War on Bitcoin

  • Government goes after bitcoin… but it might be a good thing
  • Why gold is aiming toward $1,300 again (it’s not just the Fed)
  • Jeff Sessions gives “cannabusinesses” the all-clear
  • Leading 2020 campaign issue — marijuana!
  • Another Nutella caper… crypto skeptics sound off… shorting crypto when it becomes a mania… and more!

Go figure: News breaks overnight of a major government crackdown on a huge and growing asset class… and the asset in question jumps in price.

Australia’s government just announced plans to start regulating bitcoin exchanges — the way Japan’s and China’s already are.

You probably won’t be surprised to learn Aussie leaders are using the same excuse governments everywhere resort to when waging the War on Cash — “money laundering” and “terrorism financing.”

The War on Cash is the reason it’s become nearly impossible to deposit or withdraw more than a few hundred bucks in cash at the bank without having to play 20 questions with a manager. Cash is so hated by the powers that be that Very Serious People in Washington talk about abolishing the $100 bill.

And so it goes with bitcoin Down Under: “The threat of serious financial crime is constantly evolving, as new technologies emerge and criminals seek to nefariously exploit them,” says Australian Justice Minister Michael Keenan. “These measures ensure there is nowhere for criminals to hide.”

With that, bitcoin’s price just jumped $200 — cresting the $4,500 level for the first time.


The man who runs one of the world’s leading cryptocurrency exchanges labels the news from Australia “very positive.”

“It signifies the growing recognition of bitcoin and other cryptocurrencies as influential value-transfer protocols by governments,” says Aurélien Menant, founder of Hong Kong-based gatecoin. “Compliance with [Australian] policies,” he tells CNBC, “will weed out the crooks and ensure that only serious bitcoin businesses are able to serve the market.”

That’s an interesting take. Maybe the move to regulate cryptocurrency isn’t like the War on Cash after all. It might be like the other hot new investing trend that’s occupied our attention in recent months — cannabis.

As more and more states legalize marijuana, it’s becoming taxed and regulated and “respectable.” It’s no longer exclusively a black-market phenomenon. More avenues open up for everyday people to invest legally and easily.

Seen in that context, bitcoin’s price jump makes sense. More “rules of the road” make it easier for more people to pile in. Our own Lou Basenese’s forecast of $10,000 bitcoin looks even more likely in light of today’s news.

That’s the most conservative way to play crypto. But if you have a more speculative mindset, you’ll still want to consider the “initial coin offerings” that soar to dizzying heights in a matter of days or hours — or sometimes minutes. Lou remains keen on one in particular that’s coming to market in only a few more days. We urge you to check it out while there’s still time. (And there’s still no long video to watch!)

The Dow industrials’ latest visit above the 22,000 level didn’t last long. All the major U.S. stock indexes are in retreat this morning.

Both the Dow and the S&P 500 are being dragged down a bit by Walmart as earnings season winds down. WMT delivered an earnings “beat,” and its online sales are up 60% over the previous quarter… but evidently traders were hoping for even more. Shares are down close to 2% at last check.

There was a flurry of economic numbers this morning. The one that stands out to us is industrial production — up 0.2% in July, says the Federal Reserve. That’s less than expected, and the growth was driven mostly by energy production and utility output. Manufacturing, on the other hand, is contracting.

Gold’s recent swoon didn’t last long, either. At $1,284 the Midas metal is back near its highs of last week.

The price jumped yesterday afternoon with the release of minutes from the Federal Reserve’s meeting three weeks ago. It appears some Fed pooh-bahs are going wobbly about following through with one more increase in the fed funds rate this year. That should be no surprise if you’ve been reading The 5; Jim Rickards says the Fed is done with increases till 2018.

In any event, the more “dovish” direction capped the dollar’s recent rise and sent gold back up again.

