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Revolution Investing: Pain and losses in crypto will clear out the losers and strengthen the case for bitcoin


Cryptocurrency is a mess right now. And rightly so.

I wrote about buying bitcoin for MarketWatch in 2013 when it was trading for $100, but I’ve spent the past year or so warning that most newer cryptocurrencies will be worthless.

Here’s what I wrote earlier this year:

“[M]ore than 95% of the 15,000 cryptocurrencies are silly or fraudulent. Nearly all of the silly cryptocurrencies will head to zero, and all of the fraudulent cryptocurrencies will head to zero. That leaves about 5% that will probably increase in value in coming years.

I expect the Securities and Exchange Commission (SEC) to send cease-and-desist letters to the founders of thousands of cryptocurrencies over the next few weeks or months. Any cryptocurrency or token for which the creators received founders’ tokens or any other benefits are going to be classified as securities when the SEC looks at them. If the founders got economic or financial benefits but didn’t register with the SEC, they’re probably in violation of regulations.”

Read: ‘A lot of people have compared this to Lehman. I would compare it to Enron’: Larry Summers on FTX’s bankruptcy

The cryptocurrency market is even worse than I expected. It didn’t occur to me that a major exchange such as FTX would be marking its own tokens, on leverage. FTX is now bankrupt, and effective altruist Sam Bankman-Fried is out as CEO. The company, its investors, and its myriad subsidiaries and creditors are REKT (cryptospeak for “wrecked”). 

I’ve been short some of the many low-quality crypto-related stocks, although I’ve taken some profits on those positions into this crypto crash this week.

I’ve also, for the first time in many months, put some bitcoin

exposure back into the hedge fund through the ProShares Bitcoin Strategy ETF
which uses futures to get exposure to bitcoin prices. I’m still net short crypto overall in the hedge fund. Bitcoin is hovering at a two-year low.

I still own bitcoin personally, although I have taken some off the table at higher prices and am not looking to buy any more anytime soon for my personal account. 

The promise of bitcoin is still valid, in that it could end up becoming the world’s de facto currency/store of value. People in Iraq and in Venezuela, for example, really know what the downside of government fiat currency can be.

People in the developed world have been finding out, on a smaller scale, just how damaging centrally controlled currencies can be when there’s a vicious inflationary cycle.

Over time, value and prosperity and ethics carry the day, and a transparent cryptocurrency such as bitcoin on the blockchain will replace the U.S. dollar as the world’s reserve currency, I believe.

We’ll probably be able to scale into more bitcoin toward $15,000-and-lower in coming days, weeks or months.

You can listen to a radio interview I did on this whole crypto crash topic by clicking here

Back to that article I wrote earlier this year: 

“In 20 years, these new organizational structures and incentives that create wealth over time are going to make ownership of stocks and bonds less important. Blockchain-based DAOs (decentralized autonomous organizations) will compete with traditional corporate and not-for-profit organizational structures. 

“This is what I mean when I say we shouldn’t underestimate the changes that cryptocurrencies, blockchain and smart contracts are creating for our society and economy — and our pocketbooks. The investment opportunities are here for us to create a lot of wealth in coming years and decades as we figure out ways to make the world a better place through profit motives. But don’t forget that there will be a lot of pain and a lot of losses in a lot of cryptocurrencies along the way.”

A lot of pain and a lot of losses in crypto are already here. I would still stay away from 99.9% of existing cryptos, tokens and NFTs (non-fungible tokens).

But don’t write off the whole shebang. Don’t lose sight of the blockchain-based cryptocurrency revolution that is going to happen in coming years and decades.

Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own, or plan to own, securities mentioned in this column.

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