At Early Investing, we like to hold our crypto. We believe that, despite the volatility in the crypto market and the scary dips that can happen, crypto is ultimately growing in value. And it will eventually overtake the fiat currency system.

Taking this view means adopting a long-term approach to investing.

Tom Lee, co-founder and head of research at Fundstrat Global Advisors, has calculatedbitcoin’s return if an investor had not owned the crypto for its 10 highest-returning days each year.

The top 10 days drastically outperformed the rest of the year – especially in 2013 and 2017. The non-top 10 day returns were negative in four out of the past six years. The dotted line shows the annualized return from 2013 to 2017 would be negative 25% if an investor had missed the 10 best days in each year.

As Adam Sharp pointed out recently, investors are emotional beings. They are susceptible to fear and greed, and that can undermine their judgment. An investor who’s new to crypto would probably look at that chart and feel both fear and greed – fear for the dips and greed for the dramatic highs. They might try to jump in and out of the market to profit from those highs and escape the lows.

But the fact is it’s extremely difficult to pinpoint the bottom of a market. Bitcoin’s volatility just adds to the degree of difficulty. And the fact that most media headlines are fixated on price (instead of bitcoin’s market cap and growing institutional adoption) just adds to the pressure to sell.

According to many different publications over the years, bitcoin has met its demise 322 times.

Yet it’s still here… at a $6,700 price and a $114 billion market cap as I write.

This is why taking the long view is so important. It may look (and feel) terrifying to see crypto prices take turns soaring and plummeting. But the closer crypto gets to mainstream adoption, the more the markets will stabilize. And it’s getting closer all the time.

Take heart and hold your crypto – even when it makes you queasy. This roller coaster has its loops, but it also has a steadily rising baseline. Remember that.

Good investing,

Allison Brickell
Assistant Managing Editor, Early Investing

Can a $10 Bill Really Fund Your Retirement? The digital currency markets are delivering profits unlike anything we’ve ever seen. ​23 recently doubled in a single week. And some like DubaiCoin have jumped as much as 8,200X in value in 18 months. It’ unprecedented... but you won’t receive any of the rewards unless you put a little money in the game. Find out how $10 could make you rich HERE. ​

Independent money, free of government control, has long been a dream of liberty-minded individuals.

Nobel Prize-winning economist and free thinker (a rare thing) F.A. Hayek described the main problem with a single group having a monopoly on money: a profound lack of innovation. Here’s an excerpt from his 1984 interview with the Cato Institute:

The great trouble is that money wasn’t allowed to develop. After 200 or 300 years of the use of coins, governments stopped any further developments. We were not allowed to experiment on it, so money hasn’t been improved, it has rather become worse in the course of time.

Money certainly has devolved over time. It has descended from being backed by hard assets, like gold and silver, to its 100% fiat status today. There’s nothing backing it, and there’s no limit on the amount that can be printed.

There’s not even precious metals in coins anymore – not even copper in pennies! So we can see that innovation dies and money loses value when centralized powers have control over it. It’s happened throughout history.

But Hayek was truly ahead of his time. He went so far as to think about how we could develop an alternative monetary system. Here’s a Hayek quote from a different 1984 interview:

I don’t believe we shall ever have a good money again before we take the thing out of the hands of government – that is, we can’t take them violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can’t stop.

So Hayek thought that we could create independent money in a “roundabout way… something that they can’t stop”…

Sounds like crypto to me…

It uses a decentralized network of computers to solve the “something they can’t stop” part of his idea. Nobody owns bitcoin. It is an independent network of millions of people voluntarily using it and improving on it.

Finally, Innovation in Money

Cryptocurrencies are the first real innovation in money in centuries. Think about the implications of that…

For most of modern history, governments have not allowed any competition in money. But now, the cat is out of the bag. The code is out there and free for anyone to use. Shutting it down is next to impossible.

Hayek realized that a clever system like crypto would be needed for money to be truly free.

The pioneers who helped bring bitcoin and cryptocurrencies to life, such as Nick Szabo and Satoshi Nakamoto, designed the systems brilliantly. Good cryptos are decentralized – running on tens of thousands of computers all over the world. There are checks, balances and incentives built in. Bitcoin has proven itself to be remarkably secure over the last nine years. And it’s constantly evolving and improving.

Hayek predicted the usefulness of independent money, but I don’t think he imagined the incredible flexibility of it in action.

It’s independent money. And it’s the first truly programmable money. Both concepts are revolutionary.

We’re beginning to see these concepts in action. In countries where inflation is high, cryptocurrency is becoming an everyday part of life. It’s a way to protect and preserve value where government money is failing.

