OK, here’s the choice.
Someone wants to give you $1 million dollars.
But there’s a catch.
No, don’t worry it’s not an Indecent Proposal type catch.
You can accept it in either bitcoin, or the Venezuelan bolivar. But that’s your only two options. And then you have to keep it in that denomination for 10 years before you can spend it.
So, which one would you choose? The ‘real’ currency? Or this ‘fake’ internet money?
I know which one I would take. And I can bet I know what you might take too. Even if you’re a bitcoin sceptic!
And for some, this is not a hypothetical question right now. In a host of countries around the world bitcoin is now a serious alternative to their national currency.
Especially in the politically volatile South American region.
A few years ago, the more tech-savvy amongst them started the process of moving funds into bitcoin.
Now, Latin America’s wealthiest investors want in on the action. The growing interest from them could help propel investments in bitcoin going forward.
This year several funds have opened up to cater specifically to this market. And that’s on top of the near-100 cryptocurrency focussed hedge funds that have opened up around the world.
In 2018, one thing’s for sure. The big money is moving in…
When a bubble isn’t a bubble
I’ve been having some strange conversations with friends over the past few weeks.
People who I’ve been telling about cryptocurrencies for years are now contacting me to see if they should ‘do x’ or ‘do y’.
And some of these ideas are patently ridiculous. Like taking money that was set aside for a home deposit and lumping it in one cryptocurrency that his work mate ‘reckons is good’.
Or setting up a SMSF to put it all in cryptos.
These are stupid ideas.
But that doesn’t mean they won’t make money. This is a concept I find people with a non-trading or investing background find hard to reconcile.
In their heads the ‘right’ thing to do is whatever turns out to be right.
But as far as I know time travel hasn’t been invented yet.
And there’s no 2029 Sport Almanac you can use like Biff did in Back to the Future 2 to guarantee a result before it happens!
So, when I tell them ‘that’s a very risky/stupid/ridiculous thing to do’, they will judge me on what happens.
Which is wrong.
But it’s how I find that they think.
So, I end every conversation with the qualifier ‘but it’s your money and if you want to risk it all then that is your choice. It might work.’
Don’t mistake this caution for a reversal of opinion on cryptocurrencies.
I think this technology is era-defining.
But the path it will take, the twists and turns, are unknown.
And if people spent as much time educating themselves on the technology as they did talking about prices, they would find it’s a lot easier to find promising cryptocurrencies. And to put a small stake of speculative capital in and enjoy the ride over the next five to 10 years.
And I think there’s a great chance it could result in life changing money.
But that’s generally not how the newbies see it…
It’s all about price and fast gains.
Now in most circumstance, this would be a massive red flag. A definite sign of a market top. A ‘sell everything’ signal…
But this time — deep breath — it might be different.
And it all comes down to what I talked about at the start.
A wave of money in 2018
If the big money comes in, then investing right now is the perfect time.
Right now, at a US$500 billion market cap, cryptocurrencies are still a drop in the ocean of financial assets.
Gold is over $7 trillion. The original speculative, do nothing asset!
And the motivations for the big money to come in grow day by day.
Whether it’s the South American middle class looking to preserve their wealth from their shaky economies.
Whether it’s the tech-focussed hedge funds realising the enormity of technological disruption to come.
Or whether it’s the traders, speculators, old money or even more waves of excited millennials, there’s a steady stream of new money that is yet to go anywhere near cryptos.
And if it does, the irrational acts of my friends today could pay off big time.
But if it doesn’t come, then the losses will be more severe than anyone can imagine.
That’s the risk. That’s the gamble.
That’s why I urge ‘excited caution’. Take the opportunity, but play it smart too.
Editor, Money Morning