#869 December 20, 2017
  • Feature: The Opportunity of a Lifetime, by Van K. Tharp, Ph.D.
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  • Tips: More Reasons for Santa to Come, by D.R. Barton, Jr.
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I am only opening this webinar to our newsletter subscribers — not the general public. This material requires the adoption of a certain level of market psychology, and even if you have thus far only read my weekly newsletter, Tharp’s Thoughts, the concepts we share there are enough to engage in the call. For example, as a newsletter reader you likely have a basic understanding of concepts like:

  • You don’t trade the markets, you trade your beliefs about the markets.
  • Or, how YOU are the most important factor in your trading and that taking personal responsibility for all of the things that happen in life.

These concepts, and the other Tharp Think principles that I have shared over the years, lead you to be empowered in the markets. This collection of articles, distributed weekly, arms you with more knowledge than the general public has about their own beliefs. Understanding and adopting these types of beliefs are crucial before you consider stepping into the virtual currency markets. Most people will lose their shirts in this area because as many as 70-80% of the coins and tokens are there could be scams. One of the top performers in 2017 has risen $0.12 to over $400 but it is an obvious scam and we’ll discuss that one in particular. You have to be able to avoid the scams.

In this webinar, I will cover how cryptocurrencies line up with my teachings about infinite wealth. I’ve heard that many people are saying that cryptocurrencies are not real, they’re just something other people made up. To that end, no money is real. It’s all something someone made up! Almost all currencies in the world today are fiat currencies. That means nothing backs them up, not gold or any other physical commodity. A piece of paper we call a dollar bill is worth something only because the government says it’s legal tender and we all agree. Ideas like this are part of understanding infinite wealth. It’s all about playing a game. The games are all made up and if you get that, then you can make your own game with your own rules and win! This is the basic psychology of inner wealth.

Webinar Topics

1) What a tremendous opportunity investing in the crypto market right now is. If $100 was invested in a portfolio of 10 cryptos that existed on January 1st from the top 20 in market cap, the account would be worth $50,400 today. That’s an average return of 50 times your money in one year. And of those 10, bitcoin, including all its forks, was the worst performing of them.
2) There will probably be another 10 coins that will have similar performance in 2018, but don’t expect bitcoin to be among them.
3) Bitcoin is not one of the best investments now.
  1. Bitcoin has had several years in which it increased by 100-fold during the year.
  2. It’s had three crashes of 75% or more.
  3. It could go to $40,000 in 2018, but it also could go to $2,000. That’s almost a 1 to 1 reward to risk ratio — with about a $20K risk amount.
  4. There are other coins out there that could go up at least 10-fold in 2018.

4) 75-80% of all cryptos will be worthless and may even be scams.
5) Danger: Most people “investing” in cryptocurrencies will lose all of their money.
6) Most will lose everything because of the impact of mistakes and psychology.
7) There are some serious tax implications to understand — which most people are ignoring right now (to their long-term detriment probably).
8) Requirements to be able to keep yourself safe (even if you are NOT in the ST program).
9) What is the potential outcome of investing in cryptocurrencies in a smart way?
  1. Financial-Freedom
  2. Someone could pay for the Super Trader program with much smaller investment

10) Questions and Answers: Submit your questions when you register and we will answer as many as we have time for.

The webinar is scheduled to last for one hour. Registered attendees will be able to submit questions ahead of the event. Additional questions can be posed during the webinar. Register now and get your name on the list! As mentioned, there is no fee to attend the webinar but registration is required.

Plus, when you register early, this will allow you plenty of time for you to formulate questions beforehand and allow me and RJ to better answer during the call.

This is your chance to participate in something exciting with like-minded traders, including many of our Super Traders! I hope you will be able to join us for this opportunity!

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Feature Article

The Opportunity of a Lifetime
by Van K. Tharp, Ph.D.
Van Tharp
On the third Wednesday each month, I’m going to write an article on the world of cryptocurrencies. I feel as if this is the best investment opportunity I have seen in my lifetime.

