In last month’s issue, I addressed some misconceptions about where we stand in the “market cycle” (however you define it) and what you need to think about now.

This month, I look at Wall Street’s first steps into crypto and why you should care (and not for the reasons you might think).

The United States has the world’s most advanced, robust, and sophisticated financial system.

It is so advanced, robust, and sophisticated that its government, businesses, and citizens spend many billions of dollars each year on regulators, courts, lawyers, compliance departments, clearinghouses, accountants, settlement companies, brokers, traders, power companies, cybersecurity experts, and a whole legal and regulatory apparatus designed to keep this system from collapsing. 

That’s a lot of time and effort, but it pays off.

For us. 

What about the 7 billion people who don’t have access to the US financial system?

In some places (like yours), the quality is as good or better than anything they’d get in the US. In other places, it’s almost non-existent. Often, it’s somewhere in between, leading many to seek a better way to build wealth, do business, and manage finances.  

Cryptocurrency has filled some of these needs with USD stablecoins, DeFi protocols, private money, and other goods and services that run on crypto protocols.

Investors (like us) have grown our wealth with tokens and rewards from those crypto protocols.

Now, it’s Wall Street’s turn, starting with ETFs. 

Soon enough, they’ll move to laws and regulations. Then, crypto subsidiaries. Last, they'll open storefronts, launch wallets, and develop apps that give people access to crypto protocols (for a small fee).

Crypto’s only a scam when they can’t sell it

Wall Street firms can’t make money off of a decentralized, permissionless, anti-fragile money system that funds itself and is accessible to everybody. They run a totally different business model.

Wall Street charges people for access to financial opportunities. Crypto gives people those opportunities for free.

What gives? Why does Wall Street even care about crypto in the first place? 

Because they see a chance to make money off of people who want to make money with crypto. “Financial opportunities” for them, not you.

Their solution?

Wrap crypto in a “safe, easy, regulated” product and sell it to people who don’t want to take five minutes to open a Coinbase account.

Nobody needs a bitcoin ETF, but until crypto developers and entrepreneurs figure out how to fund a bitcoin wallet with one click or deliver easy, trustworthy solutions for pension funds and retirement accounts, ETFs will serve a purpose. Nothing beats the convenience of telling your broker to buy or tapping the “trade” button on your account dashboard.

Once crypto developers create one-click interfaces and platforms that offer a material advantage over the legacy financial system, ETFs will fade into obsolescence. We’re a long way from that!

In 2019, I wrote a book, Bitcoin or Bust: Wall Street’s Entry Into Cryptocurrency, to explore the strange duality of institutions and crypto. Some references are a little dated. The commentary, questions, and message still apply.

The Bible has a prophecy that wolves and sheep will one day lie down together in peace.

This is the metaphorical equivalent of Wall Street and crypto.

Not the people on Wall Street or those in crypto. The idea of conflicting incentives. Will these incompatible systems fulfill the biblical prophecy?

It'll be fascinating to see how everything unfolds.

1% of a retirement fund or 100% of it?

If you expect Wall Street to send crypto prices to the moon, you have plenty of company.

Just like in 2021, when institutions would never let the market crash.

Wall Street controls roughly 25% of the world's assets. When you obsess over Wall Street, you’re obsessing about how to get a fraction of a portion of the world’s wealth into crypto.

Why not obsess over the protocols and technology that can capture the other 75% of the world’s wealth? If we can do that, we’ll get Wall Street’s 25%, too.

We won’t get that by putting money into memecoins and airdrops. We might get that by putting money into people and projects that are developing better wallets, better protocols, more secure interfaces, and apps that are easier to use.

What’s the fun in that?

Your favorite influencers are excited about “1% of every portfolio” going into crypto. Why don’t they want the other 99%?

We’ll never get that if everybody sends their crypto to Wall Street custodians using regulated blockchains through gated financial apps.

People love institutions. They’ve certainly helped establish crypto’s legitimacy. 

What have they done for crypto prices that we haven’t done on our own? Crypto did just fine until they came along. The market grew more than 2,000,000% before institutions arrived. It’s grown 500% since January 2020, when GBTC got SEC approval to trade in investment accounts.

Our first “institutions” cycle fell far short of expectations, with a peak of only 20x from the absolute bottom to the absolute top—the weakest bull market yet. 