On the “programmable money” side of things, projects like Ethereum are leading the way. This is an equally promising aspect of crypto. Having programmable, flexible money is allowing for all sorts of innovation. Initial coin offerings are the first killer application, but it certainly won’t be the last.

We’ve only just begun to see the potential of crypto. Personally, I can’t wait to see what pops up over the coming years. Independent currencies capable of being programmed like software offer nearly unlimited possibilities.

Hayek died in 1992, but I’m certain he would love cryptocurrency if he were still around. The fact that he predicted something like crypto would be necessary to move money forward is nothing short of remarkable.

Good investing,

Adam Sharp
Co-Founder, Early Investing

Can a $10 Bill Really Fund Your Retirement? The digital currency markets are delivering profits unlike anything we’ve ever seen. ​23 recently doubled in a single week. And some like DubaiCoin have jumped as much as 8,200X in value in 18 months. It’ unprecedented... but you won’t receive any of the rewards unless you put a little money in the game. Find out how $10 could make you rich HERE. ​

Bitcoin’s adoption cycles have been fascinating to watch over the years.

Every time there’s a sustained rise in price, more people jump on board.

Some of these new buyers drop out after the first correction, or take a small profit and don’t come back.

But some grow to appreciate the deeper side of crypto – the monetary revolution aspect. This is the “hodl” (hold) crowd.

With each adoption cycle, the base of holders increases (after they’ve survived a few major corrections, the volatility gets easier to handle).

So… what are the holders waiting for?

Those of us in it for the long haul are making a long-term bet on mainstream adoption. We envision a future where the majority of people store a chunk of their savings in various cryptocurrencies.

Here’s a classic bitcoin meme that explains the thinking.

Why do we think that this is likely to happen?

The primary reason is that many of us have lost faith in the current financial system. We view it as unsustainable and increasingly fragile.

Here’s a cynical (and somewhat oversimplified) view of the current system.

We trust banks with our money. They gamble with it. Their gambling blows up in their faces. We bail them out (or the Federal Reserve does). And then the cycle repeats.

The more bailouts – and associated monetary tinkering – that go on, the more that currency tends to lose value (purchasing power).

Our economy starts to become dependent on artificially low interest rates, and we have to push them down lower, for a longer time, to get the same result. Savers are punished and (some) speculators with access to capital are rewarded.

The root of all these problems is that there is no real limit on the creation of additional fiat money. It’s far easier to run large deficits – and borrow – when money can be conjured out of thin air. The temptation to print, borrow and bail out creates a vicious cycle.

The whole system is built on top of a bad foundation. For all those reasons, it seems inevitable that it won’t last forever.

But with bitcoin, we don’t have to store our money this way anymore. Bitcoin created a new framework for digital money that cannot be counterfeited. It’s a breakthrough technology, and it’s “open source” (free to copy and use elsewhere). Now there are thousands of cryptocurrencies all competing for market share.

What about yield? Banks don’t pay much interest these days, but at least it’s something. How will crypto compete?

You can already lend speculators your cryptocurrency in exchange for a guaranteed return. (They get the monetary upside, you get a guaranteed rate.)

Today you can collect around 4% per year for loaning your bitcoin on Poloniex. That’s a yield similar to what a “normal” savings rate used to be.

Ethereum fetches a higher premium, at more than 13%.

It’s the start of an alternative financial system. And the systems are getting better, easier and more secure each day.

And get this: There are already companies that offer their employees a choice to get paid a portion of their salaries in bitcoin. One of them is Japanese tech company GMO Internet Group, which has more than 4,000 employees.

The Baskets Theory

There are two primary theories about how mainstream adoption will play out. The first is that a single dominant cryptocurrency will emerge. This view tends to be held by the bitcoin “maximalists” and other coins’ equivalents. The argument goes something like this: Bitcoin is the oldest, largest and most secure network, which makes it likely to emerge as the sole winner.

I fall into a different camp. I believe we will use “baskets” of cryptocurrencies in the future.

Wouldn’t it be better to store your savings in a basket of private, independent forms of money? If our goal is to get away from a single point of failure (local fiat money), why wouldn’t we spread out our risk across dozens or hundreds of cryptos (once the market is more mature and stable)?

I foresee at least a dozen large cryptocurrencies and tokens. Competition is great for this market, and it would be a shame to see a single dominant player.

What About Volatility?

Today, cryptocurrencies are notoriously volatile. This will change as the market matures and the majority of investors, savers and even corporations adopt them.

Stability will come in time, but don’t expect it soon. As long as there’s more new (net) long holders coming in over the long run, the (overall) positive price growth can continue for decades. Of course, it will be bumpy until stability settles in and crypto becomes true everyday currency.

