Because of the global interest level in what is called the Crypto market, which has extended to some of my clients and to many participants here at billcara.com, I decided it best to state my personal position.
My position on Crypto has changed over the past month or so.
In particular, I am impressed that Interactive Brokers will provide the tools to trade it like any other security and currency on their platform. I am also impressed that some of the world’s major banks are now embracing Crypto in their wealth management services. But, mostly, I have had the time to think through the info and the noise and came to some conclusions.
I do believe that Blockchain technology works and will someday become the basis of most financial and business transactions. I also believe that the Bank for International Settlements will ban Cryptocurrencies from becoming “currency” in any banking system that its 61 central banks control. But, I am coming to the conclusion Cryptocurrencies will remain popular with many people who choose to hold them as a store of value and for peer-to-peer transactional purposes.
As long as governments retain their power to tax transactions and ensure that Crypto transactions are not the basis of money laundering or financing crime and war, that should be all they should expect from the world courts, which will continue to protect people’s rights. People today and for over a dozen years have exercised those rights to invest or speculate in Crypto. As in anything new involving the world of finance, there will be frauds, and there have been. Regulators, of course, have stopped many, and to protect the public are constantly on the lookout for others. However, as long as capital markets remain free, there will be a place for Crypto whether it be the assets, the miners of those assets, or the traders of those assets.
In a few years, I believe that all banking, sovereign money, and securities exchanges will be Blockchain-based, which means that we’ll all be dealing with Blockchain-based central bank-backed digital currencies. The world will be more productive as a result.
Cryptocurrencies are not now nor will be sovereign currency except for a few unstable third world countries trying desperately to prop up their economies but soon to face exclusion from international banking. While presently too unstable for most transactional purposes, like buying a car, for instance, I believe that if backed by other stores of value like Gold and Silver, some of these assets will stabilize and gain wider acceptance for transactional purposes. Frankly, trading Cryptocurrency for other assets is no different than the system that facilitates barter transactions.
Finally, I think that many Cryptominers like MARA and RIOT, if managed professionally, will become permanent operators that warrant our investment consideration. The biggest risk, of course, is that the coins they mine become less valuable, hence leading to less profitability. In terms of the massive energy requirements of these miners, I think that more environmentally friendly and less costly geothermal and hydrogen power will be used, and these miners will locate wherever these power sources are and where the other costs of operating, such as taxes, are low.
As soon as Interactive Brokers provides a Cryptocurrency trading platform, which is expected this Summer, I will add Crypto-trading to the other currencies and securities that I trade. I don’t think this is such a big deal that we should be arguing the case one way or the other here. Crypto is a fact and will continue to be so. It’s popular and its liquidity and volatility are what makes markets. I know many people have wanted me to participate and that others will not want it.
In terms of my current view on prices of the Cryptocurrencies, which are the drivers of the prices of the Cryptominers and related securities, there has been a major sell-off in the two largest market cap securities, Bitcoin ($BTCUSD) and Etherium ($ETHUSD) that started on May 12 and has led to massive widespread selling among the thousands of other Cryptocurrencies and alt-coins.
Using the StockCharts.com CandleGlance charts, the two-month charts show the huge damage that has been done to the Cryptocurrency market. From the peak on May 12 to the low on Tuesday, June 22, the total Cryptocurrency market cap lost -$1.392 Trillion (with a T), which is about -54.5%. That loss is almost the annual GDP of Canada and over 6% of the annual US GDP. This has been a remarkable event in capital markets trading.
As I write this article, Bitcoin is down -13.1% over 7 days and -17.8% over 30 days. Etherium is down -20.9% and -35.1% over the same period. The Daily data charts below show the full extent of the damage.
Of course, investors around the world are fully aware of the immense volatility and can point to periods of equal or greater upside volatility.
In any case, after six weeks, the net selling remains unabated. As there are no true fundamentals to study in the conventional sense of investment analysis, I have no opinion on the plethora of reasons given by others. To me, almost everything written about Crypto is noise. I look straight to the price and volume charts and the technical indicators that show me a bearish trend. As to price targets, I am not one to set them even for securities that do have a fundamental basis for investing. I will make all my trading decisions regarding Crypto based on indications of trend and cycle price reversals, and I will write about these events at the times they occur.
I am hoping none of this becomes a distraction.
Bitcoin Daily data chart
Etherium Daily data chart