William John Market Report 12-09-21
William John Market Report 12-09-21Category: Reports
Whether institutional investors like it or not, cryptocurrency is an asset class, and it is here to stay. Andreessen Horowitz, a Venture Capital fund best known for investing in Facebook and Twitter, is aiming to raise $450 million for its second cryptocurrency fund. Meanwhile, Goldman Sachs, the preeminent investment bank, announced they would start to trade cryptocurrency assets as more and more of their clients demand exposure to various cryptocurrencies and their derivatives, according to CNBC. Transactions occurring from start-up investment to institutional trading clearly demonstrate the demand for crypto assets and the acceptance of institutional investors of all types to engage with them.
Through the COVID-19 pandemic, cryptocurrencies have appeared to weather the economic turmoil surrounding them. Observing the Bloomberg Galaxy Crypto Index, of which Bitcoin, Ethereum, Bitcoin Cash, Litecoin and EOS make up its constituents, from 2018 to July 2021:
Source: William John Analytics, Bloomberg.com
Cryptocurrencies have skyrocketed in value since March 2020 when most lockdown economic measures were put into place across the world. With Bitcoin representing 40% of the index weighting and Ether (the standard cryptocurrency for transactions made on Ethereum) representing a further 40% of the weighting, it is no surprise to see the bulk of the crypto market perform so well since March 2020 by looking at the price of both:
Source: William John Analytics, Yahoo Finance
The price of Bitcoin grew by 676% over the time period to date and the price of Ether grew by 2831% over the time period. However, whilst cryptocurrency used primarily for transactional purposes has boomed in value, it is developing as an asset class way beyond a peer-to-peer payment mechanism.
Decentralised applications of blockchain technology, or “dapps” as they are colloquially known in the industry, are taking the asset class to the next level. For example, the Ethereum Network is home to thousands of blockchain based dapps ranging from gaming platforms to antique collections to decentralised finance. Often seeking funding to develop their ideas, the companies that develop these blockchain technologies offer investors their own cryptocurrency through an initial coin offering or ICO. If the blockchain company performs well, the investor is rewarded through an appreciation in value of its cryptocurrency.
This is a pivotal moment for the asset class as these types of cryptocurrencies, known as crypto tokens, offer investors a store of value that isn’t solely speculative – it is driven by the performance of some underlying asset, whether it be a blockchain business, service or product, rather than market forces (supply and demand) that impact traditional transactional cryptocurrencies like Bitcoin whereby the investors capital gain is purely dependent on the next buyer paying more than the last.
Overall, the potential for cryptocurrency as an investment vehicle of blockchain technology as opposed to the speculative vehicle that has been observed in the past is growing. Whilst they need each other, the robustness of the crypto asset class will not depend on Bitcoin – it will depend on the emergence of dapps that have been seen on the Ethereum network so far, and the many more that could be observed across blockchains in the future.
Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.