Why the crypto market is not dead. The view behind the curtain of the bear market
There are rarely projects that are said to be dead as often as Bitcoin, the crypto currency industry, and the Blockchain ecosystem. Why the crypto market is not dead.
In the last article, I introduced you to the Gartner Hype Cycle model and its usability as a compass for classifying the maturity of new technologies.
Here is a short review:
What happened in 2017 was a hype - much like what we saw in the late 1990s during the Internet boom. Like back then, the boom had to follow the boom. Excessive enthusiasm and disillusionment are part of the normal cycle of new technology on the way to marketability, according to Gartner.
There is much to suggest that blockchain technology and cryptocurrencies have entered the "through-disillusionment" phase. How long we will be in this phase is not really foreseeable at this point.
However, we are convinced that blockchain technology and cryptocurrencies, like the Internet, are becoming a mass phenomenon. In this article I would like to explain to you why we hold this view and how we fix it. Basically, there are two main arguments for us:
01 Decentralization will prevail in the long term.
02 We see promising signs that Blockchain is entering the market
Decentralization will prevail in the long term
While historically it is the nature of capitalism to create monopolies, such monopolies have been repeatedly toppled by the provision of open source software since the invention of the computer. Mostly this happened at a point where monopolists had accumulated so much power that customers and business partners were helplessly exposed to their will of self-enrichment.
IBM had an almost monopoly in personal computing, which was ultimately terminated by the open PC standard. In turn, the open PC standard allowed Microsoft to become a de facto monopoly in the operating system market. The emergence of open source operating systems (Linux) and Internet protocols has destroyed this monopoly, technology giants such as Google, Amazon or Facebook appeared on the market. Together, these companies now control much of the world's online (and offline) data streams.
The introduction of open source software is a means to redistribute power structures in the marketplace.
While open source protocols undeniably create value for their users, in the past they have barely created financial value for their developers. This is different for the first time in history with blockchain-based token systems. In the future, large parts of the world economy will run on decentralized networks. The coordination in these networks will take place via limited tokens.
Promising signs of market maturity
Looking closely at the crypto market, we are already seeing many signs that cryptocurrencies, led by Bitcoin, will soon enter the "slope of enlightenment" phase
Using Bitcoin as an example, we can observe a progressive adaptation that is independent of the underlying price of Bitcoin: the evolution of the transaction volume, the hash rate (the rate at which a computer performs an operation in Bitcoin code), the nodes and their distribution are all indicators of this maturation process.
The above graphics show two trends:
An increase in on-chain transaction volume over time and an increase in the proportion of high-quality transactions (over US $ 1,000) for cross-border payments (from 34 per cent in 2016 to 46 per cent in 2017). More transaction volume means more dynamic markets and increasing adaptation in the retail segment.
A steady increase in resources flowing into mining globally. This increased willingness to invest resources and capital in Bitcoin's global mining underscores Bitcoin's perceived "value / store of value" and continued progress at the infrastructure level. More nodes in turn lead to an increasingly secure network. Their distribution makes Bitcoin increasingly decentralized over time.
To put the current market situation in context, let's take a look at the above figures together with the price development of Bitcoin:
The chart shows that price and fundamentals are not (yet) correlated. This is explained by the fact that 2017 irrational and inexperienced investors drove the market events. Fundamental key figures were of no importance and pricing worked almost exclusively over exaggerated expectations of the future. With the end of the hype these expectations collapsed and with it the Bitcoin course. However, the fundamental ratios continue to develop very positively.
1. Governments are pushing for regulatory progress
By now, most regulators have realized that they can no longer ignore cryptocurrencies. While some jurisdictions still take a wait-and-see approach and have avoided comprehensive legislation, many have already started to set up legal frameworks. Here are a few examples that should underline this statement:
Switzerland has proposed a regulatory framework aimed at minimizing regulations while at the same time keeping companies legally compliant by so-called "sandboxes". This mechanism should allow start-ups to experiment and innovate under controlled conditions. Singapore follows a similar approach. Russia, on the other hand, has created a legal framework to legalize ICOs. France, on the other hand, approved crowdfunding of debt based on distributed ledger technology.
2. Companies are introducing full implementations of blockchain projects
After a long development phase, large companies are moving to full implementation of blockchain projects. The World Economic Forum forecasts that by 2025, 10% of global gross domestic product (GDP) will be spent on the blockchain. This shows that global leaders are not isolating themselves from this seismic shift, but rather are a driving force behind it.
3. Institutional investors are in the starting blocks
In the absence of sufficient regulatory security and infrastructure such as e.g. Depot Cryptocurrency and Private Key Custody Solutions Until recently, it was reserved for institutional investors to watch the market from the sideline. However, what we have seen in recent months shows that this is changing. Large financial service providers are working on significant infrastructure solutions. Here are a few examples:
Fidelity, $ 7.2 trillion, making it one of the top five financial services providers in the world, announced in October that it was offering cryptocurrency depository and trading services to corporate customers under its newly created subsidiary Fidelity Digital Asset Services LLC.
Goldman Sachs claims to be working on a bitcoin trading desk because of strong customer demand.
Bakkt, a platform for trading, custody and digital asset issuance, was founded earlier this year by global stock exchange operator ICE (New York Stock Exchange parent company NYSE) and is expected to launch Bitcoin Futures trading in early 2019.
The foundations of the US elite universities Harvad, MIT, Stanford and Yale, whose assets are each in the mid-double-digit billions, have recently invested in cryptographic funds.
Nasdaq is partnering with Gemini, the US crypto exchange, to provide its SMARTS technology - one of the world's most widely used financial trading surveillance systems.
In addition, Morgan Stanley, the major US investment bank, declared cryptocurrency the new institutional asset class in its most recently published report.
So you do not have to have a crystal ball to predict that institutional investors will soon be pushing into the crypto market. This will also have a direct impact on the distribution of cryptocurrencies to private investors.
According to a study by Coinmarketcap, between summer 2010 and 2018, 280 unregulated crypto exchanges went into operation. The number of active crypto exchanges and the quarterly growth rates of Bitcoin market capitalization are directly related: the correlation is 72 percent.
Next growth phase could be even bigger
The following graphic illustrates this relationship. The strongest Bitcoin price growth phases so far (2011, 2014 and 2017) have always led to the opening of new crypto exchanges and thus to additional market access. More access means more opportunities and greater convenience to create and invest capital in the crypto market. The newly provided capital itself is in turn a driver for the next phase of growth. It is conceivable that this cycle will be repeated in the future - but then to a much greater extent than before.
With the entry of institutional investors, simple investment products for retail investors will push into the market. Instead of having to deal with the current uncertainties and complexities of investing in Bitcoin & Co. itself, always at risk of becoming a victim of fraud or hacking, retail investors will in the future outsource all of this to established brands that they already know whom they trust.
According to a survey by ING, close to 100 million people are interested in investing in the crypto market. It can therefore be assumed that the provision of simple retail products by institutions will continue to dramatically increase the number of small investors in the crypto market.
Of course, all of this will not happen overnight. But we should be aware that today is laying the foundation for tomorrow. In a world that has become so complex and competitive in the past few decades, cryptocurrencies may be the last chance for current generations to gain wealth in a relatively easy way. But one thing is also clear: there can not only be winners along the way.
In my next article I will give you an insight into an investment strategy. I will explain to you which areas we believe in and from which we will stay away.
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