I also predict that most people who dabble in cryptocurrencies will lose their shirts. Why? Because it is like the wild, wild west out there. Seventy percent of the crypto tokens and coins could easily be scams. Plus it is so easy to make a simple mistake that will cause you to lose everything. Most people do not have their personal psychology together and as a result they will be victims of massive mistakes and scams.

This first article in the series will introduce you to blockchain technology and cryptocurrencies. Today, we’ll talk about the fifth evolution of computing – blockchain technology. Next month, we will talk about tokens — be they cryptocurrencies or work tokens or usage tokens, or hybrid tokens. Some of these tokens might be much better investments in the long run than the more familiar cryptocurrencies like bitcoin. In February, we will look into the expectancy of crypto-currencies as an investment. For example,
suppose you had you purchased $100 worth of each of the top ten cryptos for 2017 on January 1st. These were only cryptos that existed on January 1st so we ruled out bitcoin forks and those that started later and an obvious scam. That $1,000 investment would be worth over $50,000 today and Bitcoin (which gets all the attention) would have been the worst performer of the ten.

Today we’ll talk about blockchain technology. The blockchain concept is considered to be the “fifth evolution” of computing. It resolves the issue of lack of trust on the Internet. Right now, theft and even war seem to take place on the Internet. You can bankrupt a company or a country by hacking through the Internet and stealing. Blockchain technology, however, will change all of that because blockchains can and will create trust in digital data. Information written into a blockchain database will be impossible to change or remove and this is what makes it a revolution in the way the world works. Real property rights, intellectual property, identity, money and many other things can now be created and maintained safely online via blockchain technology.

Important Terms

First, a block is a list of transactions recorded into a digital ledger over time. Think of this ledger as a “block of information” and the ledger becomes a block once it reaches a certain size, time period, or hits a triggering event.

Second, a chain links one block to another mathematically. It creates mathematical trust among all the information.

Third, a blockchain is a series of blocks chained to each other.

Blockchains record the movement of a cryptocurrency or token. How does this happen?

A hash is an old computer invention (over 30 years old) that creates a mathematical function that cannot be decrypted. A hash in the blockchain is created from the data that was in the previous block. It is sort of a digital fingerprint of this data and it locks the blocks together in order and in time thus creating the chain which ties them together. As an example, the Secure Hash Algorithm 256 (SHA-256) generates an almost unique 32-byte hash that is a digital fingerprint of data used to lock it in the blockchain. Ethereum blockchain and tokens are created with SHA-256.

The next important component for creating blockchains is a network with many computing nodes. Each node has a secure algorithm that secures the entire network. Each node contains a complete record of all the transactions that were ever recorded in the blockchain. Bitcoin’s network contains over 5,000 such nodes.

The last important concept is consensus. Consensus is the driving force of the blockchain. Consensus is the means of creating agreement within the network about the entries being added to the ledger. Consensus secures the network through an economic means by making the network too expensive to attack and making it more profitable to protect.

Networks reach consensus through various means:

Proof of Work (POW) was pioneered by Satoshi Nakamoto (the inventor of bitcoin). POW is part of the “mining” process for cryptocurrencies.

Both Bitcoin and Ethereum use POW where multiple computers work individually to solve a complex problem and the first to find the solution is allowed to add a new block to the blockchain. Then, the other computers on the network have to generate the same solution in order to reach consensus. POW works on the principle that it’s expensive to add a block to the blockchain but once done, that it’s also very easy to verify. To disrupt this process, an attacker would need to control 51% of the computer network or nodes in order to gain control of the network (and the blockchain). This is basically impossible.

Masternodes The next approach uses masternodes in conjunction with POW mining. This helps processing transactions and the masternodes receive a share of the block rewards from the miner’s activity. DASH is an example of a coin using this method.

