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694: Cryptocurrencies, Bitcoin and the Rational For Property Investors


04-05-2021

PropertyInvesting.net team

This Special Report gives an update on the gigantic currency printing happening, inflation, investing options and cryptocurrencies. 

What Are The Best Investments? Over the last few years, apart from property investment, we have struggled to give any good steer on other suitably good investments. Even property has been a real challenge with increasing regulation, taxes on landlords and increasing powers for tenants. Whilst property prices have on the whole risen, it’s hard work and returns are not as good as in the period 1998 to 2015.

Property Solid Investment: The old world gave considerable value to gold and silver as a store of value – and although these have done reasonably well, in no way have they kept pace with the money supply and inflation.

For the residential property investors – one of the key things to be pleased about and to keep in mind is that:

Currency Printing On Gigantic Scale: Triggered by COVID-19 – oil prices crashed, retail-hospitality shares crashed and Hi-Tech shares have generally boomed. Oil prices recovered from $20/bbl April 2021 to $65/bbl a year later as normally happens after Central Banks start the “money printing presses” again – in other words the electronic fiat currency – boosting the M2 money supply by around 25% within a year.  As is predictable – oil company share prices recovered some of their losses, gold and silver rose because these are all a good hedge against inflation – solid commodities.

M2 US dollar money supply

 

 

 

 

 

 

 

 

 

 

US High-Tech Shares Boom: As people switched to internet retail spending – shares of Amazon, Zoom and Apple boomed – and the technology sector in the USA got a shot in the arm as investors grabbed the no cost dollars and tried to seek out returns with savings rates close to negative – to prevent their currency from evaporating from the higher inflation. These tech stocks also got a boost from ultra-low interest rates which tend to boost net income - company profits.

Cryptocurrencies - the Rational: With the above in mind, we have recently researched Cryptocurrency and Bitcoin investment and are convinced this is a super place to shift part of an investment portfolio with the below as further context:

• Central Banks continue to print fiat currency and devalue their currencies
• All Governments are increasing debt burdens making their fiat currencies unsustainable with high risk of crash or collapse (into very high or hyper-inflation) - particularly the Dollar, Sterling and Euro - plus many developing nations currencies
• Governments and Central Banks refuse to give investors interest rates on savings – instead taking value to the tune of 15% monetary inflation (expansion) each year - please ignore the CPI inflation – its not relevant for investors these days because the "basket of goods" does not represent the average investor or asset owner

Set to Skyrocket: But equally or more importantly – Bitcoin and Cryptocurrencies as of early 2021 are positioned to explode in value and implementation across all business systems. Let’s explain.

The two biggest crypto currencies are:

Bitcoin – centralised, blockchain technology – that is auditable, peer-to-peer though cannot be easily adapted or programmed for different applications. Its know as “Digital Gold” or the “Cryptocurrency Reserve Currency”. There are only 21 million coins, it can be mined by computers but overall coins don’t increase by more than 2% a year and this halves every five years or so. It is very secure. Its is democratic, peaceful and the platform is not owned or controlled by one individual or entity. Invented around 2012, open source.

Ethereum– a decentralised, also a blockchain technology – that is auditable, peer-to-peer can be easily adapted or programmed for different applications. Software engineers can add coding to Ethereum to develop their own unique applications.  It’s the platform that many other high growth coins (or tokens) – or crypto applications – spawn off. The size of Ethereum coins also does not rise fast. It is very secure. It is opensource software – that other developers can access and modify to provide high quality efficient contracting, banking and other services. Invented around 2015. 

Our prediction is that we are about 10% of the way through this Cryptocurrency boom cycle. We have 21 million people out of 7 billion in the world that either own or use cryptocurrency. In the next 5-10 years – we believe this will rise (like mobile phones and internet usage) from 10% to 80-90%. Yes – we are serious.

Early Adopters: There are some early adopters – but its just about to go mainstream. What we are saying is – far from being “too late” – if you start investing in Cryptocurrency now – you will be fairly early to this investment cycle. The use of blockchain technology is about to explode and spawn many large successful companies. Some will die away, others with prosper. They will put huge pressure on conventional banks - because transaction costs are so low and efficient.   

