. That's why next Thursday, February 15, at 8 p.m. Eastern time, Tama is hosting an emergency briefing. In it, he'll discuss the latest developments in cryptocurrencies... reveal a shocking prediction... and show you how to make a lot of money as the market recovers. Reserve your seat here.