Proof of Importance (POI) The consensus system here is based upon the idea that productive network activity (not just amount of coins) should be rewarded. These include balance, reputation, and number of transactions to and from that address. NEM is an example of a token using this system.

Proof of Stake (POS) Here the participants’ coin stake determines their likelihood of adding the next block. Each network node is linked to an address and the more coins which that address holds the more likely it is to mine (stake) the next block. It’s like a lottery ticket but the more coins held, the higher the stake. An attacker would need over 50% of coins. This method was pioneered by Nxt. It is well suited to platforms where there is a static coin supply. Stake reward consists of transaction fees. The POS consensus mechanism is the approach taken by most crowd funding platforms.

There have been two spin-offs from the POS method of consensus:

Leased Proof of Stake (LPoS). This approach was developed to incentivize small stakeholders to take part by leasing their balances to staking nodes. The leased funds remain in full control of the holder and can be spent at any time which ends the lease. Leased coins increase the weight of the staking node. (WAVES is an example of this method)

Delegated Proof of Stake (DPoS). Coin holders use their balances to elect a list of nodes that will have the opportunity to stake blocks of new transactions. This method of consensus engages coin holders but may not reward them as much as the LPoS method. All token holders, no matter what the size, vote on changes of network parameters. This method of consensus is used by Bitshares.

There are probably more methods out there and certainly more will be developed in the future but why is all of this important? Let’s look at what we have here.

  1. We have a unique fingerprint on a piece of information which is chained to every related event over time.
  2. We have a network of many nodes where each node stores all the information.
  3. The network has a consensus process verifying the information and keeping everything honest.

Thus, we can create a unique fingerprint for every contract, document, coin, piece of equipment, etc., chain those together, replicate it all and store it all across the globe — which creates an immutable record of anything that happens to it.
Again, why is this important?

There are now something like 6 billion devices that can be connected to the Internet. Soon this will be something like 20 billion devices, however, right now any of these devices can be hacked. Someone with enough skills can take over a device and control it — even supposedly secure pieces of expensive equipment. For example, the Department of Homeland Security has $250,000 drones that fly over the US-Mexican border looking for drug smuggling. Those devices don’t help prevent much smuggling, however, because the drug smugglers simply hack into the drones, take over their guidance system and send the drone away from the border. When the drone gets far enough away from the hackers, the GPS starts working again and returns the drone to the border, only to get hacked and sent away again. This cycle continues until the drone gets low on fuel and has to return to base. The net result is that a $250,000 piece of equipment becomes totally useless.

Not long ago, a hacking group gained access to —

  • the email former CIA director John Brennan and released his personal details;
  • the email and phone accounts of former US spy chief James Clapper,
  • the AOL email of ex FBI director Mark Giuliano,
  • and most impressively — the personal information of 20,000 FBI agents, 9,000 Dept. of Homeland Security personnel and some DOJ staff members.

A British teenager led the group which included two other UK teenagers and two teenagers from North Carolina who are currently being prosecuted. (How were the members of the group connected and tracked down? In part, through a Bitcoin transaction.)

The most impressive hack to date revealed on WikiLeaks the entire hacking process available to the CIA. They could turn iPhones, Androids, Windows 10, and even Samsung TVs into covert microphones to listen to your conversations. A group called Shadow Brokers had also hacked into the NSA and revealed their hacking secrets. In fact, the hacking tools of our government’s top secret agencies were actually offered for sale to the highest bidder. Shadow brokers released the actual code. As a result, this equipment and material, created at a huge expense to American taxpayers, has been released to hackers in North Korea and Russia and used on the United States and its allies.

Basically the wars of the 2000s are not so much military wars but computer wars. Governments now get hacked, financial systems can be disrupted, millions of dollars have been stolen, millions of people’s private data and identities have been given to those who assume those identities for theft. Millions of people have seen their computers shut down by ransomware with demands for payment in cryptocurrencies to have their data restored. It goes on and on.