Key Risks: One of the key risks is that governments try to ban the use of Cryptocurrencies and/or develop their own and ban Bitcoin at the same time. We think this is a fairly small risk only. It’s like China trying to ban the use of the internet. Almost certainly there will be new regulations – but this should help adoption and likely trigger floods of investment coming in to the Crypto market. Pragmatic regulation in the medium-longer term is not likely to hinder growth. We also think the train has left the station – Blockchain, Cryptocurrencies and Bitcoin are unstoppable – and most sensible governments will chose to embrace it (rather than ban it) because:


• It’s been invented and inventions don’t go away
• It's far and away a better technology for bank transaction and auditable contracting compared to the old system
• It's very secure and auditable – you can check the blockchain ledger for all transactions historically
• We don’t believe a public sector bank or government is capable of inventing, developing and successfully launching a Cryptocurrency IT system like Bitcoin and Ethereum – because a) they can't attract the top IT talent; b) they don’t have the organisational resources; c) they are not entrepreneurial and motivated enough. Evidence comes from multiple huge IT failures by successive governments in the western world (e.g. UK NHS databases).  All successful IT high tech ventures have been private sector driven.

History of Technology Adoption: It's important to look back in history at the Internet. It was launched by a software engineer and was such a super technology (like Bitcoin and Ethereum) that people adopted it fairly rapidly up until 10% - then adoption exploded in 10 years to 90% - a sort of "network effect".  Be firmly believe Cryptocurrency is the same – they will revolutionise transactions of all kinds – like:

• Bank transfers
• Purchases of goods and services
• Contracting and procurement
• Stock market trading
• Investment into funds – reserves-savings
• The tokenisation (or issuing Bitcoin or other Cryptocurrency) for all paper and physical assets – like property, oil, gold, artwork)

Everything Might Be "Tokenised"  Each cryptocurrency often specialises in the “tokenisation” or exchange of a certain goods or services into a cryptocurrency “coin” or "token". There will be a huge boom in their usage we believe – and this boom is just starting end 2020 to early 2021

Threats: Many regional, national and international banks will view Cryptocurrency as a threat – because transactions can be done cheaper, more efficiently and often more securely than the traditional banking IT platforms that are – by comparison – archaic.  As an example, you sell some shares, it takes a few hours to get the trade done, then you wait a few days or up to a week for the money to arrive – this is prehistorically slow and you are without your money for many days. Using cryptocurrency, trading generally cuts out the “middle man” – it is lightening fast and costs very little or nothing. If you want to “bet on a superior technology” – you should invest in Cryptocurrencies – the best companies you can find. As a rule – its never good to “bet against a technology” – almost always the best technology wins that day. That’s why Apple, Google, Facebook, Twitter, Tesla and Amazon stock has skyrocketed – the best technology-products on the planet!

Bubble or Note?  If you are interested in Bitcoin and Cryptocurrencies - consider why you are doing this. Are you "getting into it" to: 1) speculate - make serious money (or make sure you are not left behind); 2) out of interest for the technology and its global applications; and/or 3) for the socio-economic aspects - like democracy, control of your finances etc.  We would encourage you to get involved more for 2 and 3 - rather than just as a speculative money making exercise. It's worth stressing that all prices can go up and down, and Bitcoin and other Cryptocurrency prices form bubbles that eventually burst. Though this is also true of the property market, S&P500 and other assets - all assets develop bubbles. Bitcoin and the Alt Coins though tend to have higher volatility - they rise fast but can also crash just as fast or faster.   But the interesting and robust aspect of Bitcoin is that it has had 3-4 bubble-burst price cycles - rather like the oil price - but it always comes back again. This tells us almost for certain that Bitcoin and Cryptocurrencies will be around in the future - rather like the Internet. Some experts actually describe Cryptocurrencies as "the internet of money". We have had the internet for social media, business, databases etc since the 1990s - and now Cryptocurrencies - using the internet - are the "Internet of Money". Each coin is like a software company that operates on the Internet of Money. When this latest bubble will burst is anyone's guess - it could burst today or it could deflate in say 2-3 years time, no-one can accurately predict this. Hence it's best to be careful when investing in Bitcoin and Cryptocurrencies - it would be foolish to mortgage the house to invest in Bitcoin for instance! Its best to only invest money that you think you could afford to loose all of it - at the extreme - and not loose any sleep.  Rather like the dot-com bust. But after the next deflation (or crash) there will be another big run up - though it could be years away.    

Central Banks and IMF: The Central Banks seem more supportive of cryptocurrency than the regional banks - they can probably see how they could help banking and efficiencies - some are reported to be developing their own competing Cryptos but whether these will be any good or ever launched remains uncertain. Meanwhile the IMF watches over the wholesale devaluation and colossal currency printing process in the USA, UK and Euro areas with concern - will they need to step in one day - could their be a global currency launch, could there be a "re-set" or a gigantic "haircut" like what happened in Cyprus 2012 - or could they even adopt Bitcoin as the new reserve currency. One thing for sure is - the US Fed and US Government view the US dollar as the global reserves currency despite the colossal dollar printing - and will probably fiercely protect this with their oil and military if you have to - but with the global Cryptocurrency Bitcoin - the train left the station ten years ago and they may not have any option but to embrace its adoption, steal a march for US technology companies and improve their own banking efficiency by starting to use Blockchain - and adopting Ethereum and Bitcoin.    

