December 19, 2017

2018 Predictions

BY Tradition Gold

Doug Kass is the president of Seabreeze Partners Management Inc.  Until 1996, he was a senior portfolio manager at Omega Advisers, which is a $6 billion investment partnership.  Said differently, he is a well known Wall Street pro that covers all investment topics, not just equities.  Every year Mr. Kass puts out a list of predictions for the following year that are sometimes quite accurate, and if nothing else, entertaining.

His recent recent predictions contained fifteen different subjects, with #4 being the most interesting: The Cryptocurrency Bubbles Pops and Gold Goes To All-Time Highs.

“My Surprise is that though bitcoin becomes ever-more popular over the near term and rises to more than $21,000, the price plummets to under $2,000 during 2018.

My surprise is that bitcoin trades above my target of $21,119 by early January but crashes in 2018 to under $2,000 and falls toward and eventually below the cost of mining the cryptocurrency, which today is about $1,000 to $1,500.

The initial pause and sizable break lower in bitcoin’s price is when market participants begin to realize more fully that the supply of cryptocurrencies, in the aggregate, is unlimited with low entry barriers. The threat and realization of this risk is prompted by Apple Inc. (AAPL) and Amazon.com Inc. (AMZN) , which introduce their own easy-to-use and faster cryptocurrency blockchains. (Note: Amazon already has received a patent for its own blockchain technology — 8,719,131 — see here and here.)

JPMorgan Chase & Co. (JPM) causes a stir after CEO Jamie Dimon’s previously negative comments on bitcoin by introducing “JPMorgan E-cash,” its own cryptocurrency. Soon thereafter, other banks follow suit. As well, several governments (including the U.S.) introduce their own government-based cryptocurrencies based on their desire to continue to control policy levers such as money supply and fiscal policy.

The eventual demise for bitcoin commences in earnest when it is revealed in a New York Times expose that less than 10 entities, mostly residing in China and Japan, are found to have manipulated the price of bitcoins higher in Ponzi-scheme fashion over the last two years. The cryptocurrency bubble finally collapses in dramatic fashion and falls in value by 90% as a result of direct government intervention and a successful hacking where thieves penetrate the blockchain code and steal a large amount of coins.

Bitcoin will ultimately assume a permanent place in the Speculative Hall of Fame, along with tulips (1636-37), the dot.com bust (1999-2000), the housing bubble (2005-07) and the South Sea Bubble (1711-20), as traders and investors learn the lesson, once again, that an asset class founded on the notion that there is a greater fool who will be willing to buy that asset for more than the previous fool paid, almost always ends in disaster.

The year 2018 will be one in which investors come to understand that blockchain technology — a distributed database of records of transactions that are executed and shared among participating parties and are validated by a network of users, called “miners,” who contribute computing power in exchange for the chance to garner coins using a shared database and distributed processing — is real (each transaction is encrypted and can’t be replicated or altered), but that bitcoin is a mirage and becomes, like many past schemes, a byword forPonzi-like nostalgia.

Interest in gold, which has been sidelined for months amid the cryptocurrency frenzy, regains popularity, reverses direction from the lower left to the upper right and moves higher in price.

In an abrupt and swift flight to alternative safety, gold makes new all-time highs and becomes the single best-performing asset class in 2018.

 

That was quite a prediction for the coming year, especially for the frothy crypto market.  It’s always a good time to invest in gold, but if this prediction is even partially correct, then a gold investment now in your gold IRA would be a wise move.