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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

How Long Till Bitcoin Replaces Cold Hard Cash?

Bitcoin is back in the news in a big way. The world’s largest cryptocurrency neared $10,000 last week, meeting strong 200-day moving average resistance of around $9,800. Also last week, the 17 millionth bitcoin was mined. Remember, the crypto was originally designed to have a limited supply of “only” 21 million, an attractive feature that should continue to burnish its value as we get ever closer to that ceiling.

It’s no coincidence that the rally we’re seeing right now began soon after Tax Day. Many bitcoin and altcoin investors likely liquidated some of their holdings ahead of the filing deadline to cover capital gains taxes from last year and are now getting back into the trade. Month-to-date as of April 27, bitcoin was up more than 33 percent.



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Also moving prices is news that Goldman Sachs and Barclays are both rumored to be working on introducing cryptocurrency trading desks. Similarly, Nasdaq CEO Adena Friedman told CNBC last week that Nasdaq “would consider becoming a crypto exchange over time,” and that “digital currencies will continue to persist.”

As I see it, these are huge steps for the crypto market to take on its path to full maturation and acceptance as an asset class. We’re still in the very early stages, and recent calls that “bitcoin is dead,” not to mention general negativity toward bitcoin in the media, are strikingly premature.

I’m bullish, but I don’t expect bitcoin to test $20,000 again in the short term, especially before July. That’s when G20 finance ministers are scheduled to present their recommendations on how cryptocurrencies should be regulated.

More and More Smart Money Flowing into Cryptocurrency and Blockchain Tech

As I’ve said before, I don’t necessarily see regulation as a major headwind to cryptocurrencies, so long as it’s fair and reasonable. Such rules might even spur some investors, who until now have been watching from the sidelines, to participate.

That includes hedge funds, financial firms and other large institutional investors. A recent Thomson Reuters survey found that one in five firms are planning to trade altcoins this year. Of those, about 70 percent said they would do so in the next three to six months. Clearly, an increasing number of big investors see cryptocurrencies as an opportunity too good to pass up.

More and more money from venture capital firms is also being plowed into startups focused on cryptocurrency and blockchain technology. In the three months through February, the amount of capital flowing into blockchain businesses far exceeded the monthly average of $55 million for the three-year period. Momentum is building.



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And it’s not just “dumb money” making these bets. Bloomberg reports that successful venture capital firm Venrock Associates is ready to start speculating in the space. Venrock, a compound of “Venture” and “Rockefeller,” was founded in 1969 by members of the wealthy Rockefeller family, and it has a stellar track record for investing early in wildly profitable companies, including Apple and Intel.

Bitcoin to Meet Growing Demand for Alternative Payment Systems

One of the most bullish crypto participants right now is venture capitalist Tim Draper, an early investor in Hotmail (since acquired by Microsoft and renamed Outlook), Skype (also purchased by Microsoft) and Tesla (not currently owned by Microsoft, as far as I know). At a recent Intelligence Squared debate in New York, Draper made the bold claim that bitcoin is bigger than those three ventures combined. “Bigger than the Industrial Revolution,” he said.

Further, he doubled down on his bullish call of $250,000 per coin in the next four years, and predicted that fiat currency will disappear much faster than expected.

“In five years, you are going to try to go buy coffee with fiat currency and they’re going to laugh at you because you’re not using crypto,” he said.

No doubt some of you reading this are laughing at Draper’s hyperbolic claims. But as I’ve written before (here and here), there’s already a global war on cash, incited by some central banks, economists and policymakers.

To try to prevent terrorism financing and drug trafficking, the eurozone has already scrapped the 500 euro note. India did the same with its 500 and 1,000 rupee notes to combat corruption. (See the dramatic dip in the chart below.) And Sweden, one of the first countries to experiment with paper currency, could soon become the first to eliminate it altogether and rely exclusively on electronic payment systems. (Again, notice Sweden’s steady slope toward 0 percent of GDP.)



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Here in the U.S., the $100 bill’s days might be numbered, which would affect not only America but also many countries where Benjamins are still in high demand. In fact, more than three quarters of all $100 bills in circulation today live outside the U.S., according to the Federal Reserve Bank of Chicago.

Banning large denomination banknotes might be well intended, but ultimately it debases people’s economic freedom. This becomes especially true when low to negative interest rates are also introduced, as they are in Japan. (Today, in fact, the Bank of Japan announced it would keep its short-term rate at minus 0.1 percent.)

The demand for other liquid assets and “alternative technologies for making payments,” as the Chicago Fed puts it, is therefore surging, and I expect digital currencies such as bitcoin and Ethereum to fill that need. Today, U.S. currency in circulation stands at $1.59 trillion. According to one estimate by the Chicago Fed, that figure could sink to as low as $501 billion within 10 years as altcoins become more widely used to make transactions.

In a report for the second quarter, the St. Louis Fed likewise predicts a rapid transition from cash to cryptos:

In the near future, a close cash substitute will be developed that will rapidly drive out cash as a means of payment. A contender is Bitcoin or some other cryptocurrency. While cryptocurrencies still have many drawbacks… these issues could rapidly disappear with the emergence of large-scale off-chain payment networks (e.g., Bitcoin’s lightning networks) and other scaling solutions.

Maybe Tim Draper is onto something!

Frank Talk Turns 11 Years Old!

