Editor’s note: Follow former hedge fund manager Teeka Tiwari for his big-picture view of the markets.
Editor: Hi Teeka. As you know, we receive hundreds of questions every month about cryptocurrencies. Instead of answering them one at a time, I decided to pick out the most pertinent and run them by you. That work?
Editor: So our first question comes from Jose B. It’s about the recent “fake news” story regarding Goldman Sachs ditching its plans for a crypto trading desk.
As it turns out, Goldman Sachs says it’s not ditching its plans for a crypto trading desk… and on top of that, the firm is working on a custody solution for cryptos.
Jose wants to know why “fake news” causes the crypto market to go down quite a bit… but positive news doesn’t cause it to go up as much.
Teeka: It all has to do with investor sentiment.
When investor sentiment is high, good news gets magnified and bad news gets minimized. When sentiment is low—like in the current crypto market—bad news gets magnified and good news gets minimized.
The thing to remember is that sentiment is cyclical… It never stays very high or very low forever. It constantly rotates from elation to despair. This is the very nature of all markets… not just crypto.
Since crypto is a young, small market, swings in sentiment are magnified even more than mature markets like stocks. Our strategy is to use this low-sentiment period to scoop up the very best names we can find in the crypto space.
As sentiment swings back around to the upside, we’ll see massive moves higher ahead in crypto prices. The mistake many people make is thinking that sentiment will never shift again… and of course, it always does.
Editor: Good answer, T. We’re seeing the same thing in the U.S. stock market right now. It’s shrugging off all of the bad news because sentiment is bullish. The markets keep going up no matter what happens around the world—whether it’s trade wars or political uncertainty.
The next question comes from Tamara D. She says she hates to see all these big banks and institutions getting involved in the crypto market. She wants to know whether you’re concerned about their entry into this space, too.
Teeka: This is a great question. From a philosophical standpoint, I hate seeing big banks co-opt decentralized technology like bitcoin. The point of bitcoin is to decentralize the financial space by removing the middleman… not to build a whole new series of gatekeepers.
The beauty of bitcoin, however, is that it’s very easy to move, trade, and store. As more people come into the space (via the banks), people will learn they can hold their own bitcoin themselves. And that’s very encouraging.
From an investor standpoint, I’m extremely excited to see the big banks coming in. They will bring tens of millions of customers and trillions of dollars with them. Crypto can’t go mainstream without the help of traditional financial firms.
I believe early investors—such as my subscribers—will be well-positioned to make many millions of dollars as traditional firms take crypto mainstream.
Editor: I’m sure you’re right about that. That brings me to a question from Jerome S.
With cryptos in a bear market, he wants to know if now is a good time to double down on cryptos.
Teeka: So long as it doesn’t violate your position-sizing rules.
Editor: Good advice. With cryptos, we always recommend small position sizes. That makes it easier for you to ride out the volatility.
Back to the questions… Here’s an inquiry from Hayden G. He says there’s been considerable discussion about when we’ll see the approval of the first bitcoin exchange-traded fund, or ETF, in the United States.
However, he points out that there’s already a Swedish bitcoin exchange-traded note (ETN) available in U.S. dollars. He wants to know your thoughts on the Swedish ETN.
Teeka: The Securities and Exchange Commission (SEC) recently halted trading on that ETN. And U.S. firms, such as Merrill Lynch, won’t allow you to trade it. I never expected the SEC to allow a non-U.S.-issued bitcoin security to trade in the U.S. unmolested.
Editor: Yeah… regulators are going to regulate—that’s what they do. OK, here’s Aaron K. He asks, “How do you value your crypto ideas?”
Teeka: My primary metrics are usefulness and usage.
Does the coin solve a problem worth solving? Why will people use it? Are people using it? What’s the current trend in usage?
In my opinion, the ultimate arbiter of value in crypto is usage.
Editor: The final question comes from Aline C. She’s heard rumors that Citigroup and Nasdaq will launch crypto projects soon… and wants to know if you’ve heard anything about this.
Teeka: I have. I’m hearing rumors that all the major players—from Fidelity to BlackRock—are working on launching crypto investment projects. Here is the key takeaway: Crypto is on the verge of becoming a mainstream alternative asset.
It’s going to grow from a $200 billion asset class to a multitrillion-dollar one.
Editor: Thanks for taking the time to answer these questions, T. We appreciate it.