Hello, friends, and welcome to this month’s Palm Beach Confidential Update. I know I’ve done a couple of other updates, but this is the official update that we do every two weeks.
So there is a lot to talk about today. If you don’t feel like sitting here and watching me for the next 10 to 20 minutes, feel free to go through the transcript; but I do have a lot that I need to talk about.
Amazon Coin
There are a couple of things I want to just get out of the way because I keep forgetting to talk about them each week. So a question I’m getting a lot right now is, “What about Amazon coin? There’s something out there saying that Amazon coin is going to kill bitcoin, kill Ethereum, and basically be the one coin that destroys everything else.”
One thing I would say is that an early-stage mistake I’ve seen a lot of people in the cryptocurrency space make is falling for this binary argument that if one coin is successful, then all other coins must become failures. That’s just not accurate. It’s like saying if one car company becomes successful, all other car companies must become failures. Or to even take it a step further, it’s like saying if one computer software application is successful, then all computer applications can’t be successful. So that’s the first thing I want to get out of the way.
The second thing is I don’t know if Amazon is going to launch its own coin or not. I would imagine, at some point, most companies are going to have some type of token that they’ll use—probably to induce loyalty more than anything else. But Amazon has already announced that it’s going to be working with the Ethereum network; the plan is to fork the Ethereum code and have a version of the Ethereum blockchain that it can then connect with the public version of the Ethereum blockchain. And Amazon is going to be using ether across those chains; it’s not going to be using its own cryptocurrency.
As far as I can see, I don’t see bitcoin or ether in any imminent danger of being supplanted by Amazon, Facebook, or any other one of these companies. You’ve got to remember to look at the business that Amazon is in. The regulatory environment is still extremely fragmented, and the last thing that Amazon wants to do is launch its own currency and then get in trouble with the Financial Crimes Enforcement Network (FinCEN), the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Internal Revenue Service (IRS), or even state regulators… because it’s a huge target since it has such enormous deep pockets.
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So what I would imagine Amazon will do is just simply let this space continue to develop; then, it’ll piggyback off the winners, which, in my opinion, will be names like bitcoin, Ethereum, and things like that. The fears are really overblown that Amazon is somehow going to come to market with an offering and, all of a sudden, everything else is going to be worthless. I would caution you against having that type of binary thinking.
I’ve been getting similar questions about Hashgraph… Things along the lines of, “Hashgraph can do thousands and thousands of transactions per second. Hashgraph can do this; Hashgraph can do that.” Now, Hashgraph is a very useful platform for a very specific niche. But it will never take the place of Ethereum and bitcoin because of the security issues in the Hashgraph system. I don’t really have the time in this video to do a deep-dive on it. I think that Hashgraph is an interesting project… But it’s not one that I think is going to take over the world in the way that a lot of people think it will.
Bitcoin ETFs
All right, I think that’s most of what I wanted to cover. Somebody had a question about how the exchange-traded funds (ETFs) that are coming through to be approved are only invested in big projects… So what about the small projects that we’re involved in? Well, somebody’s very worried that these small projects are going to get left behind.
But here’s something to remember: If you look at the history of ETFs, they always start with the biggest, most liquid securities first. The world’s first ETF was for the S&P 500. It wasn’t for the copper market or the gold market. It wasn’t for small-cap stocks, mid-cap stocks, or stocks that trade in Asia. It was for massive, blue-chip stocks because they had the most liquidity.
So what you’ll see is that the first round of ETFs will be for the biggest coins. They’ll be for bitcoin and Ethereum. And then you’ll have bitcoin ETFs that will have several coins in them… They’ll probably do the top six or the top 10 coins to start. Then, as the market matures, you’ll see ETFs that have some of the smaller names or that go after a certain niche or vertical. But that’s further down the road.
The beauty of a bitcoin ETF or an Ethereum ETF is that, as they come into the market, they’ll automatically attract more capital and more attention to the rest of the market. So when somebody gets involved with bitcoin for the first time, they won’t stop at bitcoin. They’ll kind of “go down the rabbit hole” and they’ll discover Ethereum… and then they’ll discover some of the smaller coins. They’ll start doing more research and getting more involved. They’ll start saying, “Yeah, this is real. These are the new blue-chips of tomorrow.” And they’ll start broadening their investments. That’s what the major advantage of an ETF is going to be. It’s going to bring in an enormous amount of capital into the market; right now, there are only a couple of coins that can hold enormous capital— mainly, bitcoin and ether. But as these new participants come into the market, they’re going to start diversifying and buying all the coins that we already own.
