Stansberry Research

Weekly Mailbag: The Crypto Market Is No Longer Just a Fad

Nomi PrinsInside Wall Street With Nomi Prins

Welcome to our Friday mailbag edition! I hope you had a wonderful Thanksgiving.

Every week, we receive great questions from your fellow readers. And every Friday, I answer as many as I can.

Now, before we get into today’s questions, I have an exciting announcement. And it involves geopolitical strategist Peter Zeihan.

If you’re a regular reader, Peter needs no introduction. Earlier this year, I sat down with him for a special interview.

I shared a peek inside that 45-minute interview with Inside Wall Street readers here. And that brings me to my announcement…

As I write, my team is putting the finishing touches on my next interview with Peter.

It’s due out over the next few days. And we’ll have two more quarterly interviews after that.

I’ll share a little excerpt with you in these pages.

But if you want access to all four of my conversations with Peter – in full – be sure to visit this page to learn more. You’ll also find out how to get a copy of his new book, The End of the World Is Just the Beginning.

The best part is, we’re running a special Black Friday deal.

So you can get access to our four interviews… Peter’s book… and a few other bonus perks for an even lower price than ever.

It’s a fantastic holiday present, with Christmas just around the corner. But this special offer is only open until Monday, so be sure to check it out soon.

Now, let’s get to this week’s questions.

Up first, strong words from reader David F. He’s not a fan of Bitcoin, which I’ve recommended as a small speculative position…

Bitcoin is just a better disguised Ponzi scheme. If I put $100,000 in Bank of America and the bank gets robbed, it is the bank that lost the money, not me. My money is still there, all $100,000.

If I put $100,000 in Bitcoin and someone steals it, I lose my $100,000. How can people be so stupid as to play a rigged game!

– David F.

Thanks for writing in, David.

Until the time there is deposit insurance on Bitcoin, you are responsible for the safekeeping of your money. There’s no two ways about it.

That’s because you need to store your Bitcoin in a digital crypto wallet. And you’re right, if someone steals your wallet information, you will lose your money.

Now, you can partially outsource this responsibility by creating an account on a crypto exchange and letting it take care of your Bitcoin for you.

In that case, your wallet is secured by the exchange. And the details of your private key are stored with the exchange. (That key is the “password” that allows access to your Bitcoin in the wallet.)

That means you don’t need to worry about funds becoming unrecoverable just because you lost your key.

That’s what makes this option suitable for many non-tech-savvy people out there. And by storing your Bitcoin this way, depending on the service you’re using… you could even earn interest on your crypto holdings.

But it’s not fool-proof either. 

For one, funds in third-party custody are at risk from hacking. Many crypto platforms have wallets that are protected by military-grade security. But still, that risk is very real.

There are also other reasons why some people prefer not to store their Bitcoin on an exchange. As Bitcoiners like to say, “not your keys, not your Bitcoin.”

The idea is that, if you keep your Bitcoin on an exchange, your coins really belong to the exchange, not you.

Crypto’s history is littered with examples of platforms going under and taking customers’ funds with them.

FTX, which I wrote about in these pages, is one of the latest.

Before that, in June, crypto lending platform Celsius halted user withdrawals and transfers, citing “extreme market conditions.”

This happened just days after it assured customers that it was financially stable. Celsius filed for Chapter 11 bankruptcy protection next month.

So I wouldn’t necessarily store my Bitcoin on a third-party service for the long term. That said, it may still be a good option for someone buying Bitcoin for the first time.

But for anyone who goes that route, I recommend choosing a company that has a longer track record of success.

Two convenient options are PayPal or Block’s (previously called Square) Cash App, for instance. Users can start a Bitcoin portfolio with as little as $1. 

Just keep in mind, there is no “risk free” option. That’s true of any investment. So buying (and storing) Bitcoin does come with risk. Plus, crypto is still a nascent industry.

That’s why, to all my readers, I recommend putting only a small, speculative amount of their investment portfolio into Bitcoin. And never investing more money than they can afford to lose.

Next, reader Earl wants to know more about the U.S.’s plans for digital currencies…

Please provide your opinion on how early in 2023 the Federal Reserve (U.S. Government Central Bank) will make Bitcoin, Ethereum, and such other crypto currencies illegal in the U.S., as the U.S. Federal Reserve/ Central Bank will issue their own crypto currencies (legal tender).

– Earl C.

Thanks for your question, Earl.

The Fed has far more power over the economy than any individual government agency. Still, it doesn’t have the tools to ban Bitcoin and other cryptocurrencies.

Now, that’s not to say the idea is not worth entertaining.

It has become a popular notion for a reason. Crypto could threaten a major source of the government’s power – the power to create money out of thin air and force everyone to use it.

But I think this hypothetical situation is a long way off.

Even Fed Chairman Jerome Powell has confirmed that the U.S. has no plans to ban Bitcoin and cryptocurrencies.

Now, if you’re hesitant about heeding the words of a highly paid government bureaucrat, we can also look at what they do (not what they say).

Earlier this year, for instance, U.S. President Joe Biden signed an executive order calling on the government to examine the risks and benefits of cryptocurrencies.

Crucially – despite mounting fears – it did not announce new regulations for the industry. It also didn’t lay out specific positions the Biden Administration wants agencies to adopt.

Instead, it acknowledged the “explosive growth” of digital assets. And it affirms that the U.S. “must maintain technological leadership in this rapidly growing space.”

This makes sense if you think about it.

For one, it doesn’t want to miss out on any income from the industry. See, the crypto market is no longer just a fad. It has increased substantially in recent years.

At the start of 2020, the crypto markets were worth around $200 billion. Last November, that number was close to $3 trillion. And despite recent struggles, it’s still at $830 billion.

That’s a lot of taxable revenue.

Under the current tax code, if you hold cryptos for 12 months or less, you must pay short-term capital gains tax (CGT) on any profit you make on the sale. That’s up to 37%, depending on your circumstances.

If you hold them for more than 12 months, your profits are subject to long-term CGT. That’s up to 20%.

Second, while governments may definitely restrict things, they cannot make something that is valuable and desired by lots of people just go away by passing a law.

Look no further than Argentina and Venezuela. In the past, their governments have created laws restricting their citizens from accessing U.S. dollars.

But these laws have little effect on their citizens’ desire and ability to use them. These actions just create a thriving black market.

Bottom line: I think we can shelve this discussion, at least until cryptocurrencies start posing an existential threat to the survival of central banks.

And finally, switching gears, reader AGD has a question about energy.

It’s in response to Peter Zeihan’s essay, “When It Comes to the Energy Transition, Geography Matters”…

Interesting read. Peter spoke about carbon emissions, it would be of interest an article that pulls apart carbon and what carbon means to the world?

– AGD

Hi AGD, thank you for your note.

That’s an excellent idea. I might do a piece taking a dive into what carbon is (in various forms) and what it means to the world.

It's also a great question for me to ask Peter at one of our upcoming interviews. Like I mentioned up top, our next one is due out in the next few days.

So for anyone who has questions for Peter, be sure to send them in at [email protected]...

And find out how to get full access to my conversations with Peter, right here.

My team is compiling all your questions, and I’ll do my best to get to as many of them as possible next time I sit down with Peter.

And that’s all for this week’s mailbag. Thanks to everyone who wrote in!

If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.

I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.

And if there are any other topics you’d like me to write about, I’d love to hear from you. As always, you can write me at the email address above.

Happy investing… and have a fantastic weekend!

Regards,

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Nomi Prins
Editor, Inside Wall Street with Nomi Prins