Over the next 12 months, we could see a select group of elite altcoins explode in value. Here’s how to play it
When you take your family out to a relatively nice dinner, how much do you spend?
$75? $150? $300?
Whatever amount you’re thinking of, consider this alternate hypothetical …
Let’s say, instead of eating out, you stay at home and throw together some mac ‘n cheese. Meanwhile, you take whatever cost-of-dinner-out you had earmarked for the family, and sink it into a tiny, cutting-edge investment …
Twelve months later, that cost-of-dinner enables you to retire … and fund your kids’ college education … and take the Italian vacation … and buy the lake house.
It feels absurd to me even as I’m writing this.
But it’s happened before.
And right now, we could be setting up for it to happen again.
Plus, even if this time around we don’t see the exact same monstrous returns as in the past, investors like you and me could still generate legitimately huge money from only a meager initial investment.
So, what’s going on here?
As you’ve probably guessed, an opportunity such as the one I’m describing doesn’t exist with traditional stocks. For this type of gain, we have to turn to the crypto world.
Now, if the word “crypto” spooks you, I get it. I’m suspicious of any investment that doesn’t offer me a way to value it through a traditional cash-flow.
Given this, I’m the last person who’s going to suggest you throw caution to the wind and blindly dive into the crypto world.
But as you’re going to see today, the potential gains from crypto are so enormous, that even a small “going out to eat” investment amount has the potential to be lifechanging.
What that means is there’s the opportunity to speculate safely. If we’re wrong, no major financial damage is done. But if we’re right … lives change.
That’s a risk/reward set-up I like.
So, today, let me be your crypto-skeptic, and let’s walk through why this asset class might deserve a few of your bucks.
***The macro state of the crypto world according to bitcoin
As I write, after a volatile-while-declining move since the summer, bitcoin appears to be breaking out.
The chart below shows bitcoin’s price over the last eight months. I’ve added in trend lines, identifying what’s called a “descending channel.”
Notice what’s happened in the last week — namely, bitcoin has broken out of its channel.
If bitcoin can consolidate above the $8,000 mark, then it’s poised to shoot higher — most likely to the top of its previous range at $9,500. That’s about a 9% move from current prices.
But a 9% move would be nothing if history repeats itself as we move into the spring.
***If you’re a regular Digest reader, you know why — the upcoming “halvening”
As we’ve detailed here in the Digest, the halvening is an event that’s happening with bitcoin this May.
In short, it’s an event specific to bitcoin wherein “bitcoin miners” — think, computer whizzes who solve complex computer puzzles to release new bitcoins — are rewarded for doing so with an amount of bitcoin that’s already baked into the system.
Here’s our crypto specialist, Matt McCall to describe how the prior halvenings impacted bitcoin’s price.
… consider what happened to the price of bitcoin after the first halvening in November 2012, when the reward went from 50 bitcoins to 25 …
Prices once again soared after the second halvening took place in 2016, when the reward went from 25 bitcoins to 12.5 …
Now, Matt expects bitcoin’s price to shoot up again in the months surrounding this May’s halvening. And on a longer timeline, he believes we’ll eventually see bitcoin hit $100,000 — that would mean 1,000%+ gains from current prices.
But the opportunity today isn’t with bitcoin, it’s with bitcoin’s smaller cousins — altcoins.
We started with bitcoin because it’s the big-dog in the crypto world. Many times, as goes bitcoin, so go the various altcoins. And now that bitcoin appears to be consolidating and moving higher, it bodes well for the altcoins — and this is where the life-changing potential gains reside.
***Separating the good from the bad in altcoins
For any readers less familiar, altcoins are nothing more than “alternative” cryptocurrencies beyond bitcoin.
They can be gimmicky “me too” products that are just trying to capitalize on investor interest, or they can provide a unique twist on the crypto/blockchain/financial world that makes them truly unique and valuable.
The altcoins that are truly valuable offer a real benefit — they’re solving a problem, or creating a value-ad.
I know the whole idea of blockchain and cryptocurrencies can seem puzzling, so the most important thing for investors to understand about the blockchain is this: At the end of the day, this is just another software program …
Many of the world’s communication systems are horribly inefficient.
Many of the world’s monetary payment systems are horribly inefficient.