There is another advantage to the “baskets of crypto” theory. If we hold a diverse group of coins, our risks are substantially reduced. If any one coin loses a significant amount of its value, it won’t hurt much and should largely be offset by gains in other coins.

So that’s why many of us continue to hold on to those cryptocurrencies we think can last, despite the occasionally nauseating ups and downs. And it’s why we’re constantly looking for the next big opportunities.

Today we’re in the largely speculative phase. It’s early, and the infrastructure is being built as we go. We don’t know for sure that crypto will succeed.

Then again, by the time we do know whether this experiment will succeed or not, prices will either be much lower than today or hundreds/thousands of times higher.

Crypto remains one of those rare, calculated risks with extreme upside and limited downside. I say “limited” because it’s limited to the size of your investment.

Act accordingly, and don’t bet money you can’t afford to lose. If you look at crypto this way, you’re less likely to get hurt and more likely to make money by adopting the long-term perspective.

Good investing,

Adam Sharp
Co-Founder, Early Investing

Can a $10 Bill Really Fund Your Retirement? The digital currency markets are delivering profits unlike anything we’ve ever seen. ​23 recently doubled in a single week. And some like DubaiCoin have jumped as much as 8,200X in value in 18 months. It’ unprecedented... but you won’t receive any of the rewards unless you put a little money in the game. Find out how $10 could make you rich HERE. ​

Founder’s Note: I’d like to introduce you to Vin Narayanan. He’s our new senior managing editor and analyst. Vin knows his stuff when it comes to crypto, and today he’s giving us an update on the latest crypto regulation news.

– Adam Sharp, Co-Founder, First Stage Investor

Dear First Stage Investor,

Ethereum hit the mainstream press this week when The Wall Street Journal reported regulators are investigating it and other cryptocurrencies not named bitcoin.

The main question is whether cryptocurrencies, especially ones that have had initial coin offerings, are securities that require SEC regulation or commodities that don’t. The Commodity Futures Trading Commission has already ruled bitcoin a commodity.

To no one’s surprise, both regulators and the Journal are late to this party – really late.

Ethereum has been trading since 2014. Ripple, another cryptocurrency that’s caught the eye of regulators, has been trading since 2012. These issues aren’t exactly new.

They should have been addressed by now. Then again, this is the government we’re talking about!

The good news is when it comes to resolving these types of issues, regulators hate picking winners and losers (they prefer the markets and lobbyists take care of that).

So whatever action regulators take, the long-term effect on these currencies shouldn’t be significant. But that doesn’t change the fact that regulation is coming.

We’ve been saying that for quite some time at First Stage Investor, so it shouldn’t be a surprise to you. And frankly, that’s not a bad thing. A good regulatory infrastructure will provide a sense of order and certainty that will allow cryptocurrencies to thrive.

The key word in that last sentence is good.

The reason the internet – especially e-commerce – took off in the late 1990s is the Clinton administration made a conscious decision to take a hands-off regulatory approach. That meant online purchases weren’t taxed at the federal or state level. And companies operating on the internet were given wide legal protections in copyright and free speech lawsuits.

That friendly approach to regulation paved the way for the internet boom. Without that friendly and open regulatory framework, the internet as you know it today wouldn’t exist.

No Facebook. No Twitter. No Amazon. No Netflix. (Some people would argue this is a good thing, but that’s a separate discussion…)

The cryptocurrency world is at the same crossroads that the internet was in 1998. The government has a choice. It could create a burdensome regulatory infrastructure that stifles innovation and growth. But I believe it will adopt common-sense regulations that will allow the crypto markets and industry to thrive.

Typically, governments err on the side of encouraging innovation and growth – especially when existing stakeholders are already on board. And in this case, the list of existing stakeholders is impressive.

Goldman Sachs is a few weeks away from opening its bitcoin trading desk. (Just count all the former Goldman officials who’ve worked either in this White House or the previous one.)

Peter Thiel’s venture capital firm, Founders Fund, participated in a $15.5 million funding round for Tagomi Systems, a company focused on bringing Wall Street-type trading to the cryptocurrency market.

Thiel is the one Silicon Valley executive President Trump likes – and that means a lot right now.

We expect the government to take a pro-growth regulatory approach to cryptocurrencies for these reasons. But we’ll have a better idea on what the government is thinking about on May 8.

That’s when the House Science, Space, and Technology Committee holds its blockchain hearing. In theory, this hearing is about improving supply chain management and battling counterfeit goods.