Private industry has also been impacted. Fed-ex reported that an attack on a European subsidiary halted Fed-ex deliveries and cost the company about $300 million. Attacks have disrupted production at car plants in Europe, at a chocolate factory in Tasmania (I toured that factory 3-4 years ago), at an oil company in Brazil, and at thousands of businesses worldwide.

Blockchain technology has the ability to stop all of this cold. How? First, the blockchain has the ability to decentralize information. Right now, people buy mass storage online at a central agency such as Dropbox. Dropbox’s technology will soon be obsolete because blockchain technology enables you to store your data securely on hundreds of computers all over the world. Information stored using blockchain makes it impossible to hack without an attacker gaining control over the majority of the nodes on the network. That’s too expensive for anyone to want to attempt.

Blockschain applications will be able to create impeccable record keeping. They can create a clear timeline so that anyone can see who did exactly what and at exactly what time — without being concerned about the validity of the information. Blockchain can create completely trustworthy currency exchange records, legal documents, proofs of sale on a house, etc. Imagine a home closing process being reduced from weeks to minutes — with complete trust among the parties — using blockchain technology. The list of possible improvements goes on and on across every interaction and every industry.

One company, for example, is working to create a unique identity code for each piece of equipment that is known on the Internet (aka the Internet of Things or IoT). Once that fingerprint is connected and checked every ten minutes or so, owners will know instantly if something has changed. Hacking will become a thing of the past. That means that the Department of Homeland Security drones will no longer be hackable. Eventually, your smartphone nor anything else in your house will be hackable either.

Bitcoin was actually the first major demonstration of blockchain in action. A group of individuals who didn’t know each other, who had never met in person, and who lived in different countries was able to operate an online system where cooperation was rewarded and cheating was made very costly. As mentioned earlier, the bitcoin network has over 5,000 nodes each of which contains a complete set of all records that were ever recorded in that blockchain. To cheat, you would have to control over 50% of those nodes and that would cost billions of dollars to accomplish. Thus, it’s much more profitable to mine bitcoin and cooperate with the network rather than to hack it.

Cryptocurrencies = Money?

So how can something like bitcoin be considered to be money? A unit of physical money is invented by the government and deemed legal currency. The government can manipulate it (i.e., inflate its value so it buys less and less), but it’s utility pretty much stops with its financial value.

A unit of cryptocurrency, however, has an inherent value as data and potentially as a powerful computing tool. This utility is the source of its financial utility. An asset token (like bitcoin) is treated like an asset because it has value – 1) it is costly to create and 2) people believe it has value. That second point makes it similar to any traditional currency — it has value because people believe it has value.

On the other hand, there are many types of and uses for crypto-tokens. Some of these tokens in the long run might be more useful and more valuable than the asset tokens. But that’s a whole other story that we’ll save for next month when we discuss all the different types of tokens.

In the meantime, I’ll start putting my update on cryptocurrency prices here.
Van Chart 1
Do the changes in these cryptocurrencies begin to interest you? This snapshot of prices might seem exciting but be careful — the whole cryptocurrency market is a dangerous place for people who don’t know what they are doing. Just one example, daily price swings of 20% or more are common. We will show you some ways to think about cryptocurrencies in the coming months before you should consider entering the area.
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Trading Tip

More Reasons for Santa to Come
by D.R. Barton, Jr.
Van Tharp
“If Santa Claus should fail to call,
Bears may come to Broad & Wall”

—Old Wall Street Saying, unattributed
With tax reform coming fast upon us, the markets have even more giddiness heading into the Christmas Holiday than usual.

Is this extra giddiness a potential cause of concern for traders and investors?

On Fox Business Network’s Varney & Co. show two days ago, Stuart Varney asked if I thought the president signing the tax bill into law on the 24th of December was a “sell the news moment”. I responded that while we could get a very small “sell the news” effect, I believed that the “defer profits into the New Year of lower taxes” thought will be a stronger driver for the market. Plus, we have a strong seasonal effect coming up that I alluded to in the opening quote — next week kicks off the short but historically positive Santa Clause Rally.