On a final note, I’d like to give a huge thanks to all of my readers, new and old, who’ve made my Frank Talk blog such a pleasure to write these past 11 years. If you’re still not a subscriber, you can sign up here and join thousands of other curious investors from around the world.

I also invite you to subscribe to the U.S. Global YouTube page, where we regularly share the latest episodes of Frank Talk Live, Gold Game Film and much more.

Blockchain and Digital Currencies SWOT

Strengths

Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended April 27 was Daneel, which gained 769 percent. Last week during an interview, Adena Friedman CEO of Nasdaq, said that “Nasdaq would consider becoming a crypto exchange over time.” Although it is unlikely to launch a service anytime in the near future, this is very positive news for the cryptocurrency market in gaining widespread adoption, writes Coindesk. “I believe that digital currencies will continue to persist, it’s just a matter of how long it will take for that space to mature,” Friedman added.

Some of the world’s biggest cryptocurrencies rose again last week, reports Bloomberg. This extends their April rally deep into its fourth week, taking this month’s increase past 75 percent. According to Marc Ostwald, global strategist at ADM Investor Services in London, “The noise from regulators has been far less destructive in recent weeks than since the end of last year, and we haven’t had a big theft from an exchange recently.”



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Walmart Inc. is getting suppliers to put food on the blockchain, according to Frank Yiannas, vice president of food safety and health. As Bloomberg reports, the move would help reduce waste, better manage contamination cases and improve transparency. Another new use for blockchain technology is tracking jewels. From mines all the way to retail stores, four gold and diamond companies – Helzberg, Richline, LeachGarner and Asahi – are developing a network to do just that. These companies will use the TrustChainInitiative, running on IBM’s technology, to prove to consumers that their purchases don’t include blood diamonds or other conflict metals, writes Bloomberg.

Weaknesses

Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended April 27 was Global Cryptocurrency, which lost 41 percent.

Bloomberg reports that some ERC20 tokens, which are based on the Ethereum network, could be susceptible to a bug in the system. These tokens encompass about 90 percent of the $53 billion token market, according to CoinMarketCap. On Wednesday, two exchanges suspended the ERC20 token, with one going back up the same day.

Central bankers still don’t seem to agree on cryptocurrencies and how to regulate them, but they do agree that tokens such as bitcoin and Ethereum won’t replace traditional currencies. The IMF wrote in a report this month that, “while they may serve as a store of value, their use as a medium of exchange has been limited and their elevated volatility has prevented them from becoming a reliable unit of account.” Different approaches around the world to regulating cryptocurrencies would mean that the effectiveness of regulation is limited, writes Bloomberg.

Opportunities

A litecoin trade is turning heads in the cryptocurrency community, writes Business Insider. In a single trade at the end of the week before last, $99 million-worth of litecoin was sent between two crypto wallets in a single trade. The trade cost only $0.40 and took around 2.5 minutes to complete. Users are pointing out that a similar transaction in traditional finance “would take days to clear, multiple parties to sign off and carry heft fees,” the article continues.

The Federal Reserve Bank of St. Louis has conducted a new study breaking down cryptocurrencies and asking some of the biggest questions in the space today, reports CCN.com. The study includes an analysis of the control structure of various currencies and also looks into whether or not central banks will adopt cryptocurrencies as a form of payment. As the article points out, the study shows the bank as stating “we welcome anonymous cryptocurrencies, but also disagree with the view that the government should provide one.”

Venrock Associates, a venture capital firm that grew out from the Rockefeller fortune, is setting its sights on investing in cryptocurrencies, specifically blockchain startups. Bloomberg reports that it is looking to invest some in tokens, but mostly in startups before issuing its own cryptocurrencies. David Pakman, a partner at Venrock Associates said that he thinks “this is one of the most transformative tech ecosystems and has the possibility of creating hundreds of companies worth billions of dollars each.”

Threats

According to the Mosaic Network, cryptocurrencies’ “number-one problem” is the massive void in reliable research. Of course, there are books, blogs and critical media coverage on the space, but there still remains very little in the way of timely and rigorous 1) fundamental analysis of project teams and track records, 2) quantitative analysis of adoption and community traction, and 3) technical road-map risk assessment, to name a few, the article continues.

Many large brokerage firms, such as Merrill Lynch and Wells Fargo, are banning their financial advisors from recommending cryptocurrencies. However, Jack Tatar, who is the co-author of “Cryptoassets” and was a Merrill Lynch financial advisor for almost 10 years, says “these firms will back-track their policies” eventually. Furthermore, Forbes writes that even though brokers can’t trade cryptos for their clients, they’ll go against their employers’ policies and advise their clients to make a personal investment.

According to Coindesk, Capital Group, a financial services company with $1.7 trillion in assets under management has prohibited its associates from investing in initial coin offerings (ICOs) or initial public offerings (IPOs). The code of ethics says that there may be some exceptions to investing in IPOs, with no exceptions for ICOs. The ban could be positive with implications that the firm might invest in ICOs on behalf of their clients sometime in the future.

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The MVIS CryptoCompare Digital Assets 10 Index is a modified market cap-weighted index which tracks the performance of the 10 largest and most liquid digital assets.

The Bloomberg Commodity Index is made up of 22 exchange-traded futures on physical commodities. The index represents 20 commodities, which are weighted to account for economic significance and market liquidity.

MSCI World Index is a capitalization weighted index that monitors the performance of stocks from around the world.

The Bloomberg Barclays Global Aggregate Bond Index is a flagship measure of global investment grade debt from twenty-four local currency markets.