Cryptocurrency: Bottom Fishers Have Arrived

The Search For Value Is Happening

Things are beginning to feel down right pleasant. We’ve had more than a week of price gains across the board for cryptocurrencies.  At the time of this writing, the price action is accelerating. As usual, now is the time when analysts, investors and students rush around looking for explanations.


Well, here is one factor that won’t show up on any list. Yesterday Alibaba Group took additional steps to ban cryptocurrency products including goods and services including currency sales, tutorials, mining equipment and software.  Back in January this type of news would have sent crypto prices tumbling. Today, it is a non issue.

The answer to the crypto price action is simply that they just got too cheap. Relative to other assets, risk oriented investors were attracted.  Metcalfe’s Law of fundamental valuation may have been involved somewhere along the way but there are plenty of people who don’t know Metcalfe from MetLife.  Just compare the charts of bitcoin to any major stock market average and the relative value pops out.

Another indicator that confirms the search for value is gold, which has long been referred to as a storehouse of value and the place for investors to hide.  Stock market volatility over the past few weeks is bringing out the gold bugs once again.  CNBC just featured an interview in which both experts were wild on the price of gold. For CNBC to have two experts that agree is almost unprecedented.

This is a good time for gold, but not because gold is especially cheap.  For the last five years, gold has been sitting quietly hovering around the $1,350 level; basically going nowhere. Yes, gold may be a better value than the average Nasdaq stock, but is it cheaper than bitcoin? Personally, I don’t think so and I don’t own bitcoin.

Start With the Big Names

Out of the bazillion ICOs over the last year, there are at least 100 that could represent serious threats to takeover leadership of the crypto world somewhere down the line. Recently, we started to take a look at a few of them.  But the question is what names carry the best risk/reward relationship currently. For my money, I am looking at the big names.

Why Choose Bitcoin?

This is an easy question.  For all the mockery by the comedian John Oliver, bitcoin is the face of crypto.  Since it epic rise to $19,000, the coin has tumbled over 60%. The Lightning Network is now live removing one of the big negative arguments about Bitcoin: lethargic speeds.  

Notice that we are not claiming the TLN is fully functional and living up to its billing.  When risk investors buy assets, they are not looking for solutions today, they are looking for logic. TLN contributes to that logic..

Hedge funds are bringing more institutional money into the crypto universe.  While we wait that to happen, it is still the individual investor that represents the biggest client.  Even so, only about 8% of Americans own crypto. That means the average American’s knowledge is limited to what they hear in the mass media.  That is where Bitcoin wins every time.

What About Ethereum?

Ether wins the prize for the worst performing major cap crypto having lost almost three fourths of its value from peak around $1,340 in mid January to a mere $365 at the start of April.  It is now leading the crypto charge on the upside. Will it continue? Ether has a long way to go.

Everybody wants a piece of Ethereum or at least a part of their smart contracts.  Just read the dozens of white papers attached to every ICO and you will find huge promises of better, faster and more awesome strategies.  That is what technology is all about.

Ethereum still has the attention of more Fortune 500 companies than anybody else.  If the Enterprise Ethereum Alliance does its job in creating valid brand identity, Ethereum will end up building a formidable moat.

The outstanding price performance last week was a start, now we need a few more like it.  

Featured image courtesy of Shutterstock. 

James Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.