Forget FOMO and think Fundamentals
|May 17||Public post|
FOMO is a common phrase in all tech businesses and the cryptocurrency industry. It means Fear of Missing Out. The fear is very real and it’s an easy thing to fall prey to. It really is.
Normally in this newsletter, we take a couple big news stories in crypto, or stories that should be big, and give them the attention they deserve with real analysis. But right now, everyone is talking about the same thing: Price
Bull and Bear Markets in Cryptocurrency
Bitcoin in particular is full of big bull and bear markets that make it a roller coaster ride sometimes. I remember I bought my first one in 2014 not knowing a bear market was happening and was going to give me a 2/3 loss right away.
This is Bitcoin’s chart for the last 3 months
And here are those returns by the numbers
You can see it in the chart, from $3588 up to $8000. More than 100%, 123% in the last 3 months, which is crazy no matter how you look at it.
Let’s check out Ethereum and Litecoin too….
Ethereum is up from $121 to $263 or 118%
Litecoin is up from $43 to $95 or 129% in the same 3 months.
So what’s changed?
Change #1: Markets Were Oversold
An oversold market is when bears have control taking the market downward. We had this in almost all cryptocurrencies in 2018. Yet, like with many things in the market, control over selling sometimes means too much selling in that market. That’s an oversold condition. When there are finally no more sellers….
For those that like technical trading, there are many tools you can use for overbought and oversold conditions. Some of these tools are MACD, RSI or Stochastics, which are oscillating indicators that show when an asset trades inside and outside of those ranges.
By the way, even with these huge gains, every cryptocurrency is still well off its all time highs. Bitcoin is still more than 50% off its ATH, while Litecoin and Ethereum are still 66% and 80% off of their ATHs.
While it does look like a good time to buy, don’t force yourself into panic buying or panic selling.
Change #2: Better Cryptoeconomy Fundamentals
Notice we are only talking about price so far. If you bought a Bitcoin at $20,000 in December of 2017 and liked it as a non-government issued money alternative or as a hedge against central bankers attracted to printing money, then has anything really changed when the price hit $3400 in January of 2019? Here are some things I can tell you that have changed:
If you liked Bitcoin then, you can buy more at a discount now
Many more products are built to increase crypto adoption. They can be new wallets like when my favorite Airbitz wallet rebranded to Edge and added tons of features and new coins to support or new DeFi (decentralized finance) tools like Augur, Dharma and Maker
Layer 2 solutions for Bitcoin are going strong. The most popular of these at the moment is the Lightning Network, which allows those with a node to open up a ‘payment channel’ for accepting smaller Bitcoin payments outside of the Bitcoin blockchain.
Because the Bitcoin blockchain only holds 1 MB worth of information in a block, other solutions (next layer being layer 2) are needed to help grow the number and speed of transactions on the network. Bitcoin was designed this way on purpose. Hal Finney, recipient of the first Bitcoin transaction, described Bitcoin banks as an attractive Layer 2 solution that would grow Bitcoin’s influence as a reserve currency way back in December 2010. The original BitcoinTalk thread makes for some interesting reading. I suggest you read it when you have some time.
Stablecoin use is on the rise. Instead of just Tether, there are few stablecoins with different purposes in the market. One thing all of them have in common is a goal to increase adoption of digital assets generally. And it’s working
For less than a cup of coffee, you can get analysis like this in your email box every week. No nonsense, just news from the Cryptoeconomy.
People are finding use cases where blockchain is a real solution. The IBM Food Trust is a blockchain for food companies to track their suppliers and where their ingredients come from. Perhaps, more importantly, it can be used to track where a food borne illness came from that got into their food supply.
The diamond and rare metals industries are using blockchain for provenance, to prove and track ownership of these valuable materials. Many people prefer to avoid jewels and metals that come from war torn areas or where buyers think they might be supporting terrorist groups with a purchase.
Forbes released the Blockchain 50, which I reported on a couple weeks ago, showing how active large, multinational companies are with blockchain investments and activity. These are all bullish for Bitcoin since it’s the most successful blockchain investment to date.
Change #3: Institutional Adoption of Crypto Growing
A Fidelity survey of institutional investors surprised even the most fervent Bitcoin bulls.
Some of these amazing numbers include:
57% of these investors want to buy crypto directly
57% prefer to buy an investment product (think ETF or fund) that holds digital asset companies
22% already have exposure
So while many people were selling in the bear market of 2018, it’s pretty clear that institutions were quietly buying and starting to establish their positions in crypto. Many are saying it is sensible now to have a 1-2% asset position in digital assets. I agree. It is sensible.
Two Virginia pension plans in Fairfax County, just outside DC, are investing in crypto through their investment in Morgan Creek, Anthony Pompliano’s investment fund. Forbes reports that Univ of Michigan’s endowment is investing in crypto too. I think it’s safe to say this is only the beginning. More pensions, endowments and retirement funds will follow. Again, another bullish sign.
No one can predict what Bitcoin or other crypto prices will do, but tracking the fundamentals of your favorite assets will help keep you invested. Let’s review what’s driving what looks like a new bull market in cryptocurrency.
Markets were oversold for a long period of time= Bullish
More better products for adoption like wallets and DeFi tools= Bullish
Layer 2 Solutions like Lightning increasing use, adoption and utility of Bitcoin= Bullish
Stablecoin development and use on the increase= Bullish
Blockchain use cases forming and Forbes Blockchain 50= Bullish
More interest and buying from institutional investors= Bullish
You can see it doesn’t take a crystal ball to see that all this news would eventually reflect in Bitcoin’s price. When? For how long? and When will the next bear market return (because there will be another one for sure)? are all unknowns so just keep watch on the projects that are important to you and if you see a dip in price, maybe that’s a new buying opportunity for you.