DrSteveBrule

By Teeka Tiwari on March 14, 2018 (posted at 5 PM EST)
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Dear Reader,

A couple of months ago, as the market was rallying and we saw bitcoin get closer to $12,000 again, I said there was a good chance we’re going to see a “W” bottom. (I explain what that is in the video.)

Right now, we are in the second part of that W bottom.

In today’s update, I’ll share with you what might be ahead over the short term and the best way for you to handle it

Transcript
Hello, friends, and welcome to this month’s Palm Beach Confidential update. I, of course, am coming from another hotel room. I just got off a plane from Austin, Texas, where I was attending South by Southwest.

You Always Get First Access
I am now in Delray Beach, Florida. We are doing a webinar tomorrow and we’re actually reopening Palm Beach Confidential for the first time in five months.

We’ve gotten a lot of questions about what the idea is that we’re going to release tomorrow.

It’s an idea that you have already had access to now. So, you should always know that I will never reveal an idea to anyone before we reveal it to you as a member of Palm Beach Confidential. You always get first access. You don’t have to worry about an idea coming out that you’re not familiar with or have not participated in.

South by Southwest
There’s a couple of things I want to talk about. First, let’s talk about South by Southwest because I was just there. It was a remarkable change from last year. Last year, there was very little coverage in blockchain; there were very few blockchain or cryptocurrency events.

This year, of course, there was just an enormous amount of cryptocurrency and blockchain events. I got to meet and greet with a lot of different people in this space. Again, this kind of reaffirmed what I learned in Portugal a month ago that the pace of investment in this sector is not slowing down.

Just by the end of February, over $1 billion had been committed into blockchain development ICOs. That doesn’t even include the $850 million that’s been raised by Telegram or the $200 million the traditional VCs have put into this sector. This is a very interesting point that we are now seeing very smart, very professional money coming into the space. When I say “very professional money,” I’m talking about legitimate, full-fledged venture capital firms that have been around for a long, long time.

Now, VC firms completely missed the boat in 2016 and 2017. They were just kind of sitting on their phones. The only people that were really participating were individuals. You had some VCs participating as individuals, but not for their funds.

So, 2018, for me, is really the year that professional money comes into this space. This has a lot to do with the “Second Boom” that I’m going to be talking about tomorrow, which is the infrastructure being put in place that will funnel trillions of institutional dollars into this marketplace. There are several things going on behind the scenes that are putting these building blocks in place that will allow this institutional money to come into the market.

I chatted with several fund managers while at South by Southwest, and they manage anywhere from 50 to a couple hundred million dollars. They are dedicated cryptocurrency funds, and we were talking about the real difficulties in that space. Then they were sharing with me some of the things that they’re doing and some of the new things that are happening that will enable some of the most conservative money in this country (endowment money and pension fund money)—which is also some of the largest money in this country—to actually be able to commit part of their assets to this market.

Now institutional assets, pension fund assets, are in the tens of trillions of dollars—$50, $60, $70 trillion. It doesn’t take much from that pie leaking into this market to have an enormous impact on the market. I think that’s what 2018 is going to be all about.

Volatility Is the Price We Pay
Now, what about 2018 and about where we are right now? I’ve got to say the emails that I’ve been getting recently have been very understanding. It’s been great because all of you have been with me for a while now and you’ve lived through massive volatility before. But we do have some new folks and they have been expressing a little bit of concern.

One email I got was: “Why are you still recommending coins? Why should we be buying coins here with the market down 50% when I’ve already lost half of my money?”

Well, I would say congratulations, because some of my hardest hit ideas are down 75% or 80% right now. So, if you’re only down 50%, you’re doing pretty good. Look, I say that tongue-in-cheek. There’s been nine times over the last two years where we’ve been down 30% to 85% across the board in our portfolio.

And every single time I make a video like this and I say, “Look, this is the reason why we use a uniform position size. This is the reason why we use small position sizes to give us the staying power to not freak out or make a rash decision at the bottom of what I call ‘the fear curve.’” So that’s the place that we are at right now.

Volatility is the price that we pay for the enormous gains that we make. What you want to do in a situation like this is just take a deep breath, relax, and unplug. If you’re losing sleep at night because you’re down 50% or 80% on a position, you probably went a bit too big. Friends, we have to be willing to sit through pullbacks of this magnitude in order to make enormous gains.

Take a look at Ethereum; we sat through a 75% pullback on Ethereum twice, right? Twice! It went from $9 to $20, to around $5 or $6. We were languishing between $5 and $8 for months. Then, we exploded up to $400. We had a buy-up-to of $400, and then late last summer, we had a huge sell-off. Ethereum went down to I think $100 or $150. So Ethereum had a 70% to 75% drawdown from $400. But four or five months later, we were trading at $1,400 a coin.

Focusing On Our Core Strengths
So, you can have the greatest research in the world, but if you don’t have the ability to sit through the volatility, you will not capture those gains. Now, I’m very honest with you; I don’t have the ability to perfectly time these entries and exits. In a perfect world, I would have sold at $400 and then bought back at $100. But I don’t possess that ability. Maybe you do. And if you do, you can make even more money than what we’ve already made.

