Welcome to the weekly mailbag edition of The Daily Cut.
Throughout the week, you can put your questions to our analysts at Legacy Research – Jeff Brown, Teeka Tiwari, Dave Forest, Jason Bodner, and Greg Wilson.
On Fridays, we share their answers.
So if you have a question for anyone on the team, shoot us an email at feedback@legacyresearch.com.
Coming up, Jeff Brown delivers his verdict on automated crypto-trading bots…
And we return to the raging debate over master trader Jeff Clark’s blistering attack on the Social Security system…
But first, Teeka Tiwari reveals why central bank digital currencies (CBDCs) don’t pose a threat to bitcoin (BTC).
If you don’t know him already, he got his start in finance more than three decades ago, when he worked at Wall Street investment bank Shearson Lehman. At just 19 years of age, he became the youngest-ever vice president there.
He then ran his own hedge fund… before joining us at Legacy to help ordinary investors level the playing field and really move the needle on their wealth.
Teeka was the first person in our industry to focus a major financial newsletter, Palm Beach Confidential, solely on crypto.
He first recommended bitcoin to his readers in April 2016. Since then, it’s up 15,172% – enough to turn a $1,000 grubstake into $152,720.
He’s also given his readers the chance to earn 35,351% since February 2017 on Neo (NEO), a Chinese competitor of his top gainer…
That’s the world’s second-largest crypto, ether (ETH). It’s the native asset of the Ethereum blockchain. And it’s up 41,965% since Teeka added it to the Palm Beach Confidential model portfolio in April 2016. That’s enough to turn a $1,000 grubstake into $420,650.
But one reader is worried the crypto party is about to end because of CBDCs…
I (Chris Lowe) first put this threat on your radar in November 2018. In short, CBDCs are digital-only currencies central banks will issue to replace the cash in your wallet.
They won’t be decentralized like bitcoin. Central banks will have full control. But you’ll spend and store CBDCs via a digital wallet app on your smartphone, much like you spend and store bitcoin.
The concern is they’ll one day replace bitcoin and other decentralized cryptocurrencies…
Reader question: A lot of economists and financial advisors say central bank digital currencies are coming, as we’ll likely see in China next year.
Many feel CBDCs will replace cryptocurrencies like bitcoin. As an alternative form of money, bitcoin may be susceptible to this replacement. Can you speak on that topic for readers?
– Steve M.
Teeka’s response: Thanks for your message, Steve.
Some context here is important…
In May, five Chinese provinces ordered bitcoin miners to shut down their operations. This eliminated more than 90% of the country’s mining capacity.
China says the new regulations are meant to protect investors… reduce carbon emissions (bitcoin miners use a lot of electricity to power their operations)… and maintain financial stability.
The more likely reason for the crackdown is, as you say, China plans to launch a CBDC. And it doesn’t want it to compete with bitcoin, which is a superior cryptocurrency.
Now, I know this type of anti-crypto action may seem extreme to American crypto investors. But we’ve seen it before.
In 2013, the Chinese feds banned the country’s banks from handling any kind of bitcoin-related transactions…
In 2017, they tried to ban the country’s crypto exchanges, causing a 21% fall in bitcoin’s price.
And earlier this year, the mining crackdown in China was related to bitcoin’s fall of as much as 50% from its all-time high of $64,863.
I’ve been discussing China’s fruitless bitcoin crackdowns for years. And despite the short-term price drops that have followed each, each time they’ve served only to strengthen bitcoin and the underlying thesis for owning it (more on that in a minute). What’s happening today is no different.
But to get back to your question about whether CBDCs will replace bitcoin… I believe the opposite is true. CBDCs will make bitcoin and other cryptocurrencies much more valuable.
First, they afford users greater anonymity.
You also have scarcity with decentralized cryptocurrencies, which you won’t have with CBDCs. This protects against governments and central banks inflating your wealth away.
Bitcoin has a hard cap of 21 million coins. With CBDCs, there will still be a central bank that can fiddle with interest rates and balloon the money supply, causing inflation.
Regulators are thinking, “We can kill the market for private cryptos by creating our own digital-only currencies.” But my call is it will expand the crypto market, not shrink it.
Now onto that question on crypto-trading bots from a Jeff Brown reader.
Jeff is our tech expert at Legacy Research. He’s best known for his 5G… cloud computing… and gene-editing stock recommendations.
But he’s also recommended individual cryptos at our Near Future Report advisory.
And in August, he launched a new advisory focused exclusively on blockchain opportunities. It’s called Unchained Profits.
So he was eager to weigh in…
Reader question: Recently, I’ve seen several advertisements for “cryptobots.” They’re software programs that trade cryptocurrency for you at optimal times, with claims of 2,000% (give or take) gains in 12 months. Can you give us readers a sound explanation of these cryptobots and their claims? Are they too good to be true?
– Leo B.
