I've been closely following the crypto market for several years now. And although I often come off as skeptical, I see tremendous value in cryptocurrencies. There’s no doubt in my mind this developing technology will change the way the world views money, sends cross-border payments, raises capital and numerous other things we can’t predict today.
But unlike most self-proclaimed crypto experts, whose only “expertise” was buying some bitcoin several years ago, I've always urged you to consider the benefits and long-term fundamentals of bitcoin and other cryptos.
Throughout last year’s tremendous price increase, I urged caution. Because I've never paid much attention to the price of cryptocurrencies. For me, it’s about asking two questions.
1. Will the demand for cryptos be more or less in the future? If you believe more, the next question is
2. Which coins have superior technology?
Regarding the first point, I like to compare Bitcoin to the Swiss Franc. The Franc has a market cap of $1 trillion and is used by seven million people. Bitcoin is used by tens of millions of people and has a market cap of only around 10% of the Franc. That difference should eventually work itself out.
To the second point, It’s usually pretty easy to tell which coins don’t have superior technology. I’ve railed against absurd Initial Coin Offerings (ICO) for things like F*ckcoin because they have ZERO utility. Investors are just buying the hype. I am sure most of these “fad” tokens are going to be worthless within the not so far away future.
Despite rampant stupidity and, in some cases, fraud in the ICO market, the trend is still up. Companies raised a record $5.7 billion through ICOs in 2017. And $3.2 billion of that came in the fourth quarter – it’s accelerating. Plus, the innovation curve in the crypto world is incredibly fast.
Who knows what breakthrough coins or technologies there will be just six months from now? The entire landscape could change Bitcoin, and the other “established” coins could become dinosaurs.
Another major issue in crypto today is regulation. In the past, the Treasury has called digital currency, the IRS says it’s property, the Commodity Futures Trading Commission (CFTC) has said it’s a commodity. And the SEC has said it’s a security.
In short, it’s a rocky (and quickly evolving) regulatory environment out there for anyone operating in the digital space. Without a clear set of rules, businesses don’t know what’s legal and what’s not.
For one, the CFTC is creating an innovation lab focused on blockchain and the newly launched digital futures markets. CFTC chair J. Christopher Giancarlo also noted cryptocurrencies are “generational” and he doesn’t want to squash innovation.
Regulation is coming for the crypto market. And that’s been one of the reasons we’ve seen such volatility recently. As clear rules are laid out, more people and institutions will be comfortable using this technology.
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