With Bitcoin and other cryptocurrencies reaching the highest all-time worth in December 2017 ($19,783 was the record for Bitcoin), the so-called experts in cryptocurrencies were predicting numbers like $50,000 in the next few days. Today, December 31, 2018, the price of bitcoin is $3780. Without going into the details of 2018 – we would like to jump into 2019 and briefly discuss what we think is ahead for cryptocurrencies.
Market Cycles. There are certain pundits mentioning that these are market cycles or economic cycles. As economies grow and contract, these are very natural fluctuations and there are various factors such as the GDP and unemployment levels associated with it. The similar thing happens with stock markets which go up and down and hence we have the concept of long and short. Where smart investors invest, they believe the value is more than the price that is offered, and they sell when they feel the value is less than the market price. The most important term used here is value. When you look at a company stock, you know there is some value associated with it. Let us consider the stock of Apple. We know that Apple produced great products, has a great team, has patents, intellectual property and goodwill. All these add up to create a certain value and the premium that people are willing to pay for its stock to add up to its market price. Now the biggest question, what is the value of a cryptocurrency?
It is not a currency, yet. Can you buy your groceries using a cryptocurrency? Other than a few exceptions, can you do online shopping using cryptocurrency? Currency is supposed to be a legal tender used anywhere, which is clearly not the case with cryptocurrencies. There are certain companies that do accept crypto payments. Great, in one year you’re currently is one-sixth of its price because of market fluctuations!
Many countries do not call it legal. Cryptocurrency is illegal in China, Russia, and India. If more than 40 percent of the world’s population has banned or called it illegal (you cannot go against China and India, can you?) then clearly the world universal acceptance cannot be used, and that defies calling these things a currency.
Warren Buffet does not believe in it. One of the best value investors of our time, the Oracle of Omaha clearly said that bitcoin is a speculation, not an investment. On top of that, he said that these currencies will end badly. Not that Buffet has got everything right, but here we would like to take his advice.
Irrelevant products, initial currency offerings (ICO)s and scams. This get rich quickly bug has caught a lot of people and there are trying to build applications and plugging in crypto for the sake of it and writing whitepapers to come with their own ICO’s. There are companies specializing in this scam and charge a huge fee for taking on your ICO. The funny part about blockchain is that it a great technology, but we are still finding the best questions to solve using this technology. There are production loads running for some products and the cloud service providers (like AWS), have come up with their blockchain services. When one reads the thought-provoking book about blockchain, Block Chain Revolution by Don Tapscott and Alex Tapscott, and sees the use cases mentioned, they find the opportunities are endless. In reality, those opportunities are still on paper.
Once bitten twice shy. Once a bubble bursts it will take quite an effort to bring them back, however, human beings follow the herd mentality. If the market goes up like it did in 2017, we will see the retail investors again make a fool of themselves.
Less incentive to mine. With such low prices, the mining profession is not as profitable as it once was.
It was never about anarchy. When we tried to have a conversation with some cryptocurrency experts, we were told that people want freedom and the bitcoin is the first step towards it. “Bitcoins protect privacy, political freedom and economic freedom.” Sorry, we do not buy this farce. Just FYI, it’s the corporate that runs the government, where the big companies are getting bigger, just like the rich are get richer and poor getting poorer.
The blockchain is not the perfect technology. In theory, everything sounds great, but there are practical limitations around blockchain technology. Just tweaking the blockchain and creating a new cryptocurrency is not going to last forever.
So, what is going to work in 2019 –
Blockchain technology will be boring this year. When we mean boring that is the enterprises will start using it. 2017 was all hype, 2018 was a disappointment. 2019 is the year the dust settles.
Walmart plans to use the blockchain in its production system.
Fidelity has come out with service (custody- service) to improve security measures around crypto assets.
Smart contracts are seeing or hoping to see, the light of the day with the legal tech space, which is coming up with many exciting offerings. Multiple companies use blockchain to make their legal paperwork smarter, so it is just a matter of time before it becomes the norm.
Some governments are also planning to come up with their cryptocurrencies in 2019 (though the Petro from Venezuela failed!). Isn’t that what the blockchain wanted to break? Will it be the victory of the centralized or the decentralized? Looks like we will get the answer in 2019.
We are sure that after reading this, you should know if you will be investing in the crypto market.