Steve's note: If you follow cryptocurrencies like bitcoin, I know there's one big question on your mind right now... Is the boom finally over? Or is the latest pullback an opportunity? Our crypto "guru" at Stansberry Research says you shouldn't throw in the towel just yet. Today, I've invited Eric Wade to share what he makes of the latest volatility...
After the recent crypto correction, a lot of folks are wondering if we're on our way to another big 80% or 90% crash – like the one we saw in 2017...
But I think we're in a totally different place today.
Every real booming innovation has two parts... You see it again and again.
The first phase is what I call a "speculative frenzy."
This is when an innovation catches the hearts and minds of a lot of people. And it drives prices sky high... regardless of the fundamentals of the underlying business or technology.
This phase is largely driven by the fear of missing out. But eventually, prices crash.
However, when you have a real innovation, they come roaring back in a big way...
This time, the boom is based on real revenue and earnings. It reignites excitement for the technology and attracts another wave of investment.
Most important, the "fundamental boom" typically leads to huge, multidecade trends as new technologies take hold, real businesses get built, and fortunes get made.
That's what we have in crypto today. It's a pattern that anyone can see...
For example, the green energy boom in 2006 and 2007 happened too early. Solar and wind power were nowhere near mass adoption. But a speculative frenzy caught hold. The S&P Global Clean Energy Index tripled before collapsing.
Compare that with the situation in the same part of the market today...
Renewable energy is booming again. But it isn't going up based on pure speculation this time...
Renewable energy is now cost effective. It's becoming a huge part of our energy production. That has caused the index to triple off its bottom again. Take a look...
Or think of the Internet...
In the late 1990s, people thought the Internet was the future. So they bid up any stock with "dot com" in its name... to ridiculous levels. You know how this story ends. Most investors lost money on the "speculative frenzy" in 1999 and 2000.
But all that money didn't disappear when the market crashed. Internet companies used that capital to create real businesses with earnings and disruptive business models.
That led to the "fundamental boom" that has driven technology stocks higher and higher for the past 20 years. Take a look...
The same pattern is true for cryptocurrencies...
In 2017, investors drove bitcoin from essentially $0 to $20,000 before prices collapsed. But they weren't wrong about the potential for the technology. They were just early.
Fast-forward four years later...
The "speculative frenzy" brought bitcoin to $20,000... but the "fundamental boom" brought it to $60,000. Take a look...
The bitcoin frenzy in 2017 helped attract capital to develop the infrastructure for cryptocurrency. Now, that's allowing the industry to disrupt massive established businesses.
So, you might be wondering...
If the booming price of bitcoin is based on true fundamentals... why has the price of cryptos pulled back?
Well, if you believe in the disruptive technology that cryptos represent and you believe in the long-term implications of this technology, volatility is something you just have to get used to.
And the volatility we're seeing today isn't out of the ordinary...
As many have pointed out recently, when bitcoin had its first big peak at $20,000 in 2017, it underwent six separate corrections of 30% to 40% along the way. You can see it in the chart below...
So the pullback we've seen recently is par for the course.
When you have an asset that is doubling its adoption rate or more per year – like bitcoin has since it was created – you have to expect volatility. But it doesn't mean that prices can't go a lot higher from here.
Good investing,
Eric Wade
Editor's note: We are in the middle of the true fundamental boom for cryptos. And while bitcoin was phase one, Eric says what's coming next will be even bigger and more lucrative than any of the ideas he has shared so far... which means the recent pullback could be a chance to get in on once-in-a-lifetime gains. On July 21, Eric is hosting an online event to share all the details. Click here to reserve your spot.
Further Reading
"The new macro trend is here," Eric writes. "Don't fight it." Right now, cryptocurrencies are the most unstoppable force in the markets. And they're going to reshape one of the most important sectors in the world... Learn more here: The Biggest Macro Trend in the Markets Today.
If you're like most investors, you've probably heard about bitcoin and cryptocurrencies in general... but you might not know a lot about them. The crypto market is full of incredible opportunities. That's why Eric put together an essay to answer some common questions about them... Read more here.
If you're going to invest in the crypto market, you need to do it as safely as possible. And these two key tips can help you avoid major financial risk when buying cryptos...
THIS DIGITAL BANK'S SUCCESS IS A GOOD SIGN FOR THE ECONOMY
Today's company does well when the economy is doing well...
Consumer spending makes up around 70% of the U.S. economy, which means it's a good indicator for how the economy is doing. When folks are out and spending, it's a sign that things are looking up. And one way to see this is through financial stocks...
Discover Financial Services (DFS) is a $40 billion digital (or "branchless") banking and payments-processing company. It offers credit and debit cards, as well as loans and bank accounts. And as more folks spend and the economy gets back on track, Discover is reaping the benefits... In the first quarter, the company reported net income of $1.6 billion, up from a net loss of $61 million year over year. And its total charge-off rate (the percentage of credit-card debt in default) dropped to 2.48% from 3.27% year over year.
DFS shares are taking off, up around 400% since their March 2020 low. They recently hit a fresh all-time high. As the economy continues to recover, it should be a tailwind for this stock going forward...
