Don't Let the Crypto 'Garbage Rally' Fool You

It took less than two months for the iShares Bitcoin Trust (IBIT) to hit the $10 billion landmark...

The long-awaited exchange-traded fund ("ETF") is run by asset-management giant BlackRock (BLK). And as the name suggests, it seeks to track the performance of the world's largest cryptocurrency: bitcoin.

IBIT finally launched on January 11 after the U.S. Securities and Exchange Commission approved a handful of spot bitcoin ETF applications for trading.

The ensuing crypto frenzy drove the fund to more than $10 billion in assets by early March – making it the fastest ETF ever to reach that milestone. Today, it's worth more than $15 billion.

However, it's not the only bitcoin ETF that has exploded this year...

The Fidelity Wise Origin Bitcoin Fund (FBTC), which launched the same day as IBIT, has achieved more than $6 billion in assets and is now the asset manager's third-largest ETF. Cathie Wood's ARK 21Shares Bitcoin Fund (ARKB) has done well so far, too, raking in about $2 billion over roughly the same span.

All this demand has helped bring bitcoin out of its "winter" period. Earlier this month, the crypto topped its November 2021 all-time high, climbing above $73,000.

Though this may be great news for crypto investors, it also gives us pause...

See, the current bitcoin rally has also brought back many of the riskier parts of the crypto market – including garbage like "meme coins." And today, we'll discuss why that's a sign that this rally may be getting too hot.

Bitcoin dragged many meme coins with it when it rallied in 2020 and 2021...

Several rocketed to nosebleed levels based on little to no rationale... and a similar trend is playing out today.

Meme coins such as PepeCoin, Shiba Inu, and Dogecoin surged in early March by more than 20% in as little as 24 hours. And their performance is a sign that the rise in bitcoin has had a "spillover effect" on the riskier parts of the crypto market.

That's because meme coins don't actually do anything. Bitcoin, at least, has some value...

For instance, in some cases, it can be used as a method of payment. Countries like El Salvador have actually adopted it as a second national currency. At a minimum, it's viewed like a digital form of gold.

Moreover, it's a currency not controlled by a government or any group of individuals. And it has been around long enough – and people have put enough money into it – that it seems like it's here to stay.

The same can't be said for these meme coins. They don't offer any utility of their own... and, in many cases, they were created as a silly joke.

Unfortunately, that doesn't stop crypto bulls from creating new meme coins to sell... and it doesn't stop folks from buying in.

They're often touted as speculative bets, and investors get lured in as their prices soar over short periods of time. (We're sure you've heard the many stories of meme coins making investors rich quickly through multifold returns.)

However, these coins also have a dark side...

People have lost tons of money overnight. Since March 12 alone, fraudsters have siphoned nearly $150 million away from investors by offering "presales" on coins that they never intended to release. 

Yet, when folks hear their friends made more than 1,000% on coins like Dogecoin, it's hard not to feel left out.

It's easy to see why there's such a market for these speculative coins...

However, if folks would rather gamble than trade... they might as well do so at a casino rather than making unguarded investments.

It's anecdotal... yet, when my colleague Rob Spivey and I start getting messages from friends and family asking about niche cryptocurrencies, it's a worrying sign that the crypto market may be getting a little too hot.

Manias like these cause a misallocation of assets. And they can lead to irrational rallies in riskier areas of the market, while other parts get completely forgotten.

So it's important that investors tread carefully, especially when the volatility is likely to ramp up from here.

Regards,

Joel Litman
March 26, 2024

P.S. In just two hours, I go live with Porter Stansberry – founder of our corporate affiliate Stansberry Research – to reveal a historic anomaly shaping up in the market.

It's a rare, short-term setup that has recently caused several small stocks to shoot up as much as 170% in a single day. And it has nothing to do with trading options, buying bonds, or even hot cryptocurrencies.

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