What I do is focus on is my core strength. And my core strength is identifying projects that experience an explosion in usage of the coin. That explosion of usage then leads to an explosion in the price of the coin.

That’s what I do really, really well and it has nothing to do with market timing. It’s all just boots-on-the-ground research, making educated estimates as to where usage is going, getting an idea of where I think ultimate value lies at, and then just waiting for that value to be realized. Then, on an ongoing basis, I keep looking at my assumptions of the idea and I also keep looking at if the reality is reflecting my assumptions.

When I say “reality,” I’m talking about things like: Is the team following through on what they said they would? Is the solution getting the level of adoption I believed it would? Is it as useful as I thought it would be? Is there somebody else coming in here that could potentially take away that usage? These are the questions I constantly ask myself. And this is the reason why I live out of a suitcase. I’m just constantly paranoid about these questions. That’s why, if I’m going to be wrong about an idea and about its usage, I want to know as quickly as possible.

You can’t learn that just sitting in front of your screen, kicking back and reading white papers. You’ve got to go travel. You’ve got to go visit with these brilliant young men and women and find out what they’re working on. You’ve got to find out if what they’re doing is going to kill something that you have in your portfolio. You’ve got to find out how real that idea is. When is that idea going to come to market?

That’s a lot of work, but because I do that level of work, it gives me enormous confidence in the ideas that I put in the portfolio.

Now, is every idea going to make it? Absolutely not. I’ve always been super clear with you about that. But here’s a key thing: Every idea doesn’t have to make it in order for us to make an enormous amount of money.

What we do is we simply rely on the same process that VCs have been relying on for 50 years: You build a broad portfolio and use an equal amount of money in each position so that no one position can put you out of business; and you use a rigorous research approach to identify such great ideas. Then, you just let the market do its thing.

You’ve got to understand that we are planting seeds in, essentially, a virgin field. It’s not a field that’s had a thousand harvests. This field is going to grow. Right now, it’s about $400 billion; we’re down about 50% or 55% from the highs. This is going to become a multitrillion-dollar asset class.

 So, think of it like back in the internet days—the early internet days where the entire Nasdaq was about $800 billion and it was a very small piece of the market relative to the New York Stock Exchange and relative to non-tech equities in general. And yet over the ’90s, it just mushroomed into this $5 trillion marketplace.

So, what enables me to manage the volatility is that I would look at something like Ethereum and say, “Okay, Ethereum went from $20 to $5—which is a big drop, 7%.” But relative to the value of where I think it would go to (at the time when I wrote the original report, I think I had a price target of $320 or $360), I would say, “Okay, that’s a 15-point move based against what I think is going to be a 350-point rise.” That allows me mentally to handle the volatility better; I compare the volatility to where I think the price of it’s going to go versus where the price of it has been.

Of course, you’ve got to be right on your research; but again, by using a diversified approach and using uniform small positions, you’re doing everything you can. You’ve got an actual methodology where, if you are riding this massive trend, as this massive trend unfolds, you cannot help but make money—and lots of it. Again, we’re going to step on the odd landmine here or there, but it should be insignificant relative to the money that we make on our other ideas.

The Crypto Market Right Now
So, the last thing I want to talk about is the market right now, the technical action in the market. A couple of months ago, as the market was rallying and as we saw bitcoin get closer to $12,000, I said, “Look, there is a very good chance we’re going to see what’s called a ‘W’ bottom, which is where you go up like this, you retest the low, and then you come back up—as opposed to a ‘V’ bottom, which is where you go down, and then you just go straight up.” So, I think we are in that second W period right now.

Now, it all depends here. We could make a higher bottom in bitcoin and then be off to the races. Or, we could make a lower bottom, we could go all the way back down to $6,000 and revisit that low, and maybe even go down to $5,000. You have to be emotionally prepared for that. I know it’s tough, but you have to be emotionally prepared for it.

The next question will be: “Well, if you think that’s going to happen, why don’t we sell everything and buy it back?” It’s because I don’t have a crystal ball. Some sentiment change could happen in the market and bitcoin could go to $16,000 just like that.

So, there’s more risk in exiting the market and trying to time a re-entry than there is by just sitting still. Believe it or not, there is less risk by sitting still than there is trying to jump in and out. So, I just won’t do it; that’s just not what I do, and it’s not what I’m good at when it comes to this market. If you’re good at that, then you should do that.

But a person’s got to know what their superpower is—what they’re good at and what they’re not good at. When I look back at the mistakes in my career, they were when I was trying to be something I wasn’t. When I look back at where I’ve been very successful in my career, it’s when I’m embracing—completely embracing—who I am and what I do well. So, I will continue to do that with Palm Beach Confidential.

All right friends, that is enough out of me. I’m going to try and save my voice for tomorrow. Five weeks and this thing is still kicking my butt… it’s crazy. Okay, I will catch up with you soon, and I want you to always remember: Let the Game to You!