In under a month, there’s a unique event taking place that, historically, leads to massive wealth-creation. Here’s what to know
Pop quiz …
A few weeks ago, the U.S. government began sending out its promised $1,200 Coronavirus relief checks.
Can you guess which asset exchange instantly began seeing an increased volume of $1,200 deposits?
A stock-related exchange would be the obvious guess …
But perhaps something to do with gold?
Maybe bonds?
Nope. It was Coinbase, which is the most widely-used American cryptocurrency exchange.
According to Coinbase CEO Brian Armstrong, his company saw a quadrupling in the volume of $1,200 deposits it received, illustrated in the chart below.
It would seem that many Americans are gearing up for next month’s halvening event. And for good reason — if history is any guide, those $1,200 deposits could very quickly turn into $12,000 … or far more.
***To make sure we’re all on the same page, the halvening is an event that happens once every few years with the cryptocurrency, bitcoin
In short, bitcoins are created by “bitcoin miners” who try to solve complex computer puzzles. If successful, they are rewarded with an amount of bitcoin that’s already baked into the system.
Right now, a miner receives 12.5 bitcoins for mining one block. But in about three weeks after the halvening, this figure will be cut in half.
At first glance, this wouldn’t seem like that big of a deal. But if we look at the first two halvenings, we see explosive gains in bitcoin coinciding with the event.
To explain, here’s Matt McCall, editor of Ultimate Crypto:
The first halving took place in November 2012, when mining rewards were cut from 50 to 25 bitcoins per block. The second was June 2016, when the rewards were cut in half from 25 to 12.5 bitcoins.
One year before the November 2012 halving, bitcoin traded in the $3 range. When the halving occurred, bitcoin was up to $12 — a 4X return in just one year. And one year after the halving, bitcoin hit $1,200 — a 100X return!
The second halving followed a similar pattern. In June 2015, a year before the event, bitcoin traded at $235. In the month of the halving, June 2016, bitcoin had jumped to $700 — a gain of 3X. One year later, bitcoin was nearly 4X higher at $2,600. And by December 2017, 18 months after the halving, bitcoin hit a high just above $20,000 — a phenomenal 28X gain.
Below is a chart mapping bitcoin through the first two halvenings:
With historical gains like these surrounding the events, it makes sense why many people receiving federal aid checks would be funneling that money into the crypto market.
***But bitcoin’s gains could look like nothing compared to those of quality altcoins
Altcoins are simply “alternative” cryptocurrencies beyond bitcoin.
They can be gimmicky “me too” products which are just trying to capitalize on investor interest in the space, or they can provide a unique twist on the crypto/blockchain/financial world that makes them truly unique and valuable.
Take the altcoin “Litecoin” as an example.
This crypto was initially thought of as “silver” to bitcoin’s “gold.” Though Litecoin shared similarities with bitcoin in its code and functionality, it was different in its speed of mining transaction approvals, its allowance for the ultimate number of coins created, and its alternative “proof of work” algorithm (supposedly making it more difficult to generate coins).
Overall, there are hundreds of different altcoins with various degrees of individualization — it’s truly a fascinating ecosystem.
Now, as you might guess, not all altcoins are created equal. There are a handful that have risen to the top in terms of uniqueness, and therefore value, and by extension, popularity with investors.
And when a specific altcoin finds favor with investors, the sky is the limit on the ensuing gains.
Here’s Matt on just how high these prices can go:
… over the same timeframe it took bitcoin to rise 2,000% after the first halvening, a cryptocurrency called litecoin (LTC) rose 7,483%. Another altcoin called dash shot up 2,658% during the first half of 2014 while bitcoin rose 53% over the same period.
The bottom line is that while the halvening pushed bitcoin to new heights, it made small altcoins grow exponentially higher.
The sort of returns I’m anticipating for the coming event could make all of this look like child’s play.
In fact, there’s a pattern I’ve noticed in the data. As past halvenings pushed bitcoin to new highs, they made small altcoins grow exponentially higher.
***Short-term explosive gains aren’t the only reason to allocate part of your wealth to elite altcoins
Being transparent, investors looking at altcoins today are doing so for one main reason — lifechanging wealth creation … potentially, in mere months.
But let’s move beyond this.
In fact, let’s assume an ultra-conservative perspective and say that this time around, the halvening will be more fizzle than fireworks.
Are altcoins still worth your investment?
Absolutely. It’s just your motivation might change from wealth-creation to wealth-preservation.
Below, we see a chart of the buying-power of the U.S. Dollar. It illustrates how inflation erodes the value of a dollar over time.
Source: officialdata.org
As you know, the U.S. government just fired a “bazooka of liquidity” at the Coronavirus. Estimates peg the total amount at roughly $6 trillion.
Back to Matt:
When governments want to pay for wars and big social programs, they often create extra currency units (like dollars). They print more money. In simple supply and demand economics, every created currency unit devalues existing currency units. This is called “inflating” the money supply.
Let’s see what this looks like in real-time …
Below is a chart of the M0 money supply since the 60s. “M0” is the most liquid measure of the money supply including coins and notes in circulation and other assets that are easily convertible into cash.
Notice the explosion of M0 supply beginning in 2008, courtesy of quantitative easing. But more importantly, look at the vertical explosion of M0 in the last month.
This is a major red flag for the long-term purchasing power of the dollar.
History has shown us that a government cannot continually create new currency from thin air without it eventually leading to a massive devaluation of that currency.
Meanwhile, the Congressional Budget Office (CBO) expects the federal budget deficit to hit $3.7 trillion by the end of fiscal year 2020.
The CBO also predicts that the national debt will top the annual economic output of the United States in 2020, as the ratio of federal debt to GDP rises to 101%. That would be the deficit’s largest size relative to the economy since World War II.
Again, history shows that massive national debt and explosive currency creation — when not duly checked — destroys the purchasing power of a currency.
You help protect your own wealth from this by allocating some of it to an asset beyond our fiat currency system.
Take bitcoin. Unlike the U.S. Dollar, which can be printed ad nauseum (and thus debased ad nauseam), there will never be more than 21 million bitcoins in existence. This ensures that its value will be set by buyers and sellers in the marketplace — not a tampering government. Other elite altcoins offer this same “fixed supply” feature.
So, on one hand, if the halvening turns into another explosive wealth-generating event, good for you. On the other hand, if the role that altcoins play in your portfolio is that of a longer-term wealth-preserver, well, good for you.
***Either way, join us tonight at 7 PM EST for Matt McCall’s 2020 Crypto Millionaire Summit: Last Call
If you’re unclear on how to navigate the crypto world, or where to start as an investor, this is the event for you.
Matt will be discussing the halvening, the state of the crypto universe, bitcoin, top-shelf altcoins, and what investors should be looking for beyond 2020. It’s a free summit that will be loaded with information.
Just click here to reserve your seat, and we’ll see you there.
Have a good evening,
Jeff Remsburg