But rare is the government blockchain hearing that doesn’t address cryptocurrencies. So stay tuned. We’ll cover the hearing for you and keep you posted.

Good investing,

Vin Narayanan

Senior Managing Editor

Source: Early Investing

Until recently, cryptocurrency was dominated by retail investors, including cryptographic people, libertarians, and a few early venture capitalists and hedge fund managers.

Today, there are more than a hundred cryptocurrency hedge funds.

And just this week, Goldman Sachs announced its first major cryptocurrency hire. According to CNBC, Goldman’s announcement read, “In response to client interest in various digital products, we are exploring how best to serve them in the space.”

So today, we’re going to explore the latest stories that indicate crypto may indeed be going mainstream.

Nasdaq CEO Hints at Future Cryptocurrency Exchange

Nasdaq just announced a partnership with crypto exchange Gemini to monitor futures pricing. Nasdaq CEO Adena Friedman took it further, stating in prepared remarks, “Certainly Nasdaq would consider becoming a crypto exchange over time.”

Square Stock Jumps 5% as Analysts Predict “Sizable Boost” in Earnings Due to Bitcoin Trading

This is big news because, for the first time, cryptocurrency trading is impacting a major public company’s bottom line.

From CNBC:

An analyst at Nomura Instinet said Square could see a “sizable boost” to first-quarter earnings thanks to the addition of bitcoin trading on its payments app.

Major VC Firm Andreessen Horowitz Is Planning a Separate Crypto Fund

Andreessen Horowitz (called a16z) is apparently moving forward with its long-rumored cryptocurrency fund. a16z is a powerhouse firm and is one of the biggest investors in Coinbase, the leading U.S. crypto exchange.

When a16z raises a fund, it’s almost always a large one. Several of its funds are worth more than $1 billion. More from TechCrunch:

The rumor has been going around for a while – not a huge surprise since the firm has invested in the likes of Coinbase, Earn.com and CryptoKitties and co-founder Marc Andreessen is a big crypto advocate – but it now appears there is genuine substance to it.

Crypto Hedge Fund Manager Says Crypto Has Bottomed Out

This story is a nice feel-good piece to end on.

Here’s the juicy part of the article, via Bloomberg:

Pantera Capital Management, which has more than $800 million in assets, says $6,500 was the low of this bear market and bitcoin will stay above that price for the majority of the next year, likely surpassing the previous record of almost $20,000, according to a note sent to investors Thursday.

I wholeheartedly endorse this sentiment.

Have a great weekend, everyone.

Adam Sharp
Co-Founder, Early Investing

Can a $10 Bill Really Fund Your Retirement? The digital currency markets are delivering profits unlike anything we’ve ever seen. ​23 recently doubled in a single week. And some like DubaiCoin have jumped as much as 8,200X in value in 18 months. It’ unprecedented... but you won’t receive any of the rewards unless you put a little money in the game. Find out how $10 could make you rich HERE. ​

A startup called Basis has raised $133 million from top venture capitalists to build a “stable cryptocurrency” (also called a “stablecoin”).

A stablecoin is a cryptocurrency designed to eliminate the high volatility associated with most coins. The goal is to smooth out the ups and downs so the stablecoin is usable as an everyday currency.

Basis plans to stabilize its price by controlling coin supply, increasing it when demand is high and decreasing it when demand is low. It also mentioned possibly letting the coin’s price rise when the algorithms detect inflation. This is similar to how a central bank operates (or should operate).

The tagline on Basis’ site reads “A Stable Cryptocurrency With an Algorithmic Central Bank.”

Here’s an excerpt that describes the goal from Basis:

When demand is rising, the blockchain will create more Basis. The expanded supply is designed to bring the Basis price back down.

When demand is falling, the blockchain will buy back Basis. The contracted supply is designed to restore Basis price.

The Basis protocol is designed to expand and contract supply similarly to the way central banks buy and sell fiscal debt to stabilize purchasing power. For this reason, we refer to Basis as having an algorithmic central bank.

Basis does not plan to “peg” its price to the dollar like other successful stablecoins such as Tether (USDT) have done. Tether is currently the largest stablecoin, with a $2.3 billion market cap. (It trades within a tight range, around $1.)

Basis’ coin isn’t live yet, so we don’t know exactly how it will work in the real world. But the venture capitalists who are investing in this project clearly see huge potential.

The first signal is how much it raised: $133 million. That’s a monster round of funding for such a young company. The average funding round for a company at this stage is typically a few million dollars.

And the investors in this round include many of the best early-stage investors in the world. I almost never see a round of funding from such a prestigious group as this.

Let’s take a look at a few of the VC firms that just invested in Basis, a startup that says it’s “building a new monetary system.”

