It is a new year and there is much to accomplish in the crypto space! Optimism is running high too. Despite the drawdown in prices over the past 12 months, everyone seems to believe this is the year that the large amounts of institutional money flow into the blockchain and crypto space. While for some people the big money cannot come soon enough, it has been notoriously established that many of the large capital allocators like banks, endowments, family offices, financial advisers, pensions, and other institutions are taking their time regarding crypto assets waiting for more regulatory clarity and/or to prudently allocate funds to these new strategies, initiatives, and investments. These investors are overwhelmingly positive on the blockchain space want to gain access to crypto at these prices but are limited from their varying specialties, backgrounds, and levels of knowledge regarding crypto. For many it is only the beginning of their educational crypto voyage, although there is also a couple subset groups that either do not have mandates against crypto specifically and are evaluating crypto managers like other alternative fund managers or that are knowledgeable and considering an immediate allocation. They have many different options to choose from such as investing directly into blockchain assets and protocols, futures and derivatives, pooled investment vehicles and trusts, or through an exchange traded fund (ETF) granted one is approved after going through the right channels and proper authorities. I personally think that an ETF can acquiesce and help make Bitcoin more ubiquitous than it is currently, but it will take a laborious effort to make it more transparent to the SEC ensuring that specific criteria are met in order to help drive their decision. In my opinion, having an ETF will not be all that important or helpful for its growth or development besides just letting mostly retail traders and some institutional investors put some skin in the game without actually owning any real crypto. This year has two filings set for regulatory review (Solid X/Van Eck & Bitwise) that are already facing obstacles from delayed decisions and the current government shutdown furloughing many government staffers at the SEC. Bitcoin’s blockchain and network are politically neutral and borderless and have been running continuously for over a decade and earned its reputation for being the best investable instrument for secure, low-cost transactions that also offers incredibly more throughput for the amount of value it can handle relative to modern payment processors despite its limitations on the number of transactions it can process per second.
The crypto market has a lot of projects and products, but many of them lacked two way price discovery until last year. Much of the downward pressure was added by the ability to go short with the emergence of new exchanges, markets, and products. It changed the tune of the market like a piano player being allowed to play with both hands instead of just one. It is evident that the bottom is in for bitcoin around $3200 and its recent resistance upwards suggests it will retest that level. It is possible it goes lower, but there is ample information and data available about bitcoin aside from the current prices being where they were in September 2017 to show it has an immense amount of upside for its superior qualities to holding either fiat currency or gold as well as other alternative investments. Speaking of which the amount of money invested in bitcoin and crypto assets as a total is dwarfed currently in comparison to hedge funds, private equity, real estate, commodities, and fiat currencies. In the next decade though, Bitcoin and the crypto market will find itself being equally if not more valuable than all of them. It is a gateway for people to other decentralized markets, protocols, assets, and applications like it that people find as completely novel or as appealing, cost-efficient alternatives to analog or centralized counterparts that may also appreciate and gain mainstream prominence in their own right. Once people realize how much value is possible and the money that is coming in, they will spark the next leg up and revive the poised bull market in crypto assets. The only target I have and will make publicly is for bitcoin’s price since its is what the market and I follow most closely and because it also has the longest track record. My price call is for it to be valued, conservatively, between $60,000 – $100,000 by the end of 2020 for my investment time horizon. It is presenting around a 15X to over 25X multiple opportunity from these current prices and that is why I choose to be long bitcoin.
In an effort to publish more often and help demystify the space to present more meaningful content that helps transparency as well as decision-making, I am publishing the first edition of Crypto Facts & Fantasies.
