The current prices of many cryptocurrencies, including Bitcoin, are at levels similar to what we saw in early November 2017, prior to the incredibly aggressive bull market in the latter part of last year. $APEX Token Fund sees this pull back as part of the normalisation from an outlying and momentarily unsustainable growth curve; and healthy support levels are now being observed.
There will no doubt be ups and downs, but blockchain as a core technology is here to stay along with the token investment vehicles it enables. As this technology develops, it is likely that there will be increased differentiation between cryptocurrencies.
ERC 721s, or non-fungible tokens, will emerge as incredibly important as blockchain technology continues to become fully integrated into traditional processes and markets. As the worlds of traditional and digital asset management continue to collide, non-fungibility is the key to establishing cryptocurrencies as a mainstream asset.
Ultimately, $APEX Token Fund believes cryptocurrencies are in a bull market – but that the upward curve will be jagged one.
1. Corrections are key to the asset class maturing
It is only through corrections that businesses like Amazon and Google of cryptocurrencies appear. Sell-offs are important as they reveal those investment products which are badly structured and those which can whether volatility and will help to build a valuable, lasting and useful tool in global infrastructure.
Weaker projects and investment managers will not be able to survive during lean times that test their true mettle. The tech underpinning cryptocurrencies is real, the marketing is not. A low tide reveals this distinction and lays bare the foundation (or lack thereof) of a project.
2. Investors can protect themselves against volatility in this high-risk asset class
2017 was a year of immense value discovery (and value capture for most), subsequent years very well may spell a different story. As the market continues to grow and become more complex as differentiation of assets starts to be priced in, the best way for retail investors to navigate the market is to invest in professionally-managed investment vehicles, which mitigate and diversify risk, rather than taking the risk on a single unhedged currency. A core component of a maturing asset class is the emergence of products which give investors better risk-adjusted access. This is happening.
3. Institutional investors still watching from the sidelines but ready to make a move
Institutional investors are coming to the conclusion that they may never need to fully understand cryptocurrencies as an asset class. As long as lower risk, more diversified vehicles exist to invest in the class – via fund of funds, hedge funds and other more traditional investment products for example – institutions will be able to view cryptocurrencies an asset which is simply uncorrelated within the context of the rest of their portfolio.
The underlying riskiness of the asset class should, and will, be a consideration to institutional investors. Frankly at this nascent stage, many crypto project profiles resemble traditional Venture Capital profiles. Institutional investors understand this and are investigating investments in the space accordingly. This approach enables exposure to the asset class but also allows these investors to continue their investigation into the space.
Meanwhile, valuation models, trading models, and the such will evolve to help them choose the best investment solutions. Institutions will be able to observe all of this activity with a front row seat while still having meaningful, well thought out exposure.
4. Bans are likely to be temporary rather than permanent
Banning does not carry with it the stigma that certain market observers might suggest. The reality is that if an entity does not feel comfortable with exposure to these assets, be that a bank, social network, or government, then it is right that they don’t promote it to their customers. Banning is simply a “pause” button as organisations tease out better ways to regulate an asset that they are in the process of understanding. We expect to see some of the bans last year lifted as jurisdictions with a heavier hand implement meaningful regulations.
The US congress is seriously investigating the relevance and potential of crypto technology. There is no doubt that the government sees its massive possibilities, but there is a journey that must be undertaken towards deeper understanding. Regulation is good – very good. We need to define what competitive advantage and innovation look like in this space – we see regulation as a meaningful step to that end.
The same is true on a global scale. China and South Korea have already made steps to crack down on crypto exchanges and other Asian countries will follow in their footsteps. Most of the region is waiting to see how China comes back to the table with regulations on cryptocurrencies and then will likely make similar recommendations for their own countries.
For every country that wants to ban the trading of this asset class, there are many jurisdictions that welcome the innovation; Zug and Puerto Rico are two recent examples, and even the US state of Wyoming is jumping into the mix.
5. The “mobile-first” mentality, particularly in Asia, will propel crypto investment
The issue with adoption is understanding the “value stack” – where cryptocurrencies fit in relation to all other means of exchange. Asia Pacific has gone mobile first and is better positioned to adopt all aspects of new technology that satiate a mobile first lifestyle. Cryptocurrency trading is an extension of the concept of virtual banking. Mobile first communities understand this implicitly.
Cryptocurrencies and technologies to watch
• BTC: the cryptocurrency to which investors gravitate first, has the largest network effect and most robust community.
• XLM: has the ability to scale much better than any other protocol currently available.
• ZRX: the most promising decentralised exchange token.