The New Religion Driving This Market to Record Highs

Matthew Carr By Matthew Carr
Emerging Trends Strategist, The Oxford Club

Market Trends

It was a sunny, brisk afternoon in Baltimore.

Macro Strategist Eric Fry and I chatted as we walked back from lunch. I was wearing a sweater, a heavy leather coat and a hat. Eric was in flip-flops – which seemed like the brink of madness.

As we strolled, we talked about bubbles.

We talked about warning signs: optimistic exuberance and not being able to see the forest for the trees.

A bubble poised to burst and collapse in on itself is obvious when looking in the rearview mirror.

But when you’re on the surface of it – when everything is riding that inflating wave of optimism – it can be harder to spot.

Eric and I were chatting about our experiences with bubbles that we could share with investors.

Not surprisingly, our conversation turned toward bitcoin – the biggest “is it or isn’t it?” debate in the markets right now.

Eric quipped, “I’d tell millennials, when your parents start asking you about how to invest in bitcoin, maybe you should be cautious.”

(Eric has been involved with bitcoin almost more than anyone I know.)

We said that maybe bitcoin could see $12,000 this year as mainstream investors get involved and prolong the rally… or maybe it could fall apart next week…

More Than an Investment Fad?

During a recent company-wide meeting, the topic of discussion was bitcoin once again…

We had just come back from the Thanksgiving holiday. During that time, bitcoin surged to more than $9,000.

Instead of politics, it appeared that many of our staff got into family debates about bitcoin. The whys, the hows, the “what’s the purpose?” Not to mention, “Is it a bubble or not?!”

All of this cemented an idea that’s been percolating in my mind for a while: Bitcoin is more than just an investment. It’s something bigger than that.

Bitcoin is more akin to a religion.

The action we saw over the holiday week proved exactly that.

Coinbase, the leading platform for buying and selling bitcoin, announced on the Sunday after Thanksgiving that the number of its accounts had grown to 13.3 million.

By contrast, Charles Schwab (NYSE: SCHW), a traditional broker, has just 10.6 million active brokerage accounts…

 

That’s an interesting nugget. Something to throw out at cocktail parties.

The number of active users on Coinbase has more than doubled from 5.5 million since the start of 2017.

As bitcoin has plowed through price thresholds, it’s attracted more and more attention.

The most recent uptick in Coinbase sign-ups coincided with people going home for the holidays. Bitcoin disciples seem to have preached the benefits of their religion – diversifying outside the U.S. dollar, holding an alternative asset, investing in digital gold, etc.

In turn, they created converts.

More than 300,000 Coinbase accounts were opened the week of Thanksgiving. And more than 100,000 of those accounts were opened between November 22 and 24.

The newly baptized went out and opened up Coinbase accounts… which drove bitcoin higher…

In the space of a week, the price of bitcoin rose more than $1,000.

Breaching $12,000 is no longer a question of if. It’s a question of when.

We’re witnessing what was once considered a fringe religion inching toward the mainstream.

Room to Run?

Despite bitcoin’s astounding 2017 performance, there’s something investors need to remember…

The combined market value of all cryptocurrencies is $300 billion. Bitcoin accounts for half of that.

The reality is, this is still chump change compared with other asset classes…

There are only 21 million bitcoin that can ever be mined. Because of the scarcity, bitcoin disciples and the newly baptized don’t believe $10,000 is too high a price to pay.

Because all you need is just a little bit of money flowing in from one of those other assets classes – even a nominal amount – to further fuel bitcoin’s rally.

The bitcoin religion just needs more converts… That’s what bitcoin’s future depends on.

How to Invest in the Digital Commodity of the 21st Century

One of Eric’s old business partners, who is also a former colleague of mine, was a bitcoin miner during the days when it traded for less than $1. He preached about the potential of bitcoin at conferences.

He amassed followers. He turned me from skeptic to convert. And now he’s making untold gains off the bitcoin craze…

Now, bitcoin will crash… That’s inevitable. I can’t tell you if this is its Icarus moment or not.

But what I can tell you is this: The cryptocurrency has lost 80% of its value five times over the last several years.

Each time, new disciples gobble up coins at their lows.

This is the new breed of “digital gold bugs.” And they’re prepared to buy and buy… and ride out any storm.

Good investing,

Matthew