Bob Moriarty, founder of 321gold, has been adamant about Bitcoin and cryptocurrencies being the biggest bubble we’ve ever seen. He has been incredibly accurate in our recent conversations, calling Bitcoin a bubble that had burst in our last conversation on December 22nd, even offering a prescient quote “the bubble has popped but most people don’t know it yet.” He hasn’t become any more optimistic on cryptos in the last few weeks, in fact he sees a much deeper decline coming and this time Bob offers somewhat surprising advice to investors given his usual bullishness on precious metals.
CEO Technician: We have seen a massacre in the cryptocurrency realm today. After reaching US$830 billion in total market capitalization on January 7th, cryptos are almost back down to US$500 billion today. What are your thoughts on what we’re seeing here Bob?
Bob Moriarty: The day before we did our interview on December 12th I did an interview which was posted to YouTube. There were about 136 comments on this YouTube interview and about 80 of those comments were about how stupid I was and how I’m just an old man who doesn’t understand technology.
People have confused blockchain, Bitcoin, and bubbles. Anything can go into a bubble, real estate has done it, gold has done it, tulip bulbs have done it. When John McAfee said that Bitcoin couldn’t go into a bubble he was going against thousands of years of human history. When I wrote the book Nobody Knows Anything 20% of the book is about Extraordinary Popular Delusions and the Madness of Crowds – every single rich investor that I know has read this book and if you do not understand crowd behavior you will never invest at a profit. Of course there are all kinds of other things to understand in markets such as technical analysis, fundamental analysis, etc. However, the main course in markets is understanding human behavior.
To say that Bitcoin can’t go into a bubble is completely irrational. Anything can go into a bubble. The bubble burst in December. Today Bitcoin made a new monthly low, a lower low after a lower high. It’s going to keep going down, this is going to go far lower than anybody anticipates.
Now make no mistake that Bitcoin can be a burst bubble and that doesn’t mean that blockchain isn’t one of the greatest advancements in human history. It’s also possible that once the dust settles a few of the more than 1400 coins out there may end up having some usefulness and some value, but first we must have a crash and a huge weeding out of the coins that have no value.
CEO Technician: Markets are very clever in finding ways to seduce in the largest number of market participants before crashing. I believe we saw this classic phenomenon with cryptocurrencies; you even said in our conversation on the 22nd that “the bubble has popped but most people don’t know it yet.” I believe the rally in cryptocurrency market capitalization from the December 21st low to the January 7th all-time high was driven primarily by retail investors in a herd mentality, so there was this huge flood of retail money into the sector after it had “crashed” on December 21st. However, the interesting aspect is that the largest crypto, Bitcoin, did not make a new high even as many other alt-coins made all-time highs almost on a daily basis during this time period. I wrote about this divergence today and I believe it is highly significant.
Bob Moriarty: Crowd behavior never changes. We’ve had a crash, we’ve had a dead-cat bounce and the dead-cat bounce failed. Yet everyone is sitting there believing we’re going to go back to $20,000, $50,000, or $500,000 because their favorite guru told them it’s going there. People always fall into the bubble trap. The reason why I wrote my book Nobody Knows Anything is to explain what a bubble looks like. This is the biggest bubble in history. There’s so much fraud involved in cryptocurrencies it’s absolutely staggering. Guys who could have sold at $19,000 are going to hang on and one day they’ll be thrilled to sell at 20 bucks.
CEO Technician: The crypto mania has had every single ingredient for a major bubble, including the gurus. The faces of Bitcoin/Cryptocurrencies are arguably James Altucher and John McAfee. Both of these guys have played this cryptocurrency mania like absolute masters. McAfee in particular has engaged in what I would consider highly suspect behavior including accepting large payments to tout small coins and ICOs on his Twitter account. It doesn’t seem like he’s done much due diligence on many of these coins and his track record at this point is quite poor (he triggers a sharp rise in price initially only to see many of his picks make full round trips, or worse).
Bob Moriarty: The amazing aspect about cryptocurrencies is that it’s an unregulated space and all of this is legal. It’s legal fraud. There is a tremendous amount of fraud in cryptocurrencies, it’s absolutely staggering.
CEO Technician: So we’ve seen a nearly 50% decline in total crypto market capitalization and a nearly 50% drop in Bitcoin from its all-time high, how far can Bitcoin fall? How much more money can be shaved off the total crypto market capitalization?
Bob Moriarty: Do you happen to recall what the Dow Jones Industrial Average was at the peak in 1929?
CEO Technician: I think it was about 300.
Bob Moriarty: Very good. It was just over 380. From October 1929 to July 1932 the Dow fell 89% to 41 in July of 1932. A typical bubble will result in between a 85% and 95% decline. Bitcoin is going to drop 85%+ and if 50 cryptocurrencies end up surviving and having any long term value I would be surprised.
CEO Technician: If this unfolds as you say it will the pain from this will be widespread and deeply felt. There are many people involved in cryptocurrencies who have never invested in anything. What will the net impact be upon the broader markets (stock market, commodities, etc.) and how does a crypto crash affect precious metals?
Bob Moriarty: I don’t know actually how much real money went into this bubble. While it’s accurate to say US$830 billion was the total value at the peak, it was $830 billion of paper. Every transaction is done on the margin so while transactions may have taken place at levels which equated to those valuations, it doesn’t mean $830 billion went into the market to create those valuations. US$830 billion in paper assets is basically going to evaporate and you might end up with US$50 billion in assets when it’s all over. The danger now is that you could get a cascading default.
CEO Technician: What does that mean exactly?
Bob Moriarty: A cascading default which is what happens when people get wiped out in one investment they tend to not pay out on other investments. We have had people borrowing money to buy cryptocurrencies including through credit cards, taking mortgages on real estate, and through exchange margin debt. There could certainly be a knock-on effect throughout the economy as the bubble unwinds further.
CEO Technician: If a crypto investor liquidated their portfolio completely here what should they do with the cash? Buy gold?
Bob Moriarty: The Daily Sentiment Index is flashing a warning signal for gold right now. The best place to keep cash right now is in cash. The stock market is about to fall off a cliff and cash is a good place to be. This is the great reset and Bitcoin could be the pin that bursts the “everything bubble.” Cash is a great place to be right now. If we got one more washout in gold & silver the decks would be clear for a fantastic rally in precious metals.
CEO Technician: So you don’t mind holding the US dollar here?
Bob Moriarty: No, not at all.
We’d like to thank Bob for his wisdom and it is undoubtedly a great time to read his book “Nobody Knows Anything” and the timeless classic “Extraordinary Popular Delusions and the Madness of Crowds.” Until next time.
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