- The three phases of crypto’s 21st-century Gold Rush
- And the original pick-and-shovel play
- “Biden Buzz” fizzles for pot stocks
- All the stars align for Europe’s wind energy (nope)
- “Thanks for the enlightening info on PayPal’s ‘censorship’”… Explicit reason for closing PayPal account… and More!
All those clichés you see likening crypto to the “Wild Wild West”? They’re totally appropriate — just not in the way the crypto-bashers intend.
“Crypto has been a 21st-century gold rush for entrepreneurs, speculators, mercenaries, tricksters, vagabonds and settlers,” says Paradigm crypto analyst Chris Campbell.
And Chris believes this digital gold rush is entering its third phase — a trajectory analogous to that of the California Gold Rush.
Follow along…
Phase 1 gold: The discovery of gold at Sutter’s Mill in 1848 opened the way for scads of new enterprises and industries.
“The rush for physical gold accelerated and expanded the reach of communication and transportation technologies in an unprecedented way,” Chris reminds us.
“New towns with saloons, schools and churches were raised virtually overnight. Train lines linked major cities faster than ever. Hundreds of thousands of people from all around the world stampeded to the American West. And as a result, an estimated $600 billion came out of the Gold Rush (with an estimated relative price worth $23 trillion in today’s dollars).”
Phase 1 crypto: “Since 2008, we’ve seen a global stampede of cryptographers, entrepreneurs, technologists, venture capitalists, security auditors and money flood into the crypto space,” Chris goes on.
“In 2017, as a result of all this new blood, there was an explosion of activity alongside a total sense of lawlessness and anarchy. It was the internet meets Wall Street meets Burning Man meets Oregon Trail. (My friend Tony didn’t die of dysentery, but he did lose his shirt on Dogecoin.)
“The initial coin offering (ICO) craze was obviously in an illegal gray area, but everybody thought it was unstoppable. Indeed, there were real projects building real things, but they were too nascent and too easily drowned out by scammers looking for a quick buck.
“That wild and woolly chaos personified the first phase of both the physical and digital gold rushes.”
Phase 2 gold: “During the second phase of the Gold Rush, huge areas of settlements emerged,” Chris says.
“To compensate for the lack of property rights, a system of staking claims arose; an individual could claim a plot of land for themselves and earn from that plot of land. As gold became scarcer and many miners lost interest or gave up, the competition for land increased. Then, towns began hiring sheriffs and town watchdogs. The Wild West was becoming tamed.”
Phase 2 crypto: “Similarly, the early crypto gold rush was first led by miners doing hard work (proof of work). And now, with Ethereum’s Merge, it’s also led by those staking their claims and earning from their stake (proof of stake).
“Now we’re moving into crypto’s ‘sheriff and watchdog’ phase. Some of the watchdogs will be private, led by security auditors, blockchain sleuths and ‘white hat’ hackers. But public regulators will drop a few hammers soon too, setting the stage for winners and losers as institutions pile in.
“There’s plenty of money to be made in this phase. But the real opportunity is in the third phase; the rise of the titans.”
Phase 3 gold: “It’s well-known that only a tiny percentage of gold miners actually got rich from gold,” Chris reminds us.
“The real money was made by the merchants, not the miners. The first millionaire from the Gold Rush was Sam Brannan, who didn’t find a speck of gold. Instead, he sold mining tools to the prospectors. This is the classic ‘pick and shovel’ play.”
Phase 3 crypto: “We’re already seeing this dynamic in crypto. Applications on Ethereum are generating more protocol revenue than entire networks.
“For example, the fees generated on Uniswap — an Ethereum-based decentralized exchange — are 10X that of what the Bitcoin network pays out to miners to secure the blockchain. Not only do I think this trend will continue, but when these protocols begin to generate revenue by disrupting legacy business models and products… we’ll have entered Phase 3.”
And Phase 3 is the most lucrative: “Many of America’s biggest industrialists got their start during the Gold Rush,” says Chris…
- Philip Armour got his start operating the sluices controlling the flow of water into rivers before he made his name in meatpacking
- John Studebaker manufactured wheelbarrows for the forty-niners — while still a teenager — before he got into wagons and, in time, automobiles
- Henry Wells and William Fargo opened a small bank in San Francisco catering to the Gold Rush; what they founded is today one of the Big Four commercial banks
- Levi Strauss got his start selling heavy canvas to the miners for tents; soon, he realized denim would make for sturdy miner clothing.
“Once again, a similar trend is forming,” says Chris. “The decentralized titans of tomorrow are at this moment relatively unassuming fledglings — randos hawking canvas tents.
“As the Wild West begins to tame, and settlers begin to stake their claims, it will become more clear the winners and losers… A new paradigm is being built from the ground up, and with perhaps earth-shattering implications.”
[Ed. note: With Phase 3 in view, our resident crypto evangelist James Altucher bailed out of Bitcoin this year — after first talking it up in 2013 when it was only $61.
What’s the single-most important step you can take right now to position yourself for Phase 3? James shows you when you follow this link. Please note: Due to the time-sensitive nature of the presentation, we’re taking it down tonight at midnight.]
