If you can deal with heavy losses in the cryptocurrency space, market forecaster Jim Bianco believes that it will ultimately pay off quickly.
“Some of these coins like Ethereum will be much further away,” the president of Bianco Research told CNBC’s “Trading Nation” on Wednesday. “But you’re going to have to endure a lot more of what we’ve seen in the past few months or years.”
According to Bianco, the speculative bets mask a bullish long-term picture. He believes cryptocurrency is successfully reshaping the financial system.
“This is promising and that is really important,” he said. “The problem is that the other driver is kind of a runaway casino where the people betting those coins go up and down.”
Bianco warns that the coins are extremely prone to 50% to 70% declines at any given moment as it is still a new technology.
He said once the adoption phase is over and crypto plays a fundamental role in the real economy, overall prices will be significantly higher.
But it could cost investors bailed out during the asset’s inception years.
“That means profits will be much smaller from that point on,” said Bianco. “The risk and the reward now is that once it’s embraced and the volatility slows down, you have less risk and less reward.”
Bianco, who has owned a basket of digital coins since 2017, opposes active trading in these coins. He often buys or sells them once or twice a year. He owns Ethereum but no Bitcoin.
He suggests that exposure to crypto is also important as the room has more connections to other risk-weighted assets including stocks.
“That was not the case three or four years ago. But it is now the case,” said Bianco. “If we were to get more volatility in the financial markets in equity markets like the VIX index, it could help strengthen the cryptocurrency space as a belief. Yes, we need a new fix, and this is the fix.”
Disclosure: Jim Bianco owns a basket of cryptocurrencies, including Ethereum.
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