If you can cope with sharp drops in the cryptocurrency space, market forecaster Jim Bianco believes it will ultimately pay off in spades.
“Some of these coins like ethereum are going to be a lot higher way down the road,” the Bianco Research president told CNBC’s “Trading Nation” on Wednesday. “But you’re going to have to stomach through much more of what we saw in the last week coming in the next several months or year or so.”
According to Bianco, the speculative betting is masking a bullish long-term picture. He believes cryptocurrency is successfully remaking the financial system.
“That’s got a lot of promise, and that’s really what’s significant,” he said. “The problem is the other driver is kind of an out-of-control casino with people betting on these coins going up and down.”
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Bianco warns that the coins are extremely vulnerable to 50% to 70% declines at any moment because it’s still a new technology.
He said once the adoption phase is over and crypto has a fundamental role in the real economy, prices overall will be vastly higher.
But it could cost investors who bailed during the asset’s formative years.
“That means from that point forward the gains will be a lot less,” Bianco said. “The risk and the reward is now you’ll have less risk and less reward once it gets adopted and the volatility slows down.”
Bianco, who has owned a basket of digital coins since 2017, said he resists actively trading them. He often buys or sells them about once or twice a year. He owns ethereum, but not bitcoin.
He suggests it’s also key to have exposure to crypto because the space is showing more ties to other risk assets including stocks.
“That wasn’t the case three or four years ago. But it is the case now,” Bianco said. “If we were to get higher financial market volatility either in the stock market like the VIX index, that could help bolster 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.