The crypto market (June 2018)

Because all my businesses are directly or indirectly related to Bitcoin I get questions about the Bitcoin price almost every single day. I probably spend about 20 hours per week reading about cryptocurrencies, blockchain applications, and ICOs. I enjoy talking about it, but most people seem to be mainly interested in the price of Bitcoin and my opinion on the major alt coins.

Bitcoin is extremely volatile and that makes it interesting, at least for me. Having an asset that goes up 1500% in a year and then down 70% within a few months is not for the faint of heart. Understanding why that happens, or at least trying to understand the fundamentals behind Bitcoin, makes it a lot easier not to worry if prices go down a lot.

As most people that follow me on social media know I am extremely bullish about the crypto sector, and especially about Bitcoin. After being overvalued in late 2017 I now believe that Bitcoin is very much undervalued at its current price level. It’s hard to predict short term Bitcoin prices (say over the next 3 months), but long term it’s much easier. I strongly believe that we will see new all time highs, but whether that’s in a couple of months or still 9-12 months from now is much harder to predict.

The main reason why I am so bullish is because I see signs everywhere that the big institutional players (hedge funds and banks like Goldman Sachs) are ready to enter the market. Many of their traders already hold small positions themselves, but the banks are waiting for institutional exchanges and institutional custodians. This will happen over the next couple of months. For one I am involved in one of these exchanges (can’t say more than that right now) and some of the leading players are working on custody solutions themselves (e.g. State Street is rumoured to launch a crypto custody solution this summer).

I believe Bitcoin will lead the way, simply because it’s the most liquid and most secure crypto asset out there. But if you are a trader there are many opportunities in the top 10-15 alt coins as well. Our company First Block Capital has a trading team that trades 24/7 in the major coins and they are making outsized returns. The team does not trade for external investors yet, but they are in the process of setting up a Cayman hedge fund for this.

Another reason why I am so bullish about Bitcoin is because of the Lightning Network. This is a second layer solution on top of the Bitcoin blockchain (and on top of some other blockchains like Litecoin) that will allow for lightning fast transactions for extremely low fees. The Lightning Network has the potential to completely disrupt the payment industry (bye bye credit cards!). Lightning launched a couple of months ago in beta and is growing fast. It is still very hard to use and quite unstable, but the potential is amazing.

First Block Capital has its own Lightning node and we are currently the 6th most connected Lightning node on the Internet. We are also working on payment solutions (3rd layer solutions) using Lightning. It’s fascinating to see what’s happening here and it makes you realize the potential of Bitcoin. We still don’t know if Lightning will see massive adoption, but if it does Bitcoin might go into the hundreds of thousands of dollars per coin.

The current slump in prices is mainly due to the fact that retail has left the market. Most retail investors don’t really understand crypto and just follow the hype. Many got burned badly by buying at inflated prices in Q4 last year and are now worried that Bitcoin may go to zero. To me it’s obvious that won’t happen, but if you only follow mainstream media it’s understandable that people get worried and sell. After the FOMO (“Fear Of Missing Out”) during the bull market people now have the “fear of losing it all”.

That’s one reason why Asia is not driving the market anymore. Korean markets used to make great arbitrage opportunities with Bitcoin prices that were much higher than the ones on Western exchanges, but that is over. It may come back though once the next bull run gets started. Whales are slowly getting back into the market and I think the probability of prices going up is much higher than of prices going down.

There is still a lot price manipulation going on, both in alt coins and in Bitcoin. You can easily see that in the price charts, for example Bitcoin often goes up or down by $100 or more within minutes. But that will change when liquidity goes up again and also because the regulators are taking a closer look at price manipulation.

I tend to stay away from most alt coins, because there are so many scams. There are a few exceptions, especially in some of the large cap coins that have fallen more than Bitcoin. But also a few selected coins with smaller market caps and with great development teams behind them are bargains right now (especially Emercoin ($EMC) is a coin that’s undervalued and has a great potential).

I do not invest in many ICOs, most are still overvalued or are simply get-rich-quick-schemes with inexperienced teams. That may change though, especially when valuations come down and when regulated security tokens will become more widespread. I do believe security tokens are the future of financing companies or projects publicly, it will just take a bit longer before we will get there.

So in general I am still very positive about crypto. I have been a HODLer for the past couple of months but think this is the right moment to start investing (again), especially in Bitcoin and in some large cap coins. Do your homework before you put money into crypto though, it’s still a Wild West out there and it’s easy to get scammed.