What Experts Don’t Understand About Cryptocurrency
“I would describe them as a limited supply of nothing.”
Those are the words of John Paulson, who is known for making $20 billion by taking a massive short position against subprime mortgage bonds. It was an awesome trade in an asset class that many knew was going to collapse… It was just a matter of when.
Paulson simply timed it right. He understood what was happening in the mortgage markets, and he saw the distortions caused by the government backstops of subprime mortgages.
Paulson also had a massive amount of capital and thus the ability to put on the kind of short positions that were impossible for normal retail investors.
His quote above, however, wasn’t about subprime mortgages. He was referring to cryptocurrencies in general. And he went further to say, “There’s no intrinsic value to any of the cryptocurrencies except that there’s a limited amount.”
I make a point to pay close attention to those “experts” who have demonstrated remarkable success in their fields. It’s natural to be curious about what they are interested in now and what they are avoiding.
But just because Paulson is an expert in his analysis of the mortgage market, it doesn’t mean that he understands blockchain technology or cryptocurrencies.
And based on his comments shared in this recent interview with Bloomberg, Paulson clearly has no idea what he’s talking about.
Broad, sweeping statements without any substance are always a red flag for me as an analyst. They are designed to tell us what to think, rather than show us why we should form an opinion one way or another.
In this case, Paulson demonstrated his lack of understanding of blockchain technology and what cryptocurrencies actually are.
Yes, many will prove to be worthless in time, just as many companies also go bankrupt over time as well. Bad ideas, bad products or services, bad execution, and mismanagement always lead to the same place. It doesn’t matter if it is an equity or a cryptocurrency… The worst of the bunch will always end in tears.
What Paulson doesn’t understand is that investing in a protocol like Ethereum is like investing in the next generation of the internet. Ether is the cryptocurrency that serves as the economic incentive for the Ethereum blockchain. As adoption and utility grow on the Ethereum blockchain, the price of ether will follow.
The concept of investing in a protocol or an enabling technology can be hard to understand. We’re all so used to investing in companies.
The radical innovation that blockchain technology brought isn’t just in the technology itself. It is the layer of economic incentive, the cryptocurrency, that incentivizes development and adoption.
Without it, blockchain development would be slow and laborious. With it, to say the growth is exponential would be an understatement.
Just imagine if we had been able to invest in internet protocols like HTTP and TCP-IP back in the ‘90s, before the internet took off. These protocols would have been worth trillions of dollars. They underly every transaction we make and all forms of communication. Yet they were open source, and there was no way to invest in those protocols.
That’s what’s different about cryptocurrencies. This time, we can invest directly in the underlying technology. As adoption of the technology soars, so does the value of the cryptocurrency that represents that tech.
Last Wednesday, we had a big night. It was the launch of my latest investment research product Unchained Profits. I had been waiting for the right moment of industry maturity to launch the product.
Now it’s finally time, and I couldn’t be more excited about what the next few years are going to bring.
One of our recommendations – an incredible blockchain project and cryptocurrency designed to bring decentralized finance (DeFi) to anyone with a mobile phone – had a major announcement.
A group of industry players joined together in support of the project to provide liquidity and incentives for adoption. Subscribers who followed my research saw gains of around 300% early this morning… That’s just after four days since launching the product.
The best part? There is much more of that to come.
I doubt anyone has asked Paulson this, but I wonder… If he could somehow go back in time, would he invest in TCP-IP back in 1995? I think he’d understand cryptocurrencies better if someone did ask him this question. I’m certain his answer would be yes.
And while us normal investors will likely never have the ability to put on complex trades with things like credit default swaps to short some major asset class, we will be able to invest in the protocols and applications that will bring us the next generation of the internet, financial services, smart contracts, gaming, and collectibles.
If you’d like to learn how we’re going to win and outperform Paulson in the years to come, please go right here to learn more about my incredible new research product – Unchained Profits.
The battle for stablecoin dominance is heating up…
Top Facebook executive David Marcus posted on the blog site Medium earlier this month, stating the company’s good intentions behind launching its own stablecoin project.
According to Marcus, the project is designed to fix the global payment infrastructure network. And thankfully, Facebook knows how to fix it.
But as we know, Facebook’s virtue signaling can often be quite different than its actions.
As a refresher for new readers, Facebook’s stablecoin project is not new.
Back in June 2019, Facebook announced the project under the name Libra. It was designed to be a stablecoin backed by a basket of fiat currencies.
And as I wrote back then, Libra would have been a Trojan horse to get Facebook into the financial services business. With its global reach, Facebook would have essentially created a global reserve currency.
Shortly after the Libra announcement, however, regulators expressed their concerns, and the project ground to a halt as sponsors abandoned ship.
The company has since switched gears, rebranding its stablecoin as Diem and its wallet as Novi. This time, the stablecoin is backed by cash and short-term treasurys – a more regulatory-friendly construct.
And in the Medium blog post, Marcus took a direct dig at stablecoin issuer Tether, stating not all stablecoins are alike. Tether itself was fined for not maintaining the one-to-one dollar reserves that it said it would.
He even hinted that Circle – another popular blockchain company – isn’t backing its stablecoins 100% either.
By pointing out other stablecoins’ flaws, Facebook is trying to take the “high and mighty” path. Facebook is saying it knows how to “do it right” to help all mankind.