Actually, gold’s rise began before the release of the Fed minutes yesterday afternoon — around the time that corporate CEOs announced they were disbanding those two “advisory councils” created by the Trump White House, and word got out that Vice President Pence was cutting short his Latin America trip to return to Washington.

It’s the first instance we can think of in which the endless palace intrigue with this administration might have moved markets. We’ll venture to say it probably won’t be the last…

Once more, with feeling: Attorney General Jeff Sessions has all but given up on beefing up enforcement of federal marijuana laws.

Sessions is the Trump appointee universally feared by pot investors because he’s got a giant chip on his shoulder when it comes to marijuana. Drug stalwart and “Just Say No” fanboy, Sessions went so far as to call pot “only slightly less awful” than heroin. Whoa…

The looming threat, then, was the possibility of a reinvigorated drug war in states that had already declared a ceasefire on marijuana. As top dog at the DOJ, it seemed inevitable Sessions and his minions would go after marijuana posthaste (to the chagrin of fledgling “cannabusinesses” across the country).

From the day Trump named Sessions, our advice was to chill. The latest affirmation of our advice comes with news this month that an advisory panel named by Sessions “has come up with no new policy recommendations to advance the attorney general’s aggressively anti-marijuana views,” according to The Associated Press.

And why would it? As Sessions himself conceded back in March — we quoted him at the time — “We’re not able to go into a state and pick up the work that the police and sheriffs have been doing for decades.”

Meanwhile, “marijuana legalization just moved from the fringes of the last presidential campaign to center stage in 2020,” according to Politico.

Two weeks ago we noticed Sen. Cory Booker (D-New Jersey) proposing a bill ending the federal prohibition on marijuana and even threatening to withdraw federal funds for law enforcement and prisons if states don’t follow suit.

Critics said it doesn’t have a prayer of passage, and they’re probably right. But that’s not the point: The point is that Booker’s getting out in front on the marijuana issue before any of his potential rivals in the 2020 presidential race.

Politico has now picked up on the story, and added some more color: Another 2020 prospect, Sen. Elizabeth Warren (D-Massachusetts) is proposing to open up the banking system to cannabusinesses so they don’t have to transact exclusively in cash. (More of that respectability we were talking about above.) Sens. Kirsten Gillibrand (D-New York) and Rand Paul (R-Kentucky) have their own proposals.

A majority of Americans stands with Sen. Paul. A CBS poll shows “nearly three-quarters of Americans now support a states’ rights approach — that states should be allowed to make the decision on legal pot sales — and oppose government moves to crack down in states that have legalized cannabis.”

[Ed. note: In recent months we’ve been extolling the virtues of short-term trading in penny pot stocks. We’ve even developed a premium service specializing in it.

But we recognize that’s not everyone’s cup of tea. Maybe you just want to test the waters with a handful of lower-risk buy-and-hold plays. We can help you with that too.]

Oh, no: German Nutella thieves are at it again. And they’re even more ambitious now.

Way back in 2013, The 5 reported on a crime of epic, chocolatey proportions in the city of Niederaula. Someone stole 5.5 tons of Nutella — a hazelnut spread and decadent cousin to peanut butter — valued at $21,000.

Police never apprehended the perps. At the time, publications like The Atlantic were speculating about the existence of a “secret Nutella black market.”

Now police in Neustadt report the lifting of a tractor-trailer packed with 20 tons of Nutella worth about $82,000.

Investigators are being as circumspect as possible: “It is not even clear if they were after the sweets or after the trailer,” says a spokesman — “at this point we do not know what their motive was.”

Neustadt police urge citizens to report immediately on “anyone offering large quantities of chocolate via unconventional channels.”

The imagination runs wild with “unconventional channels”… the Dark (Chocolate) Web perhaps?

“I second the confusion of your reader on cryptocurrencies,” begins today’s mailbag.

“Bitcoin’s model won’t allow mining beyond the 21 million set limit. But it seems the mining congress could and did make changes, as they have with splitting off bitcoin cash. Furthermore, there are currently thousands of new cryptocurrencies in existence, and growing by the day. How is this not more like fiat currency than gold?

