A Crypto "Code Red"

Lou Basenese

Thursday, August 12, 2021

Digital criminals struck again this week, making off with $610 million in the biggest crypto heist yet.

They’ve since returned about $260 million, according to Tom Robinson, co-founder of blockchain forensics firm Elliptic. But if this is the future of crypto, you can keep it!

Truth is, I’ve been warning for years that the general public’s lack of trust in cryptocurrencies will ultimately doom their mainstream adoption.

Heck, it’s hard enough to get consumers to adopt a new technology. But a new technology that also functions as a wildly foreign way of dealing with our hard-earned money? That’s just way too much.

That’s why the hurdles to adoption couldn’t be more gargantuan. 

And as it turns out, overcoming these hurdles keeps getting harder and harder. 

So here’s how to protect yourself in this market — and how to profit from it.

Don’t Be Deceived

On the surface, everything appears very compelling in crypto land. In fact, everything is “off-the-charts.”

Consider:

Albeit volatile, bitcoin’s price remains on a steady northward trajectory, climbing 293% in the last year alone to rest atop $45,000.

Meanwhile, the mother of all crypto exchanges keeps posting blockbuster growth, a clear indication that adoption rates keep climbing.

Specifically, Coinbase Global, Inc. (COIN) announced second quarter earnings this week and revealed a profit of more than $1.6 billion. That’s nearly double its first quarter tally.

Not to mention that 10 of the Top 100 hedge funds, as ranked by assets under management, are now Coinbase customers. So crypto is clearly gaining traction.

But as impressive as those headline figures appear, rest assured that beneath the surface, all is not well...

Still No Respect

For one thing, the latest crypto hack pushes the total money stolen from exchanges since 2012 above $2.5 billion.

$2.5 billion stolen — for an asset that was marketed as “unhackable.” So much for truth in advertising, right?

And now, with the threat of theft rising, how is Coinbase, the $72 billion market cap exchange leader, responding?

It’s not!

As I revealed nearly a month ago, the company doesn’t even have a customer service phone number to call. All inquiries need to be made digitally, via email.

One customer still hasn’t heard a peep from Coinbase after cyber thieves made off with over $700,000 of his hard-earned money on July 1.

That’s nearly 45 days ago! Even if the company had a call center that was severely understaffed, the wait time wouldn’t be anywhere near that long.

At the same time, the company has been marketing a stablecoin called USD Coin to help it attract new customer assets.

The promise here is simple: for every dollar invested in the stablecoin, there would be $1 “in a bank account” to back it.

Per Bloomberg, this campaign helped Coinbase attract $28 billion in customer assets.

The only problem? It’s a lie! As Bloomberg reports:

When Coinbase’s partner in offering the coin…  disclosed USD Coin’s assets for the first time last month, it turns out the promise wasn’t true.

According to a disclosure in July, the assets actually include commercial paper, corporate bonds and other assets that could experience losses and are less liquid if customers ever tried to redeem the stablecoin en masse.

“You can’t market a product with falsities,” said Columbia Law School lecturer Lev Menand.

No, you can’t! That means the latest snakeoil salesmanship tactic is likely to put Coinbase in the crosshairs of regulators.

Once again, that’s precisely the opposite of how bitcoin and cryptocurrencies were sold. 

The original purpose of creating and adopting cryptocurrencies was to provide a way to transact outside the reach of any government or regulator. 

Yet, with crypto assets approaching $2 trillion, the prospect of regulation keeps increasing.

Now, keep in mind — as economist John Maynard Keynes famously said, “The stock market can remain irrational longer than you can remain solvent.” And that’s proving true for the crypto markets, too.

Anyone betting against or selling short anything connected to crypto has been getting slaughtered. But eventually, the trend is going reverse to reflect the underlying and deteriorating fundamentals.

At the very least, investors should protect themselves by avoiding putting any money with Coinbase that they can’t afford to lose. Entirely.

At the same time, investors can position themselves to profit handsomely with very little downside risk by purchasing long-dated put options on Coinbase stock.

Specifically, check out the January 20, 2023 strikes. That gives you a full 526 days for the overly bullish hype in crypto-land to crash back to reality.

Ahead of the tape,
Lou Basenese
Lou Basenese

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