Why (despite the headlines) it’s not too late to invest in Cryptocurrencies

By Daniel Wolfe, CEO of Tradingene and listed by The CryptoCurrency Magazine as one of the world’s Top 10 Cryptocurrency Experts

Extreme volatility has been a longstanding characteristic of Bitcoin. During 2017’s dramatic increase in the value of BTC, for example, BTC’s price fell over thirty percent five times! To see the recent downturn as a meaningful deviation from BTC’s historical performance is therefore a mistake.  

Even during the highs of the cryptocurrency market, the capitalization of all cryptocurrencies was a small fraction – less than one percent – of the capitalization of all fiat currencies. We are still in the very early stages of the birth of this asset class. Moreover, the fundamental reasons for a sustained increase in the capitalization of cryptocurrency have not changed: there are still huge numbers of people in numerous countries with no reason to trust their local currency and extremely limited access to global investment opportunities. I expect we will see a sustained increase in cryptocurrencies over the next few years, just as I expect we will also see enormous volatility over that time period. 

There are reasons that might explain the sustained “sideways” market for BTC and other leading cryptocurrencies. First, the vast majority of ICOs that raised cryptocurrency last year are now spending fiat to develop their products and markets: this creates sustained demand for fiat currency. Second, while there is increasing interest from institutional investors in crypto, the lack of institutional-quality infrastructure and the natural caution of institutions means that there is a substantial lag between the appearance of institutional interest and actual demand from institutions. And third, many of the ICOs completed last year were weak, leading to widespread declines in value for ICO tokens; this has led to increased caution from investors. This represents a welcome (and likely permanent) respite from the madness of 2017, when tens of millions were raised by projects with little more than a website and a White Paper.   

I believe we will see substantial revaluations based on two events. First, as noted above, the creation of regulations and institutional infrastructure making possible the investment by naturally cautious institutions will bring large inflows. This will likely emerge in the coming 18 months. Second, in order to move from early adopters (who dominate the market now) to early majority investors, we will need to see an increase in the ease in which new investors can purchase, use and store cryptocurrency. This, too, has begun to happen.   

I think that the upcoming review on regulation will substantially impact UK investors, though it is unlikely to stop the growth of both cryptocurrencies and ICOs. If overly conservative, the regulator may diminish the role of London’s in a market likely to show sustained, if volatile, growth for many years.  

Regulation will be a plus for UK investors, particularly institutional investors. Removing the uncertainty and providing clarity about both legal and accounting issues will allow many to move off of the sidelines. A deft touch will allow existing service providers – from marketplaces to depositaries, from startups to established investment banks – to take their place in the cryptocurrency world.    

Too heavy a hand and this activity will simply move to the jurisdictions already working to provide a settled, clear framework that permits investment activity around tokens and cryptocurrencies. There are already quite a few: Gibraltar, Zug in Switzerland, Japan, and the Cayman Islands, to name the leaders. As a result, I look for measured regulation that will provide investors with the ability to legally buy, trade and hold cryptocurrencies but with stronger limitations on ICOs to protect the broader investment public.  

For those looking at cryptocurrency, BTC is usually the first purchase. There are many interesting cryptocurrencies worthy of exploration, from established currencies like Ether to Stellar’s Lumens and emerging platforms like EOS and Telegram’s Gram. It’s unlikely that any of these will have a break-out before BTC begins to climb steeply again, though I encourage investors to avoid having exposure to only a single cryptocurrency, since diversification is a critical element in diminishing investment risks.  

I am confident that investors have ample opportunity to ride the cryptocurrency wave up. But they shouldn’t expect to generate quick returns, and they need to be prepared for volatility, even for extended periods. As with all assets, a diversified portfolio built to generate long term returns is best. 

The transformative and disruptive nature of Blockchain will bring reward to those who invest wisely — particularly those who follow the settled rules of investment. Liquidity may be hard to come by, and severe losses are a possibility.   

Why will crypto rise? It’s currently around 0.3-0.4% of global fiat money supply. If you believe, as I do, that crypto will rise over the next five years to five percent or so of M2, that’s a tremendous return for investors who can stomach the turbulence.

About the author: Daniel