Boom to Come: We are of the belief that Bitcoin, Ethereum and Crypto stocks like RUNE (ThorChain) and LUNA (Terra) and ATOM (Cosmos) are all undervalued looking at the long-term trends and will skyrocket in the next few years. Okay, there will be some sharp declines but some meteoric rises – turbulent. But as Blockchain technology is adapted by large banking institutions and when Bitcoin/Ethereum become mainstream – prices should explode higher.

When we compare this investment (or savings) opportunity compared to other investment like bonds, savings, gold, commercial real estate and most manufacturing, banks and businesses – it’s a clear winner. At this time we are reducing our exposure in currencies (cash savings),  gold and oil stocks - and shifting promptly into Cryptocurrencies. We don’t think we will regret this.

For the more elderly wealthy investor:  For the more conservative older wealthy property investor - we challenge you - ask yourself:

  • What will the millennials be getting into?
    Why have I not thought hard about Cryptocurrencies before – is it because I’m not computer savvy?
  • Do I want to get left behind by the youngsters because I have not researched or been open minded enough to understand this opportunity
  • Is this like the Internet revolution in 1996 or not – do I believe adoption will skyrocket or not
  • If I have considerable wealth and can take a risk (unlike most young people) – why don’t I want to risk any of my wealth in Crypto when I might be making zero % interest in a bank whilst M2 fiat currency money supply is increasing at a giant 15% per annum – destroying my savings to the tune of 15% a year (or 50% in 3 years!)?  

80% of Wealthy With Over 55s that could miss this boom: The elderly people have on the whole got 80% of the wealth but most will get left behind despite this because they don’t want to change or can't see what is happening in front of them – they might be stuck in the old world. Also consider the possibility that - this could be a huge opportunity for young people to grab wealth - being part of this boom - from dollar-sterling owning wealthy elderly people that refuse to get involved or hedge against its boom. Furthermore, as elderly people pass away and give wealth to the millennials - our believe is more of the fiat dollars and sterling will shift to Cryptocurrency because the under 55 years olds "tend" to find it easier to understand, are more open minded and see the opportunity far clearly - since they are in this "new world". So to the over 50s - don't get left behind - at least make a considered assessment of it.

Digital Gold: So consider this possibility – Cryptocurrency is the new gold, banks might all be trading using cryptocurrency within the next 5 years and you might be buying houses and stock using Cryptocurrency within the next few years. Do you want to at least consider being part of this revolution or are you happy to be left behind or ignore it?  It's okay to ignore it – be sceptical – say no – you are happy with you lot, but at least one should give it some serious consideration – otherwise one might regret it one day. It's your choice. All we are doing is highlighting the opportunity for everyone – the property investment community - the readers that visit this website.

Market Cap: Remember also that the overall Bitcoin Cryptocurrency market capitalisation is only $1 Trillion (total Crypto market $1.7 Trillion) - the same as silver and ten times less than gold. It's also 100 times less than the US stock market.

Shift from Fiat to Crypto: The last remaining thing is to say that investing in Cryptocurrency is like shifting your fiat currency into – we believe – a non fiat system that protects your wealth whilst growing your wealth. It's both “savings” and “an investment”.  The Crypto “stocks” or “coins” or “tokens” that you purchase (or invest in) with Bitcoin or Ethereum (buying them with your fiat currency) are like start-up software companies. You are investing pre-IPO in high growth companies or investment vehicles (though note they are also relatively high risk and turbulent, particularly non Bitcoin coins). Prices can crash to zero or skyrocket 1000 times. Like any new start-up. But we think it's like in 1996 just before the internet Netscape IPO – and we have 2 to 4 years before things get to 50% of this growth cycle - it might boom too much and might then crash like the dot.com bust in March 2000 - even as early as late 2021, but also remember from the bust were spawned some super companies like Amazon, Google, Facebook, Twitter, Instagram, Apple, Samsung etc. You will have the opportunity to invest, track-monitor and pick the winners early to make massive gains – like the early people did for these huge successful companies.  We think Bitcoin and Ethereum are already two winners that will get bigger and it’s the exciting challenge of picking all the Crypto "coins" or companies coming up behind them using their platforms.

We hope this Special report has given you some good investment insights and a view into the world of Cryptocurrencies like Bitcoin and Ethereum. If you have any queries, please, please do not hesitate to contact us at enquiries@propertyinvesting.net .

 

Footnote:  This article is not advice - it is for free and informational to help educate readers (it is not financial advice)
 

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