Do you really dare to stand completely outside the crypto wave?

Do you really dare to stand completely outside the crypto wave?

06 August 2020 from Mikael Syding

Now we have the reward halving for Bitcoin a few months behind us. It was on May 12 that the reward for bitcoin miners was halved for the third time since Bitcoin was created in 2008. Since then, you only get half as much Bitcoin for your work as "mines", which means that if it is worth the time, the energy cost and the risks, the price per Bitcoin must all else equal be twice as high as before the halving. The last time a halving was carried out, after 2016, the dollar price of Bitcoin rose from below $ 1,000 to about $ 20,000. But remember that it took almost a year before the rise took off in earnest. Now it has only been almost 3 months.

This time, the price has been around 9,000 USD over the past year, which has given the digital gold diggers a reasonable profit margin of maybe 25%. After the recent price increase to almost 12,000 USD, most do not even go up evenly because the reward in the number of coins has been halved. Of course, there is no economic law that says that it must be profitable to mine, but there is a logic that if this phenomenon is to remain, then the price would approach the previous high of 19 783 USD / BTC. Then the diggers get a decent profit margin again. Just like last time, buyers have initially been hesitant after halving. This may be due to the dumping of coins that were hoarded before halving in the hope of a rapidly rising price, but now the price is finally about to break through technical key levels. After that, it can go up quickly. Cryptocurrency investors have previously shown that when the fear of being outside well-defeated concerns about losses pushes the price upwards far beyond what is required for profitability for mining farmers.

Bitcoin Stock To Flow Model

Source: PlanB 100TrillionUSD

This Bitcoin valuation model seems to point to prices around 100 kUSD / BTC. However, the outcome range is of course very wide.

There is much to suggest stronger cryptocurrencies. Bitcoin, Ether and a few others at the top continue to expand and build into the structure of society. Money pressure and talk of negative interest rates (which is only possible in a cash-free society) both increase the money supply and reduce confidence in authorities. As a result, more and more people are gradually diversifying away from government money and bank accounts to other places of refuge such as real estate, equities, gold and even increasingly cryptocurrencies such as Bitcoin, Ether, Ripple, Tether and Bitcoin Cash to name a few.

It is beginning to blow up into a perfect storm in favor of cryptocurrencies, although many still believe that it is easy to legislate away civic initiatives such as precious metals and cryptocurrencies. When enough people manage their finances among themselves, with their own payment system, accounts, loans, digital, smart contracts, etc., the state's money is not needed - not even for tax because the state cannot see the transactions. Companies can buy their inputs with crypto, pay salaries with crypto, and their employees buy their groceries with crypto and save and invest completely inside the crypto world without ever touching fiat money. The cryptocurrencies take their ant steps forward for each slip from the authorities but never any steps backwards in terms of infrastructure. Over time, cryptocurrencies can become a power factor at the same level as, for example, gold.

Bitcoin

Source: Coindesk.com
Past performance is not a reliable indicator of future results.

A simple comparison with gold can show the potential, and perhaps explain what it is that drives the extremely intense upswing phases that not least Bitcoin has shown a handful of times on its way to the decade's best performing asset class of the decade 2010-2019.

The value of all gold mined amounts to approximately USD 10,000 billion. The value of the five largest cryptocurrencies amounts to less than USD 300 billion, of which just over SEK 200 billion consists of Bitcoin alone and just under SEK 50 billion of the second Ether.

Sometimes people talk about financial bandwidth, ie how large values can be moved with a certain number of transactions and a certain average size per transaction. The value of cryptocurrencies must be increased to many thousands of billions of dollars in order to be used for a significant proportion of the world's economic transactions. Admittedly, gold is less liquid than cryptocurrencies, and therefore requires a greater market value in order to be able to transport equivalent values as liquid cryptocurrencies. But gold can in practice be made liquid by being used as collateral in other transactions, so the comparison is nevertheless relevant.

Ether has risen even more sharply than Bitcoin lately

Source: Coindesk.com
Past performance is not a reliable indicator of future results.

If crypto and gold are to have the same market value of $ 10,000 billion, there could be an upside of 35x for cryptocurrencies. And that is without counting on a higher gold price (which would probably be given all the money pressure). Do you want to stand outside the cryptosphere, or can it be smart to have a few percent of the portfolio in a basket of the largest cryptocurrencies? Check out Vontobel's offering in the crypto universe. It looks like the cryptocurrency rally has just begun.

@Mikael Syding

Important legal information

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

04/12/2020 21:07:23

 

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