ICE’s Big Announcement
Okay, so that’s all taken care of. Now, I want to get to the most important news of this communication. And it’s the incredibly bullish news that came out of Intercontinental Exchange (ICE). It’s the second-largest exchange operator in the world. It owns the New York Stock Exchange (NYSE). It generates over $6 billion in revenue a year… $2.5 billion in profit. Trillions of dollars’ worth of trades go across its platforms. What we’ve found is that the CEO of ICE is a huge believer in crypto. And ICE has announced that, come November, it’ll be launching futures, but these futures will be settled in actual bitcoin.
So what does that mean? Right now, for the Chicago Board Options Exchange (CBOE), futures contracts involve two people. There’s one person betting that bitcoin will go up, and one betting that it’ll go down. They agree on a price at a certain date. If bitcoin is lower, then the guy betting that it would go lower receives money from the guy betting it would go higher. And it’s settled in cash; no bitcoin actually changes hands. They essentially say, “Okay, I made money. You lost money. Give me the difference.”
But the ICE product is going to be a bitcoin-delivered product. I don’t know what the contract size is going to be, but let’s say it’s 100 bitcoins. So I buy a contract, and you sell me the contract. When the contract comes to the delivery date, I can say, “Okay, you now have to deliver to me 100 bitcoins.” Now, this is taking actual bitcoin out of the market. It’s creating a brand-new use case for bitcoin.
So why does this matter? It matters because the institution that stands in between these trades—in this case, ICE—has to guarantee that the product is there for delivery. So that’s why they have warehouses where they store corn, oil, gold, silver, and more. For the London Metal Exchange, there are warehouses full of lead. So what will happen is that a certain amount of bitcoin will have to be held by the clearinghouse in order to guarantee these trades. What this does is remove physical bitcoin from the market, which is incredibly bullish. And the market is completely asleep at the wheel for how bullish this is.
The second piece to this ICE announcement is a new platform that it’s been secretly working on for the last 14 months. That platform is called Bakkt, as in “asset backed.” Bakkt is a platform that will let institutions buy and sell actual bitcoin, and it will provide the custody for the bitcoin. So it’s a custodial solution for bitcoin by one of the world’s largest, most-trusted exchanges. It is wildly bullish, just wildly bullish.
On top of that, Bakkt will also provide services for merchants. You might have heard of the small company called Starbucks… Now, Starbucks doesn’t want to be in the cryptocurrency business, but it would love to have more customers spending more money at its stores. Well, Bakkt is going to work with Starbucks so that you’ll be able to put some bitcoin in Bakkt. You’ll have an app. When you go to Starbucks, you’ll buy your coffee. Starbucks will hit it with a little laser beam and read it. And then Bakkt will convert your bitcoin into cash and give it to Starbucks. Think about it: How many people buy Starbucks every morning? Tens of millions… maybe hundreds of millions? It’s a lot of people.
Now, if you’ve been with me for a while, you’ll know that usability creates value. The more a coin is used, the more value is created in the coin. So we now have this robust, compliant offering being put together by the highly-credible ICE that merchants can go to because they don’t want to deal with handling bitcoin. It’s just not their core business. There’s just too much friction in handling bitcoin at the retail level.
But if you now have this middleman that can create a gateway to make it easy for you to accept bitcoin and get cash right away without taking any currency risk… to me, that’s as transformational as the introduction of the credit card. Think about how inconvenient it was when you had to go buy stuff without a credit card and how much friction there was in commerce. Now, there’s a place where both merchants and consumers can easily go to spend their cryptocurrency.
The Three Things That Tell Me Where the Market Is Going
Guys, this is a new story that’s being completely ignored by the market, and I really don’t understand why. I even looked back last year to July 12 when I was in London; at the time I made that video, bitcoin was at $2,400. The CFTC had just announced that it was going to be launching bitcoin futures at the end of the year. Bitcoin was down something like 40%; it was on its way to going down 40%. The whole market was down. But I got in front of the camera and said, “Look, everybody is ignoring the story, and it’s the biggest story of the year. There’s going to be futures at the end of 2017, and it’s going to bring enormous money and enormous focus into this market…
Bitcoin is probably going 4x from where it is right now.”
I think it was around $2,400–2,500 when I made that video, so I was suggesting that bitcoin was going to go to $10,000. Now, what happened after I made that video? Five days later, bitcoin dropped another 30%; it went from $2,400 down to $1,800.
I would imagine that if you were new with me, you were probably looking at that and thinking, “Yeah, I don’t know what this Tiwari guy is smoking. He’s crazy! Who cares about bitcoin futures coming to the market? This thing is just getting killed. Nobody cares!” And then, of course, by the end of the year, bitcoin was at $20,000; everybody was getting all excited about bitcoin futures. This is exactly the insanity of markets.
