I really don’t like arguing with crypto people on Twitter. We see the same problems, but we see different solutions to the same problem. We mostly agree on the fundamentals of why fiat money is bad.
I contend that gold has price information for 5,000 years, and literally everything is priced in gold. You may not SEE it with your eyes, but the price of oil in gold grams oscillates in a tight range. You only know what things are worth because there is price information history. The same cannot be said for literally any crypto. Right now, the value of these are based on floating currencies approaching zero. So your nominal figures in crypto value go up, but if you have 1000 cryptos at $0 value in USD, that is $0 in crypto.
I did a video about how gold is the center of the financial solar system. Any fiat currency that collapses, when a new currency comes about – needs to find price discovery in gold first, then all other commodities will find pricing relative to that, and then finished goods and services can derive their prices from these raw materials.
So – we agree that fiat is bad. OK. But do you understand risks and what to do about them?
This is NOT a sexy topic. Half of you fell asleep at the mention of this and the other half are enraged at me because I said mean things about their cryptos.
I’m on your side. What YOU DO with your money is YOUR business.
But my concern is seeing a class of investors that have literally zero protection right now and an overwhelming majority of them don’t understand risk, how to evaluate it, and what to do about it.
As part of my career, THIS is in my wheelhouse.
Let’s cover some basics first.
With Risk, you can choose to Accept, Transfer, or Mitigate. There are some other minor items I don’t need to cover, but these are the big three. ATM.
Now, assume you live in Florida. You have a risk of a hurricane. How do you address the risk? You can accept the risk and do nothing. You can mitigate the risk by boarding up the house or moving. Or, you can TRANSFER the risk by buying insurance.
Assume I live in Pennsylvania. I could do the same thing. However, the LIKELIHOOD of a hurricane hitting my house is small. Perhaps by the time a hurricane hits me, it’s just lots of rain. 50 years ago, my mother lost her house in Hurricane Agnes in 1972 – as she lived right next to the Schuykill river and they had not put a dam at Blue Marsh yet. In that case, you can mitigate that risk by moving to higher ground or getting flood insurance.
In those two scenarios, the hurricane was the event, but two people had different responses to the same event.
This is very similar to how I’m seeing the gold/silver/crypto right now.
You have a lot of risks with miners and PMs. You can choose to mitigate a lot of issues by picking the right jurisdictions, management teams, and further mitigate by buying advice in newsletters like I do in the Mining Stock Journal, Gold newsletter, Silver Chartist, or Junior Miner Junky. You could run into strikes in a nation. Mine nationalization in PNG. Even governments like potentially in Peru that might turn hostile towards mining.
Then, you have different risks on what stage they are in. Only one out of 3,000 projects gets mined, so early on you have high risk drill plays, but as the project moves on over 10 years, the risk is reduced. So your miner portfolio might be a mix of high risk plays, developers, near term production, junior producers, and senior producers. The higher risk plays early on have the higher payoff if they find a hole, but as you get up to senior producers, they have the lowest risk and perhaps the lowest reward. You may see these potentially as dividend-bearing stocks for pension funds.
With cryptos, there’s a LOT of different risk. I’m going to name a few below:
- Acceptance. While many are convinced this is the next form of money, the barrier to entry is significant to understand. I have 4 hours put into bitcoin, 10 hours put into crypto total, 2 master’s degrees, and no one can still convince me. Now, try and convince a vast majority of the wealth in the world who is much older than me. You might have 5-10 years to go, maybe 20.
- Competition. In 1910 or so, there were 2000 auto makers. This ended up as the big 3 or big 5, with a few smaller ones sticking around. There are 9200 cryptos right now and many of these will be going to zero, very rapidly.
- “The network, dude”. What you are seriously mistaking is in technology called “first mover’s advantage” with “best and most useful”. Bitcoin literature seriously conflates monetary adoption with usage of air conditioning. They misunderstand blockbuster’s massive network with evolving technology that leaves individual companies in the dust. IBM evolved. Blockbuster’s entire business model was rendered obsolete. Understand that “the network, dude” could be 8 track players and the world is now on CDs, and will be on Blu Ray next year and digital downloads 10 years from now. Your crypto, today, could be obsolete, tomorrow.
