Hi, my name is Kirill. I am a co-founder of a blockchain-based project and a crypto investor. I have systematized market events over the last 9 months in order to draw an accurate picture and develop a future strategy. After gathering lots of useful information, I have decided to write an article.
1. Is Bitcoin a “bubble”?
2. Events over the last 9 months and their analysis based on transactions statistics, legislation updates and other factors
3. Negative factors
4. How to choose a future strategy
1. Is Bitcoin a “bubble”?
The main arguments in favor of the “bubble” version are:
a) Bitcoin is not backed by any commodity
b) Nobody uses it
c) Bitcoin is only used for speculation on the market
d) Look at the Dot-com bubble of 1990–2000, the same situation here — everything will soon collapse.
Now, let’s have a look at each of these arguments.
Bitcoin is financially secured by infrastructure for supporting its network, as well as by a demand for transactions (or financial transfers). According to the latest statistics, with over $2.4 trillion sent in 2018, Bitcoin now processes more transaction value than Visa with $1.3 trillion.
Now let’s look at the infrastructure supporting Bitcoin network. The amount of electricity consumed by miners is similar to the one of a small country. The largest manufacturers — Bitmain and Bitfury — launch (1 and 2) new products on a regular basis in order to increase efficiency and reduce electricity consumption. By the way, Bitmain’s revenue for Q1 2018 (from their financial report) is a bit more than $ 1 billion. You can compare it to the revenue of a well-known Russian company Gazprom Neft that reached 69.7 billion rubles in Q1 2018. As for investments of large companies in the industry, you can find their overview below. Here I can only mention the value of venture funds’ investments in blockchain projects in 2017 (not in ICO): ~ $ 0.9 billion.
What I’m trying to say is that Bitcoin, being a network of transactions, as well as an investment opportunity, is secured by a solid demand and investment. This demand will not disappear in a wink of an eye, that is why we can count on medium- and long-term investments, therefore, we have at least another couple of years :)
It’s obvious that after Bitcoin’s value has fallen from $20,000 to $ 6,000 over the last 9 months, the bubble has already deflated enough. Now we are entering a stage of technology and legislation development and large medium-term investments in the industry.
2. Events over the last 9 months with the analysis based on transactions statistics, legislation updates and other factors
First, let’s consider state regulation and plans of different countries regarding cryptocurrency.
In short, the global attitude towards cryptocurrency can be described in the following way: “We really want to regulate it, but we still don’t know how.” Japanese law allows cryptocurrency transactions. Asia is experiencing a real crypto rush: South Korea and China launch the most resonant ICOs in the market. There is even a joke that if you have a Korean guy with glasses in your team who used to work for Google, Facebook, etc., then your ICO will be successful.
The main update on regulation now is the future decision of the Securities Exchange Commission (SEC) to approve bitcoin exchange-traded fund (ETF). An application from the CBOE (Chicago Board Options Exchange) VanEck/SolidX was to be considered by SEC on September 30, but it was delayed. Why is this so important? SEC has already rejected 3 ETF applications since August. This is the last one and the most important. If accepted, major institutional investors, such as venture and pension funds, will be able to invest in Bitcoin ETFs. This will cause a significant increase in value. Below is an excellent chart which makes things very clear (I apologize for the bad quality. An arrow indicates the date of introduction of gold ETFs).
Another important update is a launch of Ethereum futures trading. The CBOE is considering introduction of this tool. One of the last year’s Bitcoin price boosters was a decision to launch Bitcoin futures.
As for national cryptocurrencies, it’s worth mentioning Venezuela. El Petro is a national cryptocurrency of Venezuela, secured by 5.3 billion barrels of oil (according to N. Maduro). The country has raised $ 5 billion in pre-sale. Credibility of the information that El Petro is backed by such amount of oil is another question. By the way, Maduro is going to peg local currency to El Petro. Now, in order to get a passport, you need to pay a fee in Petro. An important thing is that, despite the sanctions imposed by Trump administration, Venezuela is using cryptocurrency for foreign trade transactions. Here we can draw a parallel with China, which is going to introduce its own cryptocurrency. The “trade war” between Middle Kingdom and the United States will catalyze the decision-making process. Another example is Argentina which local currency has dropped by almost 50% to the US dollar.
Let’s ask ourselves: “Is there a place in the global economy for a digital decentralized asset that cannot be banned (China is trying to do it, but to no avail) that can help transfer millions at a price of few dollars without any banks?”
Banks, stock exchanges and funds around the world invest in crypto while the market is falling, but we keep reading news about the bubble, the pyramids and so on.
1) To start with, let’s consider the above mentioned Chinese giant Bitmain, which invested $110 million in Circle, one of the largest US financial startups, which, in turn, purchased Boston-based Poloniex Exchange (TOP 5 in trading volume worldwide). Goldman Sachs invested in Circle’s C funding round, which closed in 2015. Recently, Circle has released a stable coin USDC similar to Tether (USDT).
2) Coinmint plans to invest up to $700 million in a mining center near New York. They aim to reach full capacity in mid-2019.
3) Sygnia Asset Management, a major South African investment firm with $14.5 bln rand under management, has revealed its plans to launch a cryptocurrency exchange in 2018. A recent survey showed that 47% of South African residents with no prior investment experience are planning to invest in cryptocurrency and/or mining in 2018.
4) Yahoo Japan doesn’t lag behind with plans to launch its own crypto-exchange in 2018.
5) Japanese giant SBI Holding has already launched a crypto-exchange with the main focus on Ripple trading.
6) Opera mobile browser (100 million active users per month) is testing a new version of its application with a built-in cryptocurrency wallet and online payment service.
When closing a deal worth $700 million, you know exactly what you are doing. And return on investment is possible in at least a couple of years.
7) Wellington Management, a management company whose net asset value is ~ $ 1 trillion, is considering inclusion of Bitcoin and its derivatives in the investment portfolio.
8) $26 billion Soros fund is planning to trade crypto. It is quite surprising considering the fact that, several months earlier, George Soros spoke out against cryptocurrency at the forum in Davos.
9) $ 1.6 billion Xiong’An Global Blockchain Innovation Fund will issue a stable coin (Tether analog, a coin secured by the US dollar and trading in crypto markets) pegged to the Japanese Yen in partnership with the Japanese bank. It will be launched at the end of 2018, the start — in 2019.
10) Coinbase (an American cryptocurrency company) has launched a service for large scale investors with a minimum ticket of $ 10 million. Big investors require a special approach, including storage and insurance. The guys were the first to introduce this custody solution.
11) Nasdaq plans to launch a crypto-exchange.
12) TD Ameritrade, with 11 million customers and assets worth $ 1.2 trillion, is investing in a new crypto-exchange ErisX, its launch is scheduled for early 2019. Bitcoin, Ethereum, Bitcoin Cash and Litecoin will be available for trading there.
12) A cherry on this cake is ICE, an operator of the 23 largest global exchanges, including NYSE, creates a company called Bakkt, which, together with Starbucks, Microsoft and other TOP companies, will build an ecosystem for buying, selling and storing cryptocurrency assets, including institutional investors. The ecosystem includes exchanges and storage services. This is very cool because everything is moving towards buying coffee in Starbucks or paying for Microsoft software with crypto. This is what the cryptocurrency ecosystem needs — widespread use. The project launches in November 2018.
End of Part 1
Part 2: read
p.s. leave a comment if you like this article and you want me to keep writing. Thanks.