Many of the world’s record-keeping systems are horribly inefficient.
And many of the world’s cybersecurity systems are horribly inefficient.
But blockchain transactions are simple, elegant, and practically impossible to hack.
So, that’s what many of these altcoins are trying to do — use the blockchain to destroy inefficiencies in their respective business sectors.
And when a particular altcoin solves an inefficiency and gets hot with investors, the gains can be extraordinary.
***The potential for massive returns with altcoins
If halvenings are big for bitcoin’s price, they can be enormous for the price of elite altcoins.
Case in point, “Litecoin.”
The first halvening occurred in November 2012. Litecoin went from $0.06 that November to $4.55 by April 2013.
That’s a 7,483% gain in five months.
That would turn your $150 dinner-out money into more than $11,000. That’s great, but hardly “retire” money.
But that takes us to “Verge.”
After bitcoin’s second halvening in 2016, verge shot up 1,362,400%.
That would have turned your $150 dinner into more than $2 million.
Now, for the moment, consider had you actually approached Verge as an investment, and sunk in, say, $5,000.
That would have turned into $68 million in just 12 months.
Verge wasn’t the only altcoin that produced monstrous numbers. If we travel back to the crypto peak in 2017, Ethereum posted cumulative gains of over 10,000%. But that was nothing compared to Reddcoin up 132,712%, or Einsteinium at 262,195%.
***The safe way to speculate with altcoins
Let’s be clear …
The gains I’ve highlighted above are — frankly — absurd, and I am not claiming they’re going to happen again.
In fact, as your resident crypto-skeptic, I’ve found arguments claiming that the coming halvening won’t be as explosive for bitcoin’s price because there’s now a futures market in bitcoin which limits the speculation.
(Bitcoin bulls will brush this off and point toward the broader macro case for bitcoin gains, thanks to factors such as central banks around the world printing gobs of money out of thin air.)
Yes, this “futures” argument doesn’t apply as cleanly to altcoins, but similar caution is warranted.
So, how do we protect our money while simultaneously searching out the next Verge?
The first step is to use a thoughtful, deliberate selection process.
… you shouldn’t just go out and buy any altcoin and expect it to make you rich.
As with stocks, there are good cryptos and bad cryptos.
As with stocks, you need to be able to tell the difference between the two.
In his newsletter, Ultimate Crypto, Matt uses a proprietary selection process called the MAG System. It involves weighting various crypto criteria to arrive at a composite score that indicates whether any particular altcoin is a “buy” or not.
If you’re going to wade into the crypto sector, it’s critical you’re also using some sort of deliberate investment criteria.
For example, Matt suggests looking at an altcoin’s “TAM” — total addressable market. This determines the revenue and growth potential of the market the crypto is focusing on. The bigger, the better.
Now, beyond a wise selection process, there’s another important step to take to ensure the safety of your money …
Adopt the “basket approach.”
Now, at this early stage, trying to pick the one investment that can make your financial dreams come true is very difficult — and risky. Remember, for every Google, there’s an Ask Jeeves, now defunct and forgotten.
Instead, tech investors like me tend to buy a basket of investments in the sector.
In other words, you pick four to 10 of the best names … and buy all of them.
By purchasing a basket, you get upside potential plus the hallmark of any well-crafted portfolio: diversification and downside protection.
At present, Matt’s portfolio in Ultimate Crypto holds five altcoins. He’ll be adding to this as new altcoins meet his MAG selection criteria. In fact, Matt’s latest altcoin recommendation comes out today.
***As we wrap up, I want to try pull everything back down to earth
After all, we’ve been discussing some crazy numbers, so it can be hard to really grasp.
Matt’s official “buy date” for his Ultimate Crypto portfolio was January 7 — so, just nine days ago.
As I write, here’s the shape of that portfolio since then (names whited out).
26% … 16% … 13% …
The worst-performing pick is still up 8% in less than 10 days.
Now, could all of these altcoins be in the red tomorrow? Sure, that’s the nature of this volatile asset class.
On the other hand, could they be up triple digits by next week? Absolutely.
Altcoins are the only asset class I’m aware of that has the potential to turn an investment amount as small as the cost of a family dinner into $2 million.
If that’s a risk/reward gamble you want to take, then this is your opportunity. Just do it safely.
Have a good evening,