The Crypto Tipping Point: New Money, Massive Fortunes and Major Changes
The mania has just begun.
The first financial instruments to bridge the gap between fiat and cryptos were Bitcoin futures issued by CME Group Inc. and Cboe Global Markets Inc. in December 2017. As 2018 lifts off, mass exposure to cryptocurrencies will happen through a number of channels.
Bitcoin
Bitcoin remains the gateway coin to a more diversified crypto portfolio that include popular coins Tron, Cardano and EOS. While Bitcoin dominance has stayed high at 36% with a market cap of $260 billion, it continues to shed market share to rivals Ripple and Ethereum with market caps of $119 billion and $100 billion respectively.
Futures, ETFs, Crypto-Related Stocks
When Cboe and CME “legitimized” Bitcoin by offering futures, it paved the way for Wall Street to get fully entrenched, quieting some of the scoffing and bolstering bank accounts. Nasdaq Inc. is also offering Bitcoin futures. ETFs such as the Winklevoss Bitcoin Trust and Grayscale Bitcoin Investment Trust, up 1,250% in 2017, have become attractive investments, leading the New York Stock Exchange to file with the Securities and Exchange Commission to list five ETFs – Direxion Daily Bitcoin Bear 1X Shares, Direxion Daily Bitcoin 1.25X Bull Shares, Direxion Daily Bitcoin 1.5X Bull Shares, Direxion Daily Bitcoin 2X Bull Shares and Direxion Daily Bitcoin 2X Bear Shares. Coinbase, valued at $1.6 billion, is the largest digital currency exchange in the US. Speculation of an IPO would allow stock investors to gain exposure to cryptos through a high-profile digital currency-exchange offering.
Hedge funds
Bitcoin hedge fund Pantera Capital, established in 2013, has made a 24,004% return for its investors. BlockTower Capital, a digital currency hedge fund launched in August, was founded by former Goldman Sachs engineer Matthew Goetz. Bloomberg reports that Goetz has successfully managed to hire former Goldman Sachs employee Michael Bucella, who will head BlockTower’s strategic partnerships and business development. Hedge fund Silver 8 Capital was up 800% for the year in 2018. According to Business Insider, Morgan Stanley reports that “investors pumped $2 billion into crypto hedge funds in 2017 and 2018 will be even bigger.”
Investment banks
Despite a statement from Merrill Lynch banning investments in any bitcoin-related instruments, Goldman Sachs is considering opening its first crytocurrency trading desk because its clients are aware of the huge gains in crypto assets and are expressing interest in Bitcoin and blockchain technologies.
The promise of major gains will be tempered by volatility and high risk. Both will persist as regulators try to tame Bitcoin and as bankers continue to spread skepticism, fear and doubt about cryptocurrencies while simultaneously investing in blockchain technologies. The dotcom bust parallels are also still relevant with blockchain 1.0 projects losing out to blockchain 2.0 development teams that are moving toward Proof of Stake and away from costly and environmentally draining Proof of Work strategies that have centralized too much power in the hands of miners.
Meanwhile the Raiden Network will push to reach a critical mass, setting the stage for peer-to-peer exchanges and financial markets that can operate without central banks. Projects like SmartMesh will try to deploy every smartphone on the globe to create a massive web of interconnectivity and interoperability outside of the internet.
Once transaction speeds topping Visa’s 2,000 per second become the digital currency standard, and developers build out a robust, dynamic and exceedingly fast network, we will see a parallel banking system explode, with digital currency adoption setting the stage for the full disruption of fiat.
As banks develop their own digital currencies in anticipation of the shift away from slow paper money with its archaic third-party transaction structure, they’ll also attempt to adopt the decentralized nature of blockchain while simultaneously maintaining their hegemony and leverage during the shift. It’s a conundrum that will leave them scratching their heads. Their opponents: the developers building blockchain systems to nullify their power by decentralizing big data and big money, and distributing it across a public ledger for all to see and manage. The effect will allow more people to participate in wealth distribution and to control information that has been centralized and leveraged for profits by large corporations. Tech giants Google and Facebook among others will join the big banks in trying to maintain control as 2018 lifts off to become the year of the Crypto Tipping Point.
Note: Investing in cryptocurrencies is highly risky. Despite huge gains, you can lose your total investment.
