Crypto: Why The Best Is Ahead

Good news has been rare these days both for investors in stocks or cryptocurrencies. Stock investors face greater uncertainty.  Stock prices have been driven by 40 years of lower interest rates.  That game is over now and inflation is on the rise. That means higher rates. That’s bad for stock prices. 

Over time cryptocurrencies will come to be viewed as anti-inflation tools and that could turn out to be very good news for all that have endured the volatility of recent times.

No Need to Be Negative

For investors in bitcoin, Ether and other cryptocurrencies, it is easy to sit back and proclaim that the worst is behind.  After all is bitcoin going to fall another 55% or Ether by a further 33%?  It is very unlikely for this to happen.  

As painful as the last two weeks have been, let’s take a look at what was lost.  The price of bitcoin is now back to its pre-hyperbolic move that began in late November of last year, but still 7,000%+ above February 2017 levels.

For Ethereum the picture is even better.  The price of Ether is nearly three times last November levels.  It matches the 7000%+ year over year gain of bitcoin.  Where else can you suffer such losses and still end up this well off?

Sentiment Overrules Logic

Investors are looking for logic to plan their strategies.  Technical analyst lately have been mostly gloomy but that is to be expected.  Once a down trend begins, that remains the story that nearly takes an Act of Congress to change.  The redeeming value of technical analysis is how it identifies investor sentiment.  Right now the sentiment is not going the right way.

Back in December it was the Chinese government cracking down, next South Korea stepped in and now we learn that financial regulators in Japan will be conducting inspections of certain cryptocurrency exchanges due concerns about vulnerability to cyber attacks.

Hungry deficit ridden governments everywhere are looking to collect taxes from investor winnings on cryptocurrencies, the US Internal Revenue Service benefitting from the new tax law.  Proposed regulation of cryptocurrencies seem to be in the headlines on a regular basis.

Anytime a government interferes with business investor sentiment turns negative turns negative.  Logic may dictate the moves by Asia’s three biggest countries represent efforts to improve safety and security and that will ultimately attract more investors.  However, sentiment overrules logic most of the time.

Nothing New

What is happening at the moment is no different than situations faced by just about every world changing innovation from the automobile to the Internet and beyond.  In the case of cryptocurrencies there needs to be the recognition of value beyond pure speculation. Otherwise these are nothing more than just another financial instrument with a pretty face.

We may be stating the obvious, but these days the negative sentiment is originating from various government regulators with the stated intent of shielding its citizens from “the bubble”.   Right now the world is overlooking the key benefits of currencies like bitcoin, Ripple and Litecoin: the seamless transfer of money anywhere in the world 24/7.  Once something happens to return the focus to applications of this technology, logic will be restored to the planet.  

Readers will identify our bias toward Ether and there is a reason for it.  The very nature of their open source platform offers limitless applications the average investor can taste, touch and smell.  Yes there are all those stories about failed Initial Coin Offerings that used the Ethereum platform, but that is part of the development process.

Speed And Cost Become Key

Before mainstream adoption takes place, the twin issues of speed and cost must be solved. The current lethargic processing pace of fewer than 20 transactions per second is one thing but the idea of ultra low cost is a joke.  Last year witnessed the proliferation of thousands of use cases.  It inspired investors and sent prices of cryptocurrencies to record levels.  From here getting the details of the technology up to mass market applications is what should drive prices higher.  This is a lot less sexy but adds much greater value.

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.