Does anybody have any evidence that institutions help you make money with crypto? Do institutions and ETFs have the power to stop people from selling when prices go too high or too low too quickly? 

Each year, US workers lock away roughly 7% of their income in the stock market, often for decades, as part of their retirement accounts. We still get crashes and bear markets. 

Whatcha gonna do?

How can you navigate this uncertainty?

You could stick to my free content, special issues, and everything else you get with this newsletter.

Or, if you want to skip the analysis and commentary, follow my plan. Three lines tell you when to buy. Two metrics tell you when to sell.

People seem unconvinced when they hear that my plan beats dollar cost averaging, but—as with many things in crypto—that is not a belief based on facts. 

When you get my plan, you see the whole history. You can do the calculations yourself. For the entirety of the plan, you’d get 30% more bitcoin than you’d get from dollar cost averaging.

If you started following the plan at any random point, you’re up 650% at best and down 18% at worst. Most likely, you’re up 65% with cash to spare. Now, you’re waiting for the next opportunity to buy.

That opportunity may come sooner than you think.

Buy in 2024, sell in 2025

YouTube says you need to HODL until 2025 and you’ll get rich.

This is a sentiment I often hear during portfolio reviews.

While those reviews focus on individual positions and investments, exit planning comes up a lot. Most people expect to sell in 2025—some earlier or later, depending on which cycle model they follow.

Which begs the question: 

If most people plan to sell in 2025 because the models say they should, will that tamp down on prices in 2025? Will we see so much selling spread across enough time that the market won’t have its normal huge rally? 

And, with so many people HODLing or adding now with an expectation of selling in 2025, does that change the dynamics and expectations for this year?

Does anybody know the game theory on that? No? Ok, let’s take the market as it comes.

In early December, we started to see signs of selling from all the wrong people. “Distribution,” as traders say.

We saw this from many angles. Get a few highlights in this tweet thread I shared a little while back (snippets from various market updates in December and January):

Outside of a three-day ETF pump, the market went flat for most of December until today. It’s down 14% from its most recent peak. 

We need a big bid to get the market moving again. Something more than a relief rally or dead cat bounce that brings us a small, temporary upswing. Otherwise, bitcoin’s price will continue its descent to $32,000, give or take a few thousand dollars.

While that’s a typical drop in bull markets and wouldn’t break the uptrend we started in December 2022, the market would freak out. Altcoins would drop 50-80% from today’s prices.   

Bitcoin's price may reach $24,000 if we get a protocol failure, some problem with Tether, or the collapse of an exchange.

How does that make you feel?

Do you sell now to protect your gains? If you do, when do you buy back in? 

If you owe taxes, how much will that cost? Once you pay those taxes, how low does the market need to go before you can rebuy your position without a net loss?

Do you have fresh cash, cheap lines of credit, or income that you can use to buy more after prices drop? How flexible are you about the timing of your buying and selling?

You got the power

Your answers will be different than somebody else's. For that reason, nobody can tell you, “buy here, sell there.” A decision that makes perfect sense to somebody else may not make sense for you.

Your risks go beyond prices. So much depends on your circumstances and goals. As a result, only you can know what's the right decision and how to assess the risks of each opportunity.

Make 2024 the year you hone your risk management skills. Start with the coin flip game. 

In this game, you win more often with heads than tails. Your goal: reach at least $250 within 10 minutes by betting on the outcome of each flip.

If you are prepared for crypto, that game should be easy. You should hit the mark 100% of the time and get there well before your time expires. 

If you play that game and lose, read the educational content on the coin flip site. You'll find some basic risk/reward and bankroll management concepts that you can easily apply to crypto (and all games of chance).

Don’t forget the mental aspect!

Lots of people will challenge your decisions. The market will make you doubt yourself. Act 3 brings more twists, turns, and surprises than Acts 1 and 2. 

Remember: most people don’t understand crypto or the opportunity it presents. They think it’s all trading tokens, flipping NFTs, and making as much money as possible as quickly as possible.

They don’t think about technology much, and when they do, they don’t know what to think about.

Paradigm shift

A few months ago, a commentator said blockchain technology needs massive data centers, so you should invest in data centers and everything necessary to support them, not the tokens themselves.

She missed a crucial detail. 

If cryptocurrency works the way it’s supposed to work, you won’t need data centers. 

