Steve's note: I'm not the expert on cryptocurrencies like bitcoin... But it's important to understand these new assets. Today, I'm sharing an essay from TradeStops founder Dr. Richard Smith. He explains his take on why increased regulations aren't a setback for crypto bulls... and how more guidelines would make investing in cryptos much safer for the individual investor...
One popular view of crypto assets is out of touch with reality... And it can lead to false beliefs and bad decisions for investors.
I'm talking about the hope that crypto assets can escape regulation and somehow thrive in a world free of rules.
You've probably heard this idea that somehow, all of the old systems will be thrown away... that crypto assets will usher in a completely new set of rules... and that all of the old regulations – and the old regulatory system itself – will somehow disappear.
This idea is dangerous because it is so misguided.
Whenever something becomes an important part of a national economy, let alone the global economy – be it an asset class, a technology, or a way of doing business – it winds up being regulated. And that's a good thing... certainly in the case of cryptocurrencies.
Today, I'll explain why.
Regulations are what will allow crypto assets to scale. For cryptos to command trillions of dollars' worth of value and wealth, major corporations will have to adopt them. Crypto payment systems will have to be integrated with local, national, and global rules. And guidelines will have to protect investors from scams and frauds.
Unfortunately, crypto's skeptics and enthusiasts alike don't understand regulation. This perpetuates flaws in their thinking.
The skeptics fail to understand the importance and power of cryptos... And the enthusiasts make impossible predictions about what will happen in crypto markets.
Even some prominent investors and companies have said ridiculous or impossible things about crypto. Here are a few recent examples...
Twitter CEO Jack Dorsey said he believes bitcoin will be the world's "single currency" within 10 years. This isn't just unlikely – it's impossible. For this to happen, all of the world's governments would need to give up regulatory control over their own currencies and financial systems.
On the other hand, German insurance giant Allianz says bitcoin has an intrinsic value of zero. This is equally nonsensical. The explosion of regulatory frameworks all around the world, and bitcoin's ability to serve as a store of value, means it is impossible for the value to be zero.
Lastly, legendary venture capitalist Tim Draper says we'll use nothing but cryptos to make payments in five years or less. Once again, this view makes no sense. The world's major governments aren't going to give up the ability to regulate payments and require the use of sovereign currency for things like taxes. Crypto assets could take a big piece of commerce in the coming years... but they won't take over everything.
In other words, cryptos aren't going to beat governments. And that's a good thing. The ability to "play nice" with governments is what will allow crypto to develop into a multitrillion-dollar asset class.
Consider some of the cutting-edge things happening in crypto right now, which are only possible because regulatory frameworks are being developed...
- IBM (IBM) has announced a blockchain computer the company claims will be "smaller than a grain of salt."
This, the company's head of research says, will allow crypto assets to be embedded in objects or devices via tiny computers. In other words, crypto could power the Internet of Things ("IoT"), which is a multitrillion-dollar technology revolution.
- Marex Solutions, a London-based finance company, has introduced the first-ever "structured note" powered by a blockchain "smart contract."
"Smart contracts" make it easier for individuals to use and understand financial contracts. This technology could begin to dismantle old Wall Street... And it is happening with the help of regulations to move things forward.
- Mobile-payments company Square (SQ) has reported that 60% of its vendors are open to accepting bitcoin.
Crypto assets are moving into everyday commerce, making it easy to pay for things with bitcoin or other cryptos via your smartphone. This will require more rules to handle disputes, and so customers can feel safe when making transactions.
- Google is reportedly working on blockchain technology and digital ledger applications.
A true sign that crypto assets and blockchain are here not only to stay, but to become a multitrillion-dollar industry, is that the kings of technology are starting to adopt them. We have already heard news that retail giant Amazon (AMZN) is testing the waters for an "Amazon Coin." Now we hear that Google is moving into crypto and the blockchain.
- Smartphone manufacturer Huawei Technologies is developing a blockchain-friendly mobile phone.
In the not-too-distant future, smartphones will be designed with blockchain-based applications in mind. This is another big step toward being able to use crypto on a day-to-day basis in all kinds of ways. And the world's third-largest smartphone maker is already on that path.
Some people have a highly unrealistic view of cryptos... suggesting that sovereign currencies will be overthrown, governments will be replaced or ignored, and that crypto will usher in a utopian world with no regulation or rules.
But as I've explained in today's essay, regulation is inevitable for the crypto space... And that's a good thing. Understanding these realities can help us understand what kind of investment opportunities to focus on.
Regards,
Dr. Richard Smith
Editor's note: Recently, Richard embarked on a new project to apply his expertise to the world of cryptos. Back-testing found that his system would have outperformed buy-and-hold bitcoin investors by a factor of five-to-one – enough to turn every $1,000 invested into $80,000. To learn more about how his new crypto experiment can position you to navigate the steep ups and downs of this market, click here.
Further Reading
Our colleague Tama Churchouse recently discussed why the regulatory debate set off a series of corrections in cryptos – and why it's a positive step in the long run. "There's still a lot of dead wood to clear out," he says... Learn more here: Why the Crypto Correction Is a Good Thing.
"Cryptocurrencies are often viewed as the 'Wild West' for investors," Tama writes. "So if you're going to invest in cryptos, make sure you're investing in the right ones." Find out what he looks for right here: Six Things to Keep in Mind Before You Buy Your Next Crypto.
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Intel's shareholders have benefited from years of rising revenue... The stock is up more than 50% over the past year, recently hitting a new multiyear high. Watch this company as demand for semiconductors and innovative tech continues to surge higher...