The big economic number of the day does nothing to support the narrative that “inflation is climbing down.”
Wholesale prices jumped 0.4% in September — double what the “expert consensus” of economists was expecting. The year-over-year increase works out to 8.5% — down from the previous month but still higher than expected.
Whatever drop showed up in these numbers during recent months can be chalked up almost entirely to falling gasoline prices — which as you’ve surely noticed, are once again rising.
Any lingering hopes that the Fed might “pivot” away from tight monetary policy have been dashed — at least until tomorrow.
That said, the major U.S. stock indexes are slightly in the green.
Indeed, the S&P 500 is up about a third of a percent at 3,600 on the nose. But the broad trend is still down according to colleague Sean Ring at our sister e-letter The Rude Awakening.
Going strictly by Fibonacci numbers, his assessment for the S&P is thus: “Now that we’ve spent considerable time below the 3,816 level, the next branch down is 3,515.”
Still uncomfortably close at 3,600. Beneath that is the target Sean’s been eyeing for many weeks now — in the low 3,200s.
Bond yields are inching down, the 10-year Treasury note at 3.93%. Precious metals are treading water — gold at $1,668, silver at $18.92. Crude is off 3%, a barrel of West Texas Intermediate fetching $86.61. Cryptos are quiet — Bitcoin at $19,141 and Ethereum just under $1,300.
So far there’s still no incoming tsunami from the financial earthquake across the Atlantic: The Bank of England is issuing mixed signals about whether it will end its emergency bond-buying program on schedule come Friday. Stay tuned…
The “Biden buzz” for pot stocks sure didn’t have any staying power.
As perhaps you heard elsewhere, shares of cannabis companies zoomed higher last Thursday the instant Joe Biden pardoned every American convicted on federal pot-possession charges.
More relevant to canna-businesses, Biden asked the Justice Department and the Department of Health and Human Services to review marijuana’s long-standing classification as a “Schedule I” drug. As a practical matter, Uncle Sam still considers pot more dangerous than cocaine or crystal meth.
But in the slow-moving gears of Beltway bureaucracy, that’s easier said than done. Schedule I puts strict limits on federal scientific research into pot. In the absence of such research, bureaucrats have a harder time justifying removing pot’s Schedule I classification.
Quite the Catch-22, as Cato Institute senior fellow Scott Lincicome notes…
Reality has set in since last Thursday’s spike — as the chart of a major cannabis ETF attests…
“A final determination over how to classify marijuana could take years,” suggests The Washington Post. “The prospect is sure to ignite a flurry of lobbying and a renewed push in Congress to decriminalize the drug at the federal level.”
Yeah, given everything Congress has done on that score in recent years — which is to say they’ve done nothing — we’re not holding our breath…
You would think all the stars are aligning right now for Europe’s wind-energy industry. And you would be wrong.
Despite the steady cutoff of Russian natural gas supply to Europe… and the determination of European politicos to see through a “green energy transition”… these are hard times for European makers of wind turbines.
“European wind turbine manufacturers are financially struggling and cutting jobs, putting them at risk of losing market share to Chinese competitors,” says the Financial Times.
Both General Electric Renewable and Siemens Gamesa have cut jobs in recent weeks. “Everything is getting much more expensive in an already stretched wind industry supply chain,” says Siemens PR flack Jon Lezamiz Cortazar.
Steel and copper are more expensive — which is making Chinese wind turbines more competitive in the European market.
Not helping matters is that it can take up to 10 years for many European wind projects to win government approval. Says Morten Dyrholm of the Danish turbine maker Vestas: “Supply chains would be in much better shape if there were enough projects to go round.” Word…
“Dave, thanks for the enlightening info on PayPal’s ‘censorship’ if you will,” an appreciative reader writes after Monday’s edition.
“I fall into that 20-year group, as I used PayPal years ago to purchase something on eBay. I don’t even remember what the heck it was. Now I feel I’ll have to figure out my username and go through a password reset just to cancel that account.
“I could just see me and my buddies posting some craziness in our fantasy football league about the Patriots being, well, Patriots, the American League not being ‘American’ because of the designated hitter or so forth and then whatever account I had this ancient account tied to getting smacked for $2,500.
“When my wife would see this occur, the proverbial s*** would hit the fan in the shape of a brick!
“Another shining example of The 5 being informational!”
The 5: You’re behind the times; the National League went to the DH dark side this year, too.
Anyway, we see the following is making the rounds…
As it turns out, the $2,500 penalty for violating PayPal’s acceptable use policy has been in place since at least Sept. 20, 2021. We’re guessing PayPal hasn’t seen fit to enforce that penalty. Otherwise, we’d have heard about it by now, right?
All that said, “Hiding the fact that a company might take $2,500 from you by burying it in an acceptable use policy no one is going to read seems like not a great thing,” muses Mike Masnick at Techdirt — “whether or not the policy includes ‘misinformation’ as a triggering event.”
Best regards,
Dave Gonigam
The 5 Min. Forecast