Jeff’s response: Hi, Leo. Thanks for sending in this question. There’s a lot of opportunity in the crypto market. But it’s always good to look skeptically at promises that sound too good to be true.
It sounds as though the ads you’re seeing are describing algorithms that will trade crypto on your behalf. Automated trading strategies are common in the stock and crypto markets. But their performance can range considerably.
These bots use a number of different strategies. So it’s important to consider who’s behind them, how long they’ve been around, and their past performance.
These services must have access to your account to trade on your behalf. So they can potentially cause significant losses. Others may be outright scams.
Another thing to keep in mind is that if a bot is making a large number of trades for you each day, it could create a tax reporting nightmare at the end of the year.
At a much higher level, these bots tend to use specific trading strategies. Some strategies work in certain market conditions, and in other market conditions they’re terrible.
Also, the best-performing bots may not be available to normal investors. Hedge funds and other deep-pocketed institutional investors typically have the best shot at developing and deploying best-in-breed systems.
If they have a bot that’s working – meaning it’s delivering returns that are greater than the market’s – they’ll keep it for themselves as long as it continues to produce good returns.
Eventually, others figure out what’s “working” and adopt the same strategies only to have the opportunity disappear. Because so much of the trading today is automated, and there are so many hedge funds out there, the edge disappears quickly.
There are many people looking to make a quick buck by preying on greed within the crypto space. My senior analyst at Unchained Profits, Andrew Hodges, gets multiple scam offers every day through social media. So I urge you to be cautious and do your homework before using any bot.
Some of these trading systems may deliver sustainable gains… and give you a real edge. You just have to be careful.
I’m currently spending a lot of time researching and developing a system that uses advanced artificial intelligence to recognize patterns that human traders miss. When the system spots these patterns, it can trigger high-probability signals for trades.
In the coming months, I’ll have more to share on this topic. I’ve been in development mode all year. I’m excited to share more details in the near future.
To wrap up, we turn to Jeff Clark… a longtime friend of Legacy Research.
In his Market Minute trading e-letter, Jeff launched an attack on the Social Security system.
He’d been looking at a statement of his future benefits. And what he found left him furious…
I’m likely to live until 84 years old. So if I pay into the system until I’m 62, and then start taking Social Security, I’ll have 22 years of payments at $1,400 per month. That’s a total of 264 payments – a total payout of $369,600.
That’s more than $41,000 less than what I would have paid into the system. No interest. No capital gains. Never mind inflation and the drop in the value of the dollar… the Social Security Administration is stealing $41,000 from me.
It’s stealing it from you, too.
Jeff’s anger lit up a debate that shows no signs of letting up…
Reader comment: Our damn no-good, greedy government has been stealing everything it can get from us for too long.
– James F.
Reader comment: The powers in Washington were and are crooks. They stole our money by changing the rules so they could take it and spend it. They need to learn fiscal responsibility and give back some of the millions they stole. I am not expecting that to happen. Don’t anyone else hold your breath for them to step up and take responsibility.
– David D.
Reader comment: These are the inevitable results of allowing governments anywhere near your money. It starts with the government extorting funds from any and every possible source.
Then the money gets blown on every imaginable boondoggle and wasteful project. Or else it lines the pockets of the undeserving and non-contributing. The end result is more government and more debt!
Of course Social Security is a scam. That’s all it was designed to ever be.
– David E.
Reader comment: Your analysis is correct. If you collect until 84, you are losing money. But 84 is just an average life expectancy. What if you live to be 90 or 95? Then you come out way ahead. But if you die at 75, you lose even more. There are two sides to every coin.
Unfortunately, most people would not invest the money wisely like you or me. Many would invest poorly. Or they would spend the money and still expect the government to take care of them in retirement – costing you and me much more in taxes.
– Jay D.
Reader comment: When you work and pay into Social Security, you are paying a tax that the government uses for whatever purpose it wants. People receiving Social Security are just like anyone on welfare.
Think of it the same way you think of income tax. When you work, you pay the tax. When you retire, you get your welfare.
Don’t think of it as some kind of investment.
– Jon J.
Reader comment: I work at the nation’s largest tax preparation company. I do taxes for hundreds of clients every year.
I take care of some high-income wage earners. I also help out hundreds of low- to middle-income wage earners. Social Security definitely does help out the poor more than the wealthy.
Our employment system is set up for the poor to fall behind. The federal minimum wage is currently an outrageous $7.25 per hour.
It really upsets me when higher-wage earners complain about paying so much in taxes. I would be willing to switch paychecks for one year with someone who makes two or three times as much as I make. And I would gladly pay their income and Social Security taxes.
Let the rich try to make ends meet on what many folks in America take home from their low-paying jobs. The moral of the story is: Don’t complain about being rich.
– Mark D.
That’s all for this week’s mailbag.
Remember, if you have a question for anyone on the Legacy team, be sure to send it to feedback@legacyresearch.com.
Have a great weekend.
Regards,
Chris Lowe
October 15, 2021
Bray, Ireland