“Also, you buy cryptos with dollars. That means you instantly doubled the money supply, as both currencies are in circulation. In contrast, when the Fed sells assets, it retires the dollars it gets in payment, thus reversing the dollar expansion of QE.”

“With the most common functions of ‘money’ being a store of value, a unit of account and a medium of exchange, it is hard to understand the wildly fluctuating values of cryptos,” says another.

“The underlying question is how can any such so-called currency have any sustaining utility when characterized by wildly fluctuating values? At the least, that undermines its function as a unit of account (except for the fact that it is denominated in dollars), and how could it be considered a true store of value when in the morning it may be worth 30% less on any given day?

“Finally, nobody has ever explained why the value increases at almost exponential rates at times. It seems more like a commodity than a currency. True, bitcoin is limited to 21 million coins, but look at the myriad of other emerging cryptos. The supply is theoretically endless. Your readers would enjoy your take on valuations as outlined here.”

The 5: You raise excellent questions, and once again affirm our conviction that The 5 has the most knowledgeable and engaged readership of any financial e-letter out there.

Without giving too much away, we can promise we’re going to get into “heavier” crypto matters like these next week. Stay tuned.

“I don’t know if I’m amused or exactly what by the constant back-and-forth regarding cryptos, but I see a pretty common theme,” writes a third reader.

“I’ll use my recently departed father to illustrate. He was nearly 101 when he died last year, and if he could have had his way, time would have stood still as it had been in the 1940s. He grew and adapted as he had to but sure didn’t see progress as necessarily good, and didn’t see any need to understand what he didn’t want to understand.

“That’s the attitude I see in the arguments against cryptos. I’m in my late 60s myself, and I’m sure as hell not about to begin programming blockchains, because I don’t have a clue. Nor do I want to.

“But that doesn’t keep me from recognizing they are part of today’s landscape, and I can either sit on my butt and watch them grow without me or I can participate and begin assimilating into one more iteration of the constant change that takes place. As a Libertarian, this one’s pretty easy to decide. You can spend a lot of breath trying to convince people why things can’t or won’t happen, but I’ve been around long enough to see that that doesn’t prevent them from happening anyway. Glad I jumped in this mindless fad over a year ago.”

“Dave, thanks for the heads-up on VanEck’s pending bitcoin ETF,” writes one of our regulars. “I will be watching with interest to see how that performs, if/when it is approved.

“Not to digress, but it’s funny how images of bitcoin (and other cryptocurrencies) are always portrayed as gold coins — and how they’re described as ‘digital gold.’ Coincidence? I think not.


Hmmm… The reader has a point

“These are abstract forms of currency that imitate a key property of precious metals: scarcity. Unlike government-issued fiat currencies, they’re nonsovereign and durable. They’re anonymous (so far, anyway) and can’t be debased or printed into oblivion. But they have pros and cons. And as you have pointed out, the debate about precious metals versus cryptos is not an either/or proposition.

“Hopefully, the forthcoming ETF will include options. That way, we can buy puts if this whole crypto craze turns out to be another mania.”

The 5: And if it does, we’ll show our readers how to trade it accordingly!

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Now here’s a reader with the right idea: “Just for fun,” he writes, “I invested $100 total in three of the five recos in Lou’s Secret ‘$20 Bitcoin Blueprint.’ Today they are worth $195 in about 20 days. It is fun and a terrific learning experience.”

As we said a few weeks ago, you don’t have to know the ins and outs of cryptocurrencies to make money off them — just a few bucks and a little sense of adventure.

Once you’ve gotten your feet wet, then you can take that next step into “initial coin offerings” — getting in on the ground floor of a new cryptocurrency — a wild and wooly subniche of the crypto market where millions can be made in a matter of moments.

Lou Basenese says the biggest and best ICO of them all is only 11 days away — as he explains right here.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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