Low cap crypto is like penny stocks, says Wall Street’s Wolf
Former stockbroker Jordan Belfort, colloquially known as the “Wolf of Wall Street”, has compared low-market cryptoassets to penny stocks due to their extreme price volatility.
Penny stocks refer to highly speculative stocks priced below $1 from small and unknown companies. Usually they either achieve massive returns for investors or crash and burn dramatically.
Belfort’s rise in the ’90s and eventual run-in with the Securities and Exchange Commission (SEC) was due in part to brokerage deals for these stocks.
During an interview with Yahoo Finance on August 27, Belfort noted that this type of investment has the “same predictable cycle” that can generate huge returns but can also burn investors who fail to cash out at the right time:
“With these ultra low cap deals, wow you get one of those things at the right time, you can make just huge, huge money. But on the flip side you’re playing in somebody’s playground, you know you’re not the house, they are the house.
“You get in there and most of the time you’re probably going to lose,” he added.
Belfort went on to note that people should only invest in low-cap crypto-assets if they are willing to allocate a small amount of their portfolio to gambling, suggesting that they should never fall under the category of a serious investment.
“I don’t think there’s any amount of research you can do to protect against these ultra-low caps [assets], apart from getting in very, very early. It doesn’t matter if it’s good management [or] bad, they’re so low that what’s going to happen is it’s going to go up, and when it gets to the top, people are going to dump it.”
However, The Wolf of Wall Street also noted that he is primarily looking at Bitcoin (BTC) and Ether (ETH) for long-term investments due to their strong fundamentals. He stated that he is particularly interested in BTC because of its potential to become a value and inflation hedge as the market matures further in the future.
“I think it’s just a matter of time that where enough of it gets into the right hands, there’s a limited supply, and as inflation continues to go and go and go, at some point there will be enough maturity with Bitcoin where it is starting to trade more like a value store and less like a growth stock,” he explained.
From crypto hater to advocate
Belfort is one of many popular figures in the investment space to do a 180 on crypto over the past couple of years, joining the likes of Shark Tank investors Mark Cuban and Kevin O’Leary.
Back in February 2018, Belfort predicted that the price of BTC would eventually crash to zero and described the asset as the “perfect storm for manipulation” due to the thin market at the time. He also questioned BTC’s supposed use case payments as opposed to just being an investment vehicle, suggesting it would be regulated out of existence.
Commenting on his change in sentiment with Yahoo Finance, Belfort noted that he was “wrong” about BTC going to zero and that life is about “constantly adapting and growing.”
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He said that while he still stands by most of his criticisms, the growing mainstream adoption of BTC and crypto, along with an understanding that the sector will not be outright banned, eventually changed his mind.
“My original thesis was the supreme risk that the US would just say ‘no more’ like China did, and that was the real thing that drove me to be really bearish on Bitcoin,” he said.