Marcus went even further, reminding readers that 1.7 billion people remain unbanked around the world. Facebook’s stablecoin project, he asserted, could provide banking services to these people while reducing the 6.5% cross-border fees charged to users. And it would reduce the current three-day settlement times.
The Novi wallet could also be used for payments with e-commerce and online merchants. And with the Novi wallet, the merchants would pay the transaction fee.
Despite its rebranding, this plan is similar to the path Facebook took with Libra when it tried to make that token a world reserve currency. Only this time, Facebook aims to provide not only a U.S.-backed stablecoin, but also services like PayPal, Square, and Venmo all wrapped into one.
The plans here are very far-reaching. And it’s very dangerous to give this level of power and influence to any one company – especially when that company has vast amounts of data, information, and influence over our daily lives.
Once again, I’m surprised Facebook would be so obvious with its strategy for asserting global dominance via its blockchain-enabled technology.
We’ll wait to see if regulators step in once more. I expect them to rise up and take issue with this quickly.
And Facebook’s shenanigans demonstrate exactly why we need a new generation of the internet. A decentralized, censorship-free internet would take power away from Facebook, Google, and other tech giants and return it to the users.
And it would provide many of the benefits of Facebook’s plan without giving one company so much influence.
This investment firm from the 1930s is getting into cryptocurrencies…
This is a company I never thought we’d write about in The Bleeding Edge…
The nearly 100-year-old commodity-focused asset management company Neuberger Berman is launching a cryptocurrency volatility fund. The fund will give the firm exposure to cryptocurrencies and digital assets through derivatives and other investment vehicles.
This is interesting considering Neuberger Berman’s history…
Lehman Brothers acquired the firm in the early 2000s. Of course, Lehman Brothers filed for bankruptcy when the financial crisis unfolded near the end of that decade. Yet somehow Neuberger Berman avoided a similar fate.
With the help of private equity, the firm was able to stay alive and take its assets under management with it. Today, the firm is still thriving, and it has nearly half a trillion dollars under management.
Neuberger Berman’s interest in cryptocurrencies started with a post titled “The Bitcoin Experiment.” It implied the asset was something to keep an eye on. Almost six months later, the firm is not just keeping an eye on it but establishing a hedge volatility fund.
When I see a very traditional firm like this developing a fund centered on cryptocurrency, it is telling. It clearly sees cryptocurrencies as an asset class that moves differently than – and sometimes counter to – other asset classes.
And it sees a benefit in gaining exposure to this asset class. Not only can it be highly profitable, it can also act as a hedge against a portfolio full of more traditional assets.
The firm clearly saw enough potential in this asset class that it couldn’t get through traditional investment classes like stocks or bonds. It is a way for the firm to continue to deliver results even when certain asset classes underperform.
Witnessing an older firm like this build exposure to cryptocurrencies is an indication that this asset class is one to take seriously. New entities continue to enter the markets each week. This is not a trend that I expect to slow down any time soon.
Manufacturing products in space…
We will end the day by talking about Varda Space Industries – a company preparing to build the first-ever zero-gravity factory in space. No, this isn’t science fiction… This is the real thing.
This is a very cool company I’ve been watching closely. It’s backed by some very smart people.
Back in December 2020, it raised $9 million in its seed round. And it most recently held its Series A financing round last month, where it raised $42 million. That means Varda Space Industries took in over $50 million in about seven months.
And with all that capital, the company is planning to build fiber-optic cables in space.
This might seem odd at first, but it makes sense. Fiber-optic cables use light pulses to transmit information. So any slight manufacturing defect can lead to degradation in network performance.
But when a factory can produce a defect-free cable in a zero-gravity manufacturing environment, it can be used for the most critical, error-free and time-sensitive applications. And when I say time-sensitive, I really mean down to nanoseconds.
That is why Varda Space Industries is building a manufacturing base in space to make these cables autonomously. Once the cables are manufactured, they can be placed into a small capsule, ejected, and returned to Earth as a finished product ready for commercial sale.
Varda’s current goal is to obtain three Photon spacecraft through its recent deal with Rocket Lab. We’ve covered that exciting startup several times in The Bleeding Edge, too.
The Photons are a satellite platform that provide the needed components for a five-year mission. All Varda needs to do is provide the payload to be sent to space. We can see the spacecraft below.
Rocket Lab Photon Spacecraft
Varda aims to launch its first mission to space in the first half of 2023 with the Photon spacecraft. This is an incredible turnaround time for an aerospace company that got its first round of funding in December 2020.
I’ll be interested to see what applications these ultrapure, defect-free cables are ultimately used for. High-frequency trading or the military are two industries that come to mind.
In addition to cables, the company will explore manufacturing pharmaceuticals and bio-printed organs in space. Both can benefit from microgravity manufacturing.
It won’t be long before we have a fabrication module attached to the soon-to-be-launched, private Axiom space station, which is capable of producing much larger volumes of zero-gravity manufactured products.
It’s so exciting to see new industries being born. And as crazy as it seems, I’ll be looking for great investment opportunities for subscribers to gain exposure to orbital manufacturing.
P.S. As I mentioned above, I hosted an event last week to discuss the incredible potential of blockchain technology and cryptocurrencies. We’re on track to see an explosion of uses for this technology… and it’s going to revitalize many of the legacy systems we use today. That means there’s almost unlimited potential for profits in this space.
If you have ever wondered why so many people are excited about cryptos and blockchain technology, then please check out my presentation. It will only remain up for a few more days. Simply go right here to watch.
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