Tags: surprising | asset | buying | invest | cryptocurrencies

One Surprising Asset I'm Buying Now

One Surprising Asset I'm Buying Now
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By    |   Thursday, 28 June 2018 05:20 PM

“The last will be first, and the first will be last.”

That’s from the book of Matthew. And while it applies to many endeavors in life, I’ve found time and again that it still works well after thousands of years in the field of investing.

That’s why I’m often on the lookout for investments that are unpopular now. And why I’m skeptical of any investment that has attracted too much popularity.

Year to date, we’ve seen investors get burned on two popular investments. The first was anything to do with cryptocurrencies. That makes sense, given the huge gains this asset class had in 2017. Bitcoin, the gold standard of the space, went from $800 to $20,000 – and still trades over $6,000 today, so anyone who bought before the start of 2017 is still killing it in this market.

As the price of bitcoin and other cryptocurrencies went parabolic, however, a few people warned of a bubble in prices. I was one of them, as you can read in just about every other blog I wrote in the second half of last year.

The second trade was a popular strategy of selling short volatility, otherwise known as the VIX. Shorting the VIX seemed to make sense as a “free money” trade to many traders. And, I’ll admit, I’ve made bundles doing that trade as well. But in all of 2017, the VIX was a sleeping giant, staying in the teens.

Historically, as a measure of volatility, the VIX averages 17 to 20—but often shoots far higher. It hit 70 during the peak of the financial crisis in 2008. But traders can be shortsighted. Many VIX shorts were betting that futures and options would continue bleeding out indefinitely, even if the VIX itself fluctuated a bit.

But the VIX roared up to 50 in just a few short trading days in February, and one popular vehicle for shorting the VIX suffered a terminal event. Folks who made millions shorting the VIX saw those gains, which took years to generate, vanish overnight.

Of these two trades, I’m actually interested in both. But I personally wouldn’t want to think about shorting the VIX until the odds are on my side. All the times I’ve shorted the VIX, I’ve waited until it was over 30. I made a small short trade in February when it hit 50—but it came down so quickly again that I didn’t make a series of trades there. With the market volatility we’re still seeing, I think I’ll get a few more chances this year to short the VIX over 30 again.

But the more interesting trade right now is in the cryptocurrency space. While some crypto investors who wanted to talk to me all the time last year still won’t return my calls ever since my bubble call during the holiday season, the selloff has been large and long enough that it’s starting to look interesting. I don’t see the price action of last year repeating itself, but it looks enticing.

Here’s why:

First, cryptocurrencies have much more exposure to the broad investment market compared to where they were at even a year ago. It’s still a new asset class, and new asset classes tend to attract intense interest, gain some early followers, and see some big price moves both up and down. It happened with stock in the early days of corporations, and many swore off investing following the early gains and pains of companies like the Mississippi Company or the East India Tea Company.

These early endeavors formed obvious bubbles. A new investment class received more capital than it could initially handle, but eventually a more muted market was formed. While we can still get bubbles in every asset class today, it truly takes emerging investments like cryptocurrencies or specialized technology companies to make it happen.

Today, with shares of the cryptos more than 60 percent down from their highs, they’re starting to look interesting, and worthy of a small investment. They could fall farther.

Looking at the commodity space, a 70 or 80 percent decline from a bubble-high is possible. However, cryptocurrencies have more unique characteristics than a supply/demand imbalance which tends to fuel and pop commodity-driven bubbles in the first place.

And, of course, there’s the out-of-favor argument as well. It seems as though just about everything is out of favor. Yet stocks, for all the sideways trading they’ve had year-to-date, aren’t that far off from all-time highs. The broad market could close the year flat and still have a great 2-year, 5-year, or 10-year return, all told.

Cryptocurrencies, like stocks before them, have more days ahead than behind. More importantly, the blockchain (and related) technologies behind them have numerous practical uses that are already being put at work at companies both big and small, private and public. That’s why this asset class looks down and not out.

Consider putting some money to work in the cryptocurrency space—just don’t make it a big one. Last year’s huge returns aren’t likely to come back anytime soon, but it’s a space that’s gone from first to last. And the last tends to once again become first.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.

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I’m often on the lookout for investments that are unpopular now. And why I’m skeptical of any investment that has attracted too much popularity.
surprising, asset, buying, invest, cryptocurrencies
Thursday, 28 June 2018 05:20 PM
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