Bitcoin: The Hyper Growth Sector
The Bitcoin Opportunity
The Bitcoin hype train is picking up steam but are the tracks clear over the horizon? Thomas Lee, managing partner and head of research at FundStrat, believes the “next 18 months look very promising” for the cryptocurrency markets.
In spite of the optimistic outlook, there are some hurdles that could appear and/or events that investors should take note of. The market is growing and maturing. That means many actors will enter the space and changes can occur that the crypto community may not like.
The Cryptocurrency Markets
Bitcoin has been one of the best performing assets over the past ten years. It has grown from this novel asset that curious technology types began mining on laptops and trading for a pizza to an asset that has garnered the attention of institutions and investors like Michael Saylor.
The Bitcoin whitepaper and technology were born from the aftermath of the Great Financial Crisis. The equity markets have been in a bull market ever since the March 2009 low. Bitcoin has not slowed down in the same time period. The mammoth amounts of quantitative easing and monetary policy decisions have been credited for inflating the equity markets. Many investment thought leaders believe that those same decisions are strengths for Bitcoin because of its deflationary nature, an alternative currency and store of value.
There have been several instances when a market correction in equities have led to deep selloffs or retracements in Bitcoin. This does not appear to be an area of concern for Lee, but he notes that so far, it is a risk-on asset and performs best when the equity markets are also doing well.
While the QE and monetary decisions will help guide the markets higher, they don’t prevent corrections. When the markets correct and enter a risk-off scenario, Bitcoin (and crypto) holders should expect volatility.
Regulations and Improvements
The cryptocurrency industry has largely been a space where a person could take as much risk as they want and a provider was free to offer it. Now, as governments have taken notice because major institutions continue to buy up assets, regulation is following. This regulation may wrankle many of the crypto purists, Lee believes. He is also of the opinion that some of the regulation will favor existing institutions. That should not dissuade people from exploring crypto as an investment.
Another area Lee will be looking at is the exchanges. He believes that they hold a lot of potential as the industry grows. In the short-term, he will be looking for increased speeds and insurance programs. He anticipates that there will be more human error from crypto novices, so a type of insurance could be a valuable point of difference.
Bitcoin Vs. The Field
Many macro investors only place their money into Bitcoin. Some investors would like exposure to other cryptocurrency projects. However, with hundreds of other projects, how should one choose where to invest? Lee feels that the best approach would be a basket investment with a venture capital thought process. Many of the projects will fail, but the few that succeed will provide a far greater return.
Lee provides an analogy to the 1999 dot com era. If you had bought a basket of stocks from 1999, only 4% have survived up to now. But, those four stocks outperformed the S&P by a factor of four.
Year-to-date, Chainlink has been one of the best performing crypto assets. Yet, for every LINK, there are dozens of BBQ coin-esque projects that fail. With the crypto markets at this stage of adolescence, a basket approach could be the best approach.
(Check out Raoul Pal’s interview with Dan Tapiero to gain more insight on the Bitcoin Standard macro investment view.)
Bitcoin Investment For The Late Majority
Lee acknowledges that a new majority will enter the space in the next 18 months. Most people who are already in the space, trade it or are investors have some degree of understanding. Lee encourages the late majority to gain some cursory understanding of private keys and the technology. He knows that many won’t however and if they simply want exposure to the markets, Grayscale’s investment trust or the Bitwise index fund.
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