|1. From 12/31/2016 – 12/31/2018, Bitcoin’s market capitalization grew by 323% and its price saw an appreciation of 288% according to CoinMarketCap data||1. Bitcoin is dead|
|2. The Total Market Capitalizations on CoinMarketCap according to their data shows the market as a whole is up about 770% from about 2 years ago, 1,970% from 3 years ago, and 3,260% from 4 years ago||2. The crypto asset market is in a “winter”|
|3. Money around the world is already digital from the fractional reserve banking system, flee from the Gold Standard, and rise of applications for fiat peer-to-peer payments (physical paper notes are only about 8% of the total money supply), and it is slowly shifting into the form of crypto assets with decentralized blockchains||3. The money of the future won’t be digital|
|4. Stablecoins are either 1:1 or algorithmically collateralized to be pegged to the US dollar’s value, even though they realistically should be pegged to the Consumer Price Index (CPI) that measures the average change over time of the prices paid by urban consumers for a market basket of consumer goods and services. Many are also subject to centralization, censorship, or privacy concerns that defeat many precepts of crypto assets||4. Stablecoins offering active investment qualities or any potential investor returns|
|5. The best performing crypto asset investments and strategies will be diversified, though their largest position will likely still be in bitcoin which will remain as the dominant Store-of-Value (SoV) as well as Medium-of-Exchange (MoE) with the continuing maturation of the Lightning Network (a network of trustless micropayment channels working to solve scalability)||5. Being 100% invested in any one coin or token doesn’t make you a fanatic without protection for ignorance|
|6. You don’t really own your crypto assets unless you hold your own private keys, otherwise they are practically just IOUs from a business that may not be secure or trustworthy, insured, or that complies with your jurisdictional laws||6. Exchanges are secure places to hold crypto assets as trusted intermediaries (i.e. financially responsible)|
|7. Crypto asset investment firms like Grayscale revealed that the majority of capital inflow (56% of all new investments) during the first half of 2018 was institutional capital, and the Intercontinental Exchange (ICE, the NYSE parent company) is offering contracts for trades which will result in physically delivered Bitcoin in the regulated Bakkt Warehouse (regulated by the CFTC)||7. Institutions and legacy financial corporations will not get involved in the next generation of money and lose out on potential revenue streams|
|8. While many of the markets that provide data to CoinMarketCap may show drops in trading volume, OTC volumes that are not frequently reported on like Gemini’s desk saw over 50% year-over-year growth and many more are cropping up around the world to serve major investor interest looking for high and low-touch trading services||8. Trading volumes have dropped and institutions are concerned about possibly “catching a falling knife”|
|9. Government censorship isn’t feasible with Bitcoin and many crypto assets as well as decentralized applications because they are not routed through the legacy banking system, traditional financial networks, or 3rd parties||9. Central banks do not explore the creation of a peer-to-peer currency or token that they are able to control the ledger to ultimately|
|10. The federal government in the US has been shutdown now for three weeks over funding a 5 billion dollar dispute, while in the meantime it spends that much virtually in a less than half a day||10. The Bitcoin network experiences a shutdown after the built-in proof-of-work consensus mechanisms fail to come into an agreement|
I’m excited to see how these facts and fantasies materialize, or don’t, eventually and how they impact my own theories, methodology, and strategy. The main focus should be aimed at standardizing, scaling, and maturing the overall crypto ecosystem. Crypto as a whole still has a long way to go and every day it gains regulatory clarity, greater OTC and futures trading volumes, new traditional as well as innovative exchanges and trading venues, and more people interested in it brings it closer to becoming fully adopted. The capital markets are shifting and investor demographics are changing too while in the meantime the search for yield is intensifying. Crypto assets fundamentally provide a unique combination of low correlations and high potential returns in comparison to traditional asset classes making them uniquely attractive as a diversifying asset class for long-term investors that have potential to make a large impact on their overall portfolios. Even the smallest of allocations to gain some exposure at 0.25% up to even 10% of an investment portfolio, crypto assets’ powerful performance and historical risk-adjusted returns have shown that they are to be taken seriously as an up-and-coming asset class and infrastructure. As an investment, crypto assets offer investors exposure outside of the traditional financial system as an alternative that may actually turn out to be more dangerous NOT to have in your portfolio. If you are in the U.S. geographic area, please let me know if you would like to consult my opinion on a specific investment or portfolio, know more about my proprietary ratings system (patent pending), or are interested in the systemic bliss™ crypto index. Additionally, if you’re in Chicago feel free to connect with me and drop me a message if you’d like to meet for some coffee and chat about crypto.
Hope you’re having a happy new year!
To the moon,
Disclaimer: information contained herein is provided without considering your personal circumstances, therefore should not be construed as financial advice, investment recommendation or an offer of, or solicitation for, any transactions in crypto assets.
3 thoughts on “Crypto Facts & Fantasies (2019 Thesis)”
Comments are closed.