- Celebrity endorsements! You want to live and die by hype….you will most likely die from it. These types of expansions require constant fuel and you risk those who came in early then sell out as you are getting in. There will be many bag holders with these as by the time you hear about them, others have already made a 100x and are using your money as THEIR exit point.
- Governments. How much you underestimate what they can do. I hear people talking about how governments are powerless to stop this. This is about the most severe thing I’m seeing, and the entire reason I’m writing this. I posted yesterday a video about how the cyber attack on US Critical Infrastructure (CI) is going to cause a momentum shift in how governments address this. What YOU don’t understand is they wait for things like this to occur to then use it to enact plans they already had to destroy it. If a government comes in and just kills a crypto, the people will revolt. However, if your crypto overlord absconds to a jurisdiction outside of your country with $2b in said crypto, the government then has pressure to protect the people. With attacking CI, I can tell you this is not going to end well. First, you need to understand banking rules and laws – and these exchanges mostly skirt those types of things. I was reprimanded because I didn’t have two years of experience with cryptos so I should be a John Snow and “Know Nothing”. That’s not how this works. you don’t get merit badges for completing so many hours of playing with cryptos. you have to understand, you are trying to create a monetary system outside of the most powerful entities the world has ever seen, and you just had a clown attack one of their critical infrastructures. Maybe you cannot see the risk this just created for crypto, but the whole concept of this ransomware was to be anonymous. Any exchange that supports anonymous users will be problematic. KYC, or “Know Your Customer” will be part of these exchanges. Take a look at Silk Road from about 10 years ago how the FBI got involved and threw these guys in a hole. These exchanges could be broken immediately if a government deems them to be “supporting terrorist organizations”.
There are a lot more risks here, but I wanted to cover the government risk here, which seemed to be shrugged off when I posted the below yesterday.
I get the usual “FUD” responses – “fear, uncertainty, and doubt”. This is a billboard screaming at you that some action is coming. This is how this works. A shot across the bow comes, and then later – days or weeks (or months) – people are marched in a perp walk.
Please read “cyber war” by Richard A. Clarke, former cyber czar under 2 administrations. You can see that all kinds of countries have treaties with each other, and it’s not very hard for one country’s department of justice to reach across the pond and get something shut down. There are buttons and levers they can push to get things done. You may not understand how the internet works, but if they do not want something operating, they can sort of “shun” it from knowledge. Exchanges can be black holed. Court orders can shut things down. Banks can shun transfers from these exchanges.
This is not the risk of gold and silver. FAR different risks. One risk they do share? Threat to monetary system. That being said, all central banks for the most part hold gold, so I don’t see it getting purged from the monetary system. If anything, they may “re-value” gold to like $10,000 per ounce so central banks can pay off debt.
So…big picture here is that not all risks are the same, and there are significant nation-state risks now coming at you. If you understand the consequences and want to continue on, so be it. You CHOOSE to “accept” this risk. No problem.
Not my money. But what has been concerning to me has been the immediate dismissal of any negative information as FUD. That is not an investment thesis, it’s burying your head in the sand. Could it blow over? Maybe. But doubtful.
If you step back and look at what happened, a “terrorist” organization just made an attack on the US critical infrastructure. You need to carefully understand what steps might happen next and how this might affect your crypto holdings. My response was…”take some profits off of the table or consider pulling cryptos from exchanges into your own possession”. My twitter followers went the direction that I was attacking their soul. That’s not it. You need to understand risk and choose to accept, transfer, or mitigate.
Welcome to the world of high volatility investment in speculative assets with little to no regulation.
Now…..once you understand the risks, what are the likelihood of each to happen? Some of you talk about more reputable exchanges. Do they have KYC? If so, perhaps they are the least likely to have problems. I’m not saying all exchanges are a problem. I’m saying those with the greatest levels of anonymity may start to run into LOTS of issues, and if you have cryptos on these exchanges, think about what your next steps might be.
My YouTube partner Ashley showed me a tool how you can pull cryptos off an exchange and put them into your own possession. This is an AWESOME way to mitigate the risk of exchanges. Remember, I don’t really give a shit what you do with your money, but my CONCERN is the lack of understanding risk in this space at the moment.
My goal here is to simply provide an overview of risk and how it might affect you. Best wishes, and may whatever investment you have go to $1m and you retire.