Second Half Cryptocurrency Market Outlook: Why You Must Own Them

By now we all know the unwelcome statistics. In the first half of the year, cryptocurrencies have been awful investments. The big guys like bitcoin lost 60% while Etheeum  owners suffered just as much. Ripple that wants to call itself anything but a crypto security gets the award for the biggest loser, having fallen 86%, If you are a believer in so called Gen III projects, you were lucky to have escaped with minimal damage.  Two of the so-called Ethereum killers NEO (-68%) and EOS (-15%) showed that when it comes to Ethereum, it is kill or be killed.

So, why is that going to change anytime soon?  An honest answer is that no-one can predict the next move.  Since the spring rally in April, psychology toward cryptocurrencies has been horrible.  Technical patterns have confirmed this over and over. Whenever signs of a market rally appear, sellers come into to quash your enthusiasm.

The Bullish Case Based On Value

Crypto prices may have taken it on the chin so far this year but they are entirely alone. Conventional investors that have been accustomed to double digit stock and bond market gains for years now are having their woos in 2018. If you played it safe in Dow Jones or S&P 500 stocks, you basically have made no money while taking on the risk of holding highly valued securities.  

There was one group of stocks that stood out in this dismal period: technology. As a whole the gang was up over 10%. Interestinglym companies like AMD (up 50%) and Nvidia (up 22%) were among the star performers.  The fact the both design and forge ASIS chips for high speed cryptocurrency processing didn’t hurt them a bit.

As for the rest of the year, today MarketWatch carried the following headline: Brace For A Lost Decade For U.S. Stocks. The story centers on a forecast by Morningstar analyst Dan Kemp.  Here is a quote from Kemp: “Our expectation at the moment is that you won’t have any real return from U.S. equities over the next 10 years”. “The U.S. equity market looks both extremely expensive and very unattractive relative to other markets”.

The key to Morningstar thinking is not just the ogur of higher interest rates but the record high market valuation.  Of course, this is just one opinion in a field where everybody holds their own ideas. Nevertheless, the fact is, Kemp is absolutely correct.  The U.S., and for that matter global markets, are very expensive.

Investors are constantly seeking the best returns and there is no question that cryptocurrencies are at the low end of the price spectrum. But does price alone define value? The answer is no, of course not. What is creating value is the ever growing respect for blockchain technology and the progress of crypto project participants.

The Fundamental Case

Let’s start with the case of mass market appeal for blockchain technology.  In recent days news outlets have reported how Mastercard, the mammoth payment processor, has been filing patent applications left and right for “anonymous distributed ledger transactions via a third party processor.” Skeptics will point out that Mastercard doesn’t need bitcoin or Ethereum to develop its own blockchain.

Absolutely true, but there is one important thing to remember.  Not all blockchain applications are created equal. The moves by Mastercard as well as Visa are designed to preempt competition from cryptocurrencies.  Nevertheless, Mastercard with over $13 billion in revenues from transaction processing fees is not going to start giving away their services just because it is on a highly secure blockchain.

Promising Rookies

For all of the criticism lately of the ICO class of 2017,  some are beginning to justify their existence. Why is it that EOS was one of the better performing crypto assets in the first half of the year? In June version 1.0 of the EOSio blockchain open source software was released.

Among the long list of virtues, EOS offers block confirmations in less than 0.5 seconds.  In today’s world, that is smokin’ fast.

This is just one of many and their progress is attracting a huge increase in capital.

ICOs Are Alive And Growing

So far, 2018 is shaping up as a banner year for ICOs.  Estimates vary as to the exact amounts of capital raised. The figures range between $12-$14 billion based on about 900 offerings.  This is more than twice the amount raised for all of last year. All this in spite of all of the regulatory uncertainty.

It would be easy to dismiss the huge increase as the result of more offerings but the truth is the average amount of capital raised has doubled so big institutional money is finding its way into crypto and recent depressed prices have to be taken into consideration.

Guilty Until Proven Innocent

It is getting easier to point out encouraging news favoring the long term mass acceptance of crypto.  But the truth is the whole group needs to demonstrate lots more of this sort of progress to overcome the negative psychology that has crushed prices so far this year. Nevertheless, it doesn’t hurt that stock and bond prices are finally hitting a wall of resistance. This is why crypto is so likely to be the asset class of choice at least for the balance of this year.

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.