Editor’s note: Since so many Market Minute readers have written in with their thoughts on cryptocurrencies this year – many of them skeptical – we wanted to share the essay below.
Bonner & Partners’ technology analyst Jeff Brown offers a different perspective. And it shows that this frontier market still has plenty of room to run…
By Jeff Brown, editor, The Near Future Report
We are just at the beginning of a revolution in blockchain-related technologies and cryptocurrencies.
Regular readers of my investing service, The Near Future Report, are becoming well-versed in blockchain technology. But for new readers, blockchain technology is the decentralized ledger technology underpinning cryptocurrencies and digital tokens.
This is an intense area of focus for me. But if you want to understand what’s really happening, you must be on the inside… and you can’t do that from behind a computer screen.
That’s why I travel as much as I do – meeting with executives, attending conferences, engaging my global network, and participating and contributing when and where I can.
In fact, just the other week, I attended two major blockchain-related technology conferences in New York and Silicon Valley.
I also attended a much smaller, specific conference supported by Berkeley Law, focused on financing and regulatory issues surrounding initial coin offerings (ICOs). Representatives from the SEC were present in full force.
Here’s what I uncovered…
Square Peg, Round Hole
The conference I attended in New York City is known as “Consensus Invest.” Consensus conferences are some of the most notable blockchain and cryptocurrency conferences in the world.
This particular event, however, was special. It was the first time the organizer, CoinDesk, held an event focused entirely on institutional investors.
The conference was less technical than most blockchain-related conferences. It focused on blockchain technology, cryptocurrencies, and what they mean for financial institutions.
It was fascinating to speak with and listen to traditional financial professionals. Most of them are struggling to get their heads around blockchain technology. Financial services incumbents like traditional banks, institutional funds, and hedge funds are all trying to determine their role in this exploding industry.
One thing was very clear to me – blockchain industry development has happened right under their noses… and they’re all scrambling to catch up. They’re also trying to take the same industry structure and business practices and force them onto the blockchain industry.
And it won’t work…
It’s like trying to fit a square peg into a round hole. The big financial institutions are trying to insert middlemen, increase friction, and position themselves as rent-seekers just like they’ve been doing for centuries. But the blockchain industry won’t have any of it.
These are precisely the things that blockchain and distributed ledger technology were designed to fix. And early blockchain companies have proven that it works. They’ve proven that the utility of these protocols makes the transfer of assets faster, cheaper, and entirely secure, all at a fraction of the cost of the way things work now.
This is why we’ve seen such a spectacular run-up in cryptocurrency values this year. Have a look at the chart below to see how significant it’s been.
All digital assets (cryptocurrencies and digital tokens) have increased in value by 6,900% compared to U.S. equities at merely 11.5%, or gold at 10.1%.
You might be thinking that the run is over… I’m here to tell you that it is not. Not even close.
While we will see pullbacks and higher-than-normal levels of volatility in cryptocurrencies and digital tokens, the long-term direction is up… and much higher.
A Long Way to Run
There’s a major part of the financial industry, the really big money, that still hasn’t entered the market.
And that big money will be an extraordinary boost to the cryptocurrency market when it enters. I’m talking about the institutional funds.
This was summed up by one industry executive who said, “Institutional guys are not really in it, the market just isn’t big enough yet… We really need to get up to the trillion-dollar market size and then the institutional funds will get in.”
That may be hard for some readers to believe. After all, they see the price of cryptocurrencies like bitcoin climbing almost daily. They might assume that this is already a huge market.
But you might be surprised to learn that the cryptocurrency market is still just a fraction of other financial assets.
Have a look.
As I write this, the total market capitalization for all cryptocurrencies is $400 billion. That’s less than 6% of the value of the worldwide physical gold market. It is about 8% of all daily foreign exchange trading, and less than 0.5% of the total value of global stocks.
The cryptocurrency market is just getting started. I expect to see a trillion-dollar market within 18 months.
Now, what do you think will happen when institutional money starts to flow into the cryptocurrency markets? That’s right – it will take off like a rocket ship.
Even at $1 trillion, the cryptocurrency market will still be small. But all of that institutional money racing in will make it increase in size by multiples.
And the institutional money will be first putting their dollars to work in the cryptocurrencies that have the largest market capitalizations. That means that investors should be looking closely at Bitcoin, Ethereum, and Bitcoin Cash to start. And then Dash and Litecoin.
This is an incredible opportunity for normal investors to get in before the smart money on Wall Street. I recommend that interested investors get in before these institutional funds start flooding the market. This is where the largest gains will be made.
The industry is moving so fast right now. And with the right time horizon, many more cryptocurrency millionaires will be minted with well-placed investments in these blockchain technologies.
Editor, The Near Future Report
P.S. Smart investors stand to make 21 times their money over the next few years with blockchain technology. But 99% of investors are so distracted with bitcoin that they’re missing the bigger picture.
You don’t have to be one of them.
I’ve uncovered three ways to profit safely from the blockchain explosion without ever downloading a digital wallet or logging onto a cryptocurrency exchange. Click here to see how.