• Bain Capital Ventures: Manages $3.1 billion. Early investments include LinkedIn, Optimizely, Jet and Digital Currency Group.
• Andreessen Horowitz: Manages $2.7 billion. Early investments include Facebook, Skype, Reddit, Oculus and Box.
• Google Ventures (venture arm of Google): Manages $2 billion. Investments include Uber, Box, Jet and Nest.
• Lightspeed Ventures: Manages $4 billion. Early investments include Snapchat, DoubleClick and Brocade.

Don’t let the fact that these guys manage “only” $2 billion to $4 billion deceive you. That’s how much they’ve raised. They’re worth much more once you include the value of all the shares they hold and past profits. Lightspeed, for example, made $2 billion on its $8 million investment in Snapchat alone.

Other notable investors in Basis include leading cryptocurrency hedge funds Metastable and Polychain Capital.

This is a very powerful and influential group of investors. And they’ll need that power because they plan to take on one of the largest markets in the world: fiat money.

“Software Eating the World”

Andreessen Horowitz (usually called a16z) is a powerhouse in the venture capital world. Its investment thesis is that “software is eating the world.”

So it invests in disruptive technology companies. For example, it invested early in Skype, which, along with other chat platforms, disrupted the telecom business. It essentially killed the phone companies’ “long distance” business model.

In the case of Basis, a16z is investing in a startup that is attempting to disrupt the entire monetary system.

Competing with the dollar, euro and yen is an ambitious project, to say the least. Hence the $133 million monster round of funding…

If it can pull it off, it will be behind one of those technologies that could truly change the world: independent, stable, secure and inflation-resistant money. A system like this could immediately be utilized both as a payment platform and a store of value.

I believe it’s extremely possible to do from a technological standpoint. I strongly believe that, using blockchain technology and cryptography, a better, stable currency can be built.

The chief difficulty will be resistance from “establishment” groups. Primarily, we’re talking about governments and banks – our modern political elites.

These folks like the monetary and financial systems just fine the way they are and will likely make it hard to build a truly competitive currency. They already discourage other assets (like gold) from being used as money, primarily through regulations and taxes.

But the establishment is fighting an uphill battle in the long run. Its system of ever-increasing debt, high expenditures and easy money will ultimately collapse. At some point, people will adopt crypto despite its drawbacks. This has already begun around the world.

We’re seeing this play out acutely in Venezuela today. In the first quarter of this year, inflation in Venezuela raged at 454%. Its total inflation rate over the last 12 months is a staggering 8,900%.

Unsurprisingly, bitcoin trading volume is at an all-time high in Venezuela. LocalBitcoin, a site that facilitates person-to-person bitcoin exchanges, saw volume in the country spike from $18 million in all of March to more than $55 million in just the last week.

And in a desperate (but calculated) move, the country launched its own cryptocurrency, the Petro, this year. Venezuela’s president just officially made it “legal tender,” meaning it can be used the same way as cash and is accepted as payment by the government.

The Petro aims to be a stablecoin of sorts too, with the government “backing” every coin with a barrel of oil. Again, it’s not clear if this experiment will work, and the country has a bad record financially.

The interesting thing is this almost certainly marks the beginning of a trend.

Stablecoins’ Massive Potential

Stablecoin projects are some of the most promising in the crypto world. They could offer the world an alternative to inflationary fiat currencies, which are usually losing value. And done well, they won’t have the extreme volatility of bitcoin and other traditional cryptos.

This could actually change the world. One day we might be paid our salaries in a stablecoin (or a basket of stablecoins).

I don’t believe stablecoins’ primary challenge will be technological. I’m confident better fundamental currencies can be built with blockchain tech and VC money.

Naturally, stablecoins don’t have the same profit potential as coins like bitcoin. They don’t have the appeal that has been a big part of crypto’s viral success.

But I’m betting those stablecoins that can find a balance between price appreciation and stability will be extremely attractive assets. A truly stable crypto investment would be incredibly useful. And if it has some price increase potential too, that would be great.

We’re going to see some amazing developments in the stablecoin space over the coming years. Clever models will emerge that reward holders, spenders and people who refer friends.

Good investing,

Adam Sharp
Co-Founder, Early Investing

Can a $10 Bill Really Fund Your Retirement? The digital currency markets are delivering profits unlike anything we’ve ever seen. ​23 recently doubled in a single week. And some like DubaiCoin have jumped as much as 8,200X in value in 18 months. It’ unprecedented... but you won’t receive any of the rewards unless you put a little money in the game. Find out how $10 could make you rich HERE. ​