And now, we’ve had this great news come out about ICE on Friday. Bitcoin is trading at around $6,800 a coin. This is unspeakably insane to me… I’ve never seen such an orgy of good news. Goldman Sachs came out and said that it’s going to be providing custody. Nomura says it’s going to be providing custody. You’ve got all these institutions now coming to the market; you’ve got the chief of ICE being all-in on crypto…
Now, you have to remember, 2.5 years ago when I first started writing about this, when I would talk to people about bitcoin, the narrative was, “Oh yeah, that’s the thing drug dealers are using… Oh yeah, you’re helping people launder money.” And now, we’ve gone from that to having the owner of the NYSE being all-in on crypto, talking about creating exchanges with products and futures around it, and planning to help people buy, store, and spend their bitcoin. Guys, that’s such a monumental shift.
Again, we have this sea of good news even if bitcoin keeps going down. I want to assure you that this is not the first time we’ve seen this happen. Last July, I said bitcoin futures was the most bullish news I’d seen all year, and that didn’t stop bitcoin from dropping. So I want you to unplug from the day-to-day volatility of this market; otherwise, it will drive you insane because it doesn’t make any sense.
We’re getting great news, but the market is dumping down. Why? I don’t know why, just like I don’t know why it jumped down in July 2017. There was no reason for it to sell off as hard as it did, but it did anyway. That’s why I’ve learned to focus on the bigger picture and trajectory of the development of the underlying technology, regulatory framework, and institutional adoption. Those are the three things that I follow to tell me where this entire market is moving towards.
On a day-to-day basis, the market can do anything it wants. So I don’t care what it does on a day-to-day basis. What I care is about this bigger trend. And currently, this bigger trend is dramatically higher, not a little bit higher, but dramatically higher. You can’t bring this level of institutional focus and attention to an asset class that only 2% of America owns and not have it result in massive value creation.
I know it’s hard to sit there and listen to some bald guy talking to you in feverish tones; but this is not my first rodeo. I’ve had to deal with this for two-and-a-half years. The first month I recommended bitcoin, one of the core developers—one of the early, early guys in bitcoin—basically rage-quit. He saw all his bitcoin at around $450 and said, “Oh, bitcoin is over. Everyone that owns it is a loser. I can’t believe people are still buying bitcoin.” And then, bitcoin dropped; I think it went down to $380 or $400. There was a lot of panic. People were saying, “Oh my goodness, this guy was there from the very beginning and now he’s leaving!”
So I’ve learned that every few weeks or every few months you’ll go from one crisis of confidence… to another… to another. And the best thing you can do is just take a deep breath and let the market do what it wants to do. Make sure your position sizes are rational, and go enjoy your life. Be confident that we’re taking the necessary steps to put together the right portfolio so that when this money starts coming into the market and when the market starts taking off, we’re going to be in such an incredible position financially that every little heartbeat of movement that you had to go through will be more than justified.
And I say this speaking from experience and having to deal with enormous ups and downs in this market for the past 2.5 years. But if you’re new, I understand that it can be a bit unnerving to watch good news come out and then see prices get whacked. It doesn’t make any sense, and I agree with you that sometimes markets don’t make sense. So you have to focus on the big picture. And hopefully, these videos help you do that.
Upcoming Travel
Okay, I told you this was going to be a long one. Again, the “smart” people will have just read this transcript. But, I still enjoy doing these videos. I enjoy bringing you up to speed with what’s going on.
Now, I have an enormous amount of travel ahead of me. I have to go to New York City tomorrow to pick up my Russian visa. Then, I have to go to Florida (we have a Q&A coming up). Then, I’ll be flying back to New York and then to Moscow; I’ll be speaking at a small, private conference in Moscow. Also, I’m trying to get a meeting with one of the cofounders of Cindicator when I’m in Moscow; I’m trying to get a deeper dive into what’s going on there. We’ve had a lot of volatility in Cindicator, so I just want to find out some more on how its timeline and execution plans are going. After that, I’ll spend a few days in Sicily, Italy, where I’m meeting a really important contact. He’s very involved in the regulatory environment in Malta; as many of you might know, Malta is emerging as a hotbed for blockchain development. There’s a very good regulatory environment there that’s quite supportive for blockchain companies. So I’m looking forward to finding out more on what’s going on there, too.
All right, friends, that’s enough out of me. I apologize for the length of the video, but I hope it’s been helpful. If you have any questions, comments, or concerns, please send them in here. Of course, we can’t give you personalized investment advice… But we do our best to answer you in a general way. I think that’s it. And I want you to always remember: Let the Game Come to You!