Santa Claus Rally Statistics

In their well-known Stock Trader’s Almanac, Hirsch and Hirsch explored the directional tendency at the end of the year and they proposed the Santa Claus indicator (they also provided the quote above).

The Santa Claus indicator is pretty simple. It looks at market performance over the last 5 trading days of the current trading year and the first two trading days of the New Year. What we find are some compelling stats. Since 1969, this seven-day period has returned positive results in 35 out of 48 years for a 73% win rate and an average gain of 1.6%. Looking back another 20 years shows that the seasonal move holds up with a similar percentage of wins but a modestly reduced average gain.

Santa Claus Rally Fundamentals

As with any seasonal tendency, I look for the fundamentals behind the data. In this case, we have two supporting cases for the short term trend — strong investor psychology and a very tangible institutional money reality as well.

On the psychology side — investors and traders are certainly influenced by the mood of the season. Whether you celebrate Christmas or not, the holiday is undeniably the U.S.’s most permeating with a well-promoted theme of joy and good cheer. New Year’s Eve / Day follows up one week later as a near universal celebration in the western world. Spirits are high and optimism dominates moods for both of these holidays.

On the institutional side — there is a well-known phenomenon of last minute trading to make portfolio returns look better. Broadly, these techniques fall under the term of “window dressing.” This can range from fairly benign practices like adding hot stocks to the portfolio (so the year-end holdings report makes it looks like the manager was smart to be in them all along) to more controversial practices such as bidding up stocks that are already in the portfolio.

Jason Zweig has done some interesting research on that last subject and reports, “A Wall Street Journal analysis of daily trading in roughly 10,000 stocks since 2004 found that on the final trading day of each quarter, there was a sharp increase in the number of stocks that beat the market by at least five percentage points, then trailed it by three points or more the next trading day.” While that particular practice takes place mostly in thinly traded stocks, the general yearning for stronger results at the end of the quarter and especially at the end of the year certainly adds to the consistency of the Santa Claus Rally.

Also, it’s a simple reality that institutions and funds have new money coming into them during the first couple of days of a New Year. Money from automatically funded accounts (pensions) and other systematic contributions has to be put to work. This well-known money flow effect causes the first two days of the month and quarter to be better performers on average than any other two day period.

So putting fundamentals and statistics together, the Santa Claus Rally does seem to have validity and should be taken into consideration as an input (but not the only input!) for your investing and trading decisions. The past few years have given us some strong outside influences during this period from fiscal cliffs to poor China growth numbers. Seasonal tendencies — even ones with strong histories – are not immune to significant global news. This year’s tax reform will perhaps be positive influence.

Whatever your spiritual tradition, I hope that all the love, hope, and joy of this season are with you and your families! May you also have a happy and prosperous New Year!

Your thoughts and comments are always welcome — please send them to drbarton “at” vantharp.com

Great Trading,
D. R.

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February 2018 - US
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Peak Performance 101 is Dr. Tharp's core psychological workshop, and his most transformative course for over 25 years. If you want to know how great traders think, behave and act so you can achieve consistent and profitable results, without stress, then this workshop is for you. Plus, this is a qualifying workshop for traders to apply for the Super Trader Program.
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This course illustrates the relationships among the steps so that the process is logical and reasonable. Moreover, you will learn how to take each step experientially, so you really get it. Dr. Tharp is an expert in delivering elicitation questions to bring forth each person’s most important issues.
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Enroll in Peak Performance 101 during this 20% off sale and take an additional
$200* off the price of the workshop.
Use coupon code SALE.
*Good for both US and AU locations. Cannot be combined with workshop packages or other discounts. Can be used with early enrollment discount.
April 2018 - US
May 2018 - US

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