You’ll have vast, public, global networks of computing power provided by people and businesses all over the world, using their own assets and equipment in exchange for rewards. 

You won’t have any opportunity to invest in real estate, commercial properties, machines, and other things that support data centers. Normal people will provide all those things in return for compensation from these networks.

You’ll have an opportunity to invest in tokens that power the network, people who contribute to it, and businesses that profit from its cryptocurrency—for example, miners, developers, entrepreneurs, validators, and everybody who participates in these networks.

This is not the only paradigm that cryptocurrency will flip on its head.

Boomers have grown so used to their government’s monopoly on money that they don’t know any other way. So-called monetary experts still think money has intrinsic value or some innate properties that make it worthy of usage. 

We know money is a social technology. Its value comes from social consensus. If enough people agree, they’ll use it. Belief matters more than utility.

Shiny metal flakes? Pixels displayed on a screen? Writings in a ledger or pictures on scraps of paper?

Sure. Whatever gets you what you want.

The stories we tell ourselves

A while back, my son told me the story of “kid money.” 

He said that a million years ago, somebody dug orange dirt out of the ground and called it money. He only let the kids use the money. Then, when the kids turned 18, they forgot about the money and how it came to be.

Sounds familiar.

Across history, many civilizations had two sets of money—the government’s money and common currencies. One form of money for the rulers, another for the people. One currency by decree, another by consensus.

Today’s economists consider that unstable and untenable, but humans created vast empires, stable trading networks, and prosperity with these systems before the Fed was created.

Our money is a meme, an emotional connection to pictures and images that quantify our wealth. It’s a mirage—the product of financial engineering, propped up by government edicts and collective nostalgia.

Try telling that to Billy the Neighbor. He’ll look at you funny and ask you for a memecoin recommendation. He doesn’t know how money works. He just wants more of it.

That's what Wall Street is banking on. You and I know the opportunities in crypto go far beyond that.

Our money, not theirs

We don’t need to make up stories or debate monetary principles. We need to design and iterate. Let technology flourish or fail, and trust that people and markets can figure this out.

Bitcoin’s network funds itself. The protocol runs without the involvement of any human being. No programmer can hack or take over the bitcoin network. 

Some altcoins will reach the same level of autonomy and relevance, in time.

So you can have ETFs, US government chokepoints, China bans, altseasons, useless DeFi protocols, good/bad smart contract platforms, angry politicians, and greedy developers. 

None of it changes the fundamental value proposition of cryptocurrency: 

Money for the people. 

With bitcoin, you can send money to anybody, anywhere, anytime, in any amount, without restriction, without revealing your sensitive personal information, without putting your property in another person’s control, with certainty that your transaction will go through and confirmation that every payment you receive is authentic and valid.

It works in all conditions, even when counterparties fail. It can sustain itself without political violence, military coercion, government manipulation, or sovereign debt.

Other cryptocurrencies leverage some or all of these features for different purposes, with the same result: everybody has access to all the tools of finance.

That’s the investment opportunity.

With cryptocurrency, you can choose who to associate with, how to associate with them, and the terms of your agreements. You don’t need to petition the government or wage war if you don’t get your way.

You can simply create another protocol or deploy a new smart contract.

Crypto doesn’t need a Wall Street entity to make it safe or easy. Each failure, hack, and attack exposes a vulnerability for developers to fix. Each “cycle” brings more money and attention to the technology, its flaws, and how to solve its problems. 

When you use crypto, monetary power doesn’t flow to those who can capture the hearts and minds of regulators. It flows to entrepreneurs, developers, and community members. 

Wall Street can't exist under those conditions. Its firms want to sell us picks and shovels. Crypto gives us our own picks and shovels. Wall Street doesn't want that.

You want 1% of Wall Street's money. Wall Street wants 100% of yours.

Your favorite influencers are happy to oblige so they can “sell the peak.” Crypto commentators seem eager to sacrifice their share of the world's wealth in exchange for a fraction of whatever’s left after the legacy financial system gets its share.

You can pin your hopes on fund managers, institutions, and ETFs. You can celebrate your financial advisor’s allocation of “up to 5% of your portfolio.”

Buy the ETF if you want. Rejoice when traditional investors pump your bags. When you’re done, ask yourself:

Why do you want to own a stake in Blackrock’s success instead of your own?  

Relax and enjoy the ride!