Fintech expert N’Gunu Tiny is the Founder, Chairman and CEO of diversified investment company the Emerald Group. Here he discusses the future of Bitcoin and the wider cryptocurrency and blockchain market.
Blockchain may have leapt from concept to reality with the launch of Bitcoin (BTC) in 2009, but it took me slightly longer to get on board as an investor. I began following Bitcoin from afar in 2015 as a tradable asset but felt it too early and regulations too unclear to remove the risks associated with trading it.
However, going into 2020, my family office has begun trading crypto as both a none correlated asset class and through the use of technical trading. We have also now formed an official partnership with HBK GoChain to extend Blockchain into Africa. So, 2020 you could say will be very, very blockchain-focused and I’m fully immersed in the future of the cryptocurrency industry.
With a core focus on Blockchain and DLT, Emerald BHK GoChain is a partnership between the Emerald Group, HBK (the Private office of his Highness Sheikh Hamad Bin Khalifa Bin Mohammed Al Nahyan) and GoChain with a core focus on Africa.
What is the future of cryptocurrency and blockchain technology?
To answer this question, we should separate the technology as a tradable asset class and as a disruptive technology.
As a tradeable asset, we need to properly analyse the history of the cryptocurrency, using bitcoin as a historical measure. BTC didn’t really get off the ground in terms of investment until April 2013, when it capped a two-month ten-fold surge to reach a peak of $266 per token. However, by the end of the month it dropped back to $70 – the first crash for the token and the first indication of just how volatile cryptocurrency is.
Throughout 2014 there were peaks and troughs, with rapid increases soon giving way to just as sudden declines. This was exacerbated when the Mt.Gox exchange collapsed. Interest waned and the media died down, leaving the price relatively stable in 2015. That is until November, when another huge spike saw it to double to $460 by 4 November. Its worth rose steadily until it reached more than $1,000 in 2017. Much of these price movement can be attributed to sentiment but also to events like ‘halving’.
By October 2017, BTC surged again until it crossed $5,000, then doubled again to $10,000 in November. By December Bitcoin was worth almost $20,000 per token. Media attention once again hit critical mass, with analysts openly wondering whether cryptocurrency was a bubble. However, during 2019 Bitcoin surged again in fits and starts until it reached about $10,000 in November. At the time of writing (5 February 2020), Bitcoin is worth $9,240.81.
Going into 2020, there are two major factors in the assets favour. The first, is data on its function as an asset class. The second is institutional adoption. On the former, there is data from various bodies including Yale, Harvard, Wharton and other major institutions around the beta, correlations sharpe and alphas. For those of you that don’t know, Yale probably leads in the field of wealth management analysis, so watching and listening to their story, really helps. To summarise, very briefly, finds are that alphas are better than equites and the correlation to equities is negative and to gold positive. This means as an investor you can asset allocate effectively. And as we know, asset allocation accounts for 90% of investment returns. There are some indications that an allocation of between 2-7% would help optimise a multi-asset portfolio. It is this data that lead the family office to allow inclusion into our portfolios especially so late in the business cycle.
The second point, in relation to institutionalisation, is that you now have countries like France formally allowing the inclusion into pension funds. With pension funds like Yale endowment allocating and investment banks like JP Morgan with fully-fledged Crypto trading desks.
Can a volatile cryptocurrency ever go mainstream?
And it’s this volatility that concerns investors and leads to some analysts writing off cryptocurrency as a serious alternative to fiat. In 2017, there was much talk about cryptocurrency going mainstream, and while that hasn’t yet happened, its underlying blockchain technology has.
Innovative, secure and valid for every industry sector, blockchain technology continues to become more widespread. And this is what underscores my interest in Emerald (HBK) GoChain. Its mission is to create impact technology aimed at improving humanity and the planet. Using Distributed Ledger Technology (DLT) and blockchain, GoChain pioneered the concept of ‘proof of reputation’. This allows a closed-loop blockchain, which addresses one of the key challenges facing the tech – security. It’s a safer network and is therefore ideal for government services, which is where I see its adoption.
While blockchain used to focus solely on cryptocurrency, it’s now disrupting and reimagining all kinds of industries, ranging from energy and finance to Artificial Intelligence (AI) and automation. So blockchain will continue to infiltrate and transform just about every sector, but what about cryptocurrency itself?
Cryptocurrency as a viable alternative for investors during economic instability
Going back to my initial point. There is evidence that it is non-corelated to equity markets in a similar way to Gold. In fact, many argue it is digital gold. Its alphas are strong. Non-correlation and strong alphas means that you should 100% entertain the idea that it may be a viable alternative.
If we turn to the US economy and its current economic expansion. According to the International Monetary Fund (IMF), the good times will end, it’s just a question of when. And when the inevitable market correction does take place, it’s likely that cryptocurrency will appeal to more investors. People will be looking for alternatives to other assets and some may suggest its more attractive than fiat currency and will be attracted by the security and untethered nature of cryptocurrencies. I personally see them less linked to currency and more as a diversifier and solid way to increase returns if managed well.
They will (likely) increasingly be seen as an asset class that is more likely to retain their value in the face of wider economic problems. In other words, when other assets inevitably decline, investors will look to safeguard their money via blockchain. As it can also be moved across borders easily and safely, this will further cement the widespread adoption of the technology.
The rise of stablecoin and Central Bank Digital Currencies (CBDC)
Stablecoins are the next level of cryptocurrency innovation and have the potential to advance existing central bank fiat. They are effectively coins back by central bank currencies. I would be very surprised if by the end of this decade, most governments had not moved to CBDC.
There are huge benefits in this area and subsequently Emerald HBK GoChain will be highly involved in helping African Governments transition onto CBDC
When is the future for cryptocurrency and blockchain?
The future is now. Innovation is continuing apace and is bedding in and blockchain as a mainstay across all kinds of sectors. And as institutional investment in cryptocurrencies increases, the markets will stabilise and become more attractive to the mainstream. Investment in cryptocurrency and blockchain is no different to any other asset class. Yes, there is more volatility, but BTC is just ten years old. We’re still at the start of the blockchain and crypto revolution, and for now, the only consistency is change.
The cryptocurrency cycle of rise and decline is ultimately good for the market. It’s a necessary stage in the growth of a stable market. Look at Amazon. When it went public in 1997 at $18 per share, stock shot up to more than $300 before crashing hard in 2001 when the dot.com bubble exploded. Jump ahead to 2018 and Amazon became the second US company to break through $1 trillion in stock market value reaching $2,050 per share.
The evolution of the cryptocurrency market could follow the same cycle. This year could see the turning point that pushes cryptocurrency from a niche asset to the mainstream form of payment. For 2020, watch Bitcoin halving, which is happening on 20 May. This is likely to alter the cryptocurrency supply/demand equation, and in the future could be remembered as a major step for the whole industry. It could be the turning point that moves cryptocurrency into a mainstream payment form.