The stability of the crypto market is linked to innovation

The stability of the crypto market is linked to innovation

04 October 2021 from Mikael Syding

Many people seem surprised that the price of Bitcoin these days is as high as 48,000 USD, only 26 percent below the euphoric peak in April and 10-11% below the peak in September. Given how much cryptocurrencies typically fluctuate, it is rather just to be considered a small breather - especially in light of other market turbulence and political statements from e.g. China and Europe. Not even Evergrande's collapse and suspicions that the USD-linked currency Tether, which in turn acts as a kind of support buyer of Bitcoin, would be heavily invested in soon worthless corporate bonds, managed to lower the Bitcoin price more than one might expect from its normal volatility.

When the price briefly fell below $ 29,000 in June, permanent cryptocurrencies predictably came out of their minds to explain why the game was over for decentralized digital assets. But just a couple of months later, bitcoin had rebounced at the same time as digital collectibles, NFTs, were crowded in the first place in old media such as newspapers and television. The fact that a previously so esoteric phenomenon as Non Fungible Tokens could attract a massive buying interest could be a clear sign that investors have not had enough. Simply put, there is still a lot of excess liquidity that is not content with a life without returns.

Some of the most notable NFTs were simply digital images with blockchain-certified authenticity. This is what some NFTs looked like:

Regardless of what you yourself think about the quality and durability of the products, or the value of owning a genuine original instead of the free copies above, the NFT market quickly became worth several billion dollars. Thus, it seems to constitute another significant area of use for cryptocurrencies.

Each new "use case" of course means an impulse for the Bitcoin price. For every new company that invests its cash in Bitcoin instead of SEK like Goobit or USD like MicroStrategy and Tesla, for every new insurance company that invests a portion of paid insurance premiums in Bitcoin, for every new crypto fund and crypto-ETF that is formed, it decreases practical market availability of Bitcoin. At the same time, the new formation (mining) falls according to a predetermined algorithm. Also, not to forget the possibility that more countries expressed interest (for example Venezuela and Argentina) following in El Salvador's footsteps and introducing Bitcoin as a legal currency, although these are all at the lower end when it comes to financial stability. I have a hard time imagining how this train can be stopped. Almost all FIAT currencies have the same problem with unsustainable debt mountains and low confidence, so options for transactions and safekeeping are in high demand.

The two major cryptocurrencies Bitcoin and Ether do not really behave like tulip bulbs or dotcom stocks so far, despite their volatility probably even being higher than in tulip and stock prices years ago. Instead, their resilience to both politicians and the financial market was repeatedly demonstrated. This confirms my conclusion that the cryptocurrencies are here to stay. They are simply needed. Just like gold coins were once needed. And banknotes were in demand. Now users want a different type of money, money they have control over themselves, money without the uncontrolled inflation that FIAT currencies exhibit. Even the USD, the best currency in history, has fallen to one hundredth of its value in a hundred years. In the past, an apple cost a cent, today a dollar. Instead of a hundred apples, you only get one, ie in practice the dollar has become completely useless in the meantime.

At the time of writing on the afternoon of October 1, ETH is trading at $ 3,223 and BTC at $ 47,300. In the case of Bitcoin, it is clearly above the minimum level ten days ago, which means clear outperformance of OMX Stockholm 30 which fell during the same period. This is another sign of the underlying strength of the crypto market, and of mistrust of central banks. The central bankers could soon start the extra turbo in the digital banknote presses again if the stock index falls a few percent more.

Innovations that protect against centrally planned erosion of purchasing power are therefore likely to have continued demand. And there is hardly an end to the ingenuity and uses of cryptocurrencies. Politicians and other equally inexperienced people are typically 5-10 years behind the curve, and behave as if neither El Salvador nor bored monkeys existed. Still, one can expect that increased regulation or even bans (China), politics and other factors will continue to cause sharp corrections in cryptocurrencies in the future.

Bored Ape Yacht Club NFT: $ 2.9 Million (September 9)

Eric Wall, an internationally recognized crypto expert, notorious twitterer and manager of a crypto fund for listed Arcane, developed his thoughts on ORBs for me at a private meeting a few weeks ago. Walls ORB idea is an NFT that consists of an actual asset, a smart contract as an underlying value which gives the holder of the ORB the right to e.g. an hour's consultation, a performance, a work of art or similar from the ORB exhibitor. The idea is that instead of speculating that someone else will want to buy the original right to an unusable image on, for example, a computer-generated image of a bored monkey (in a series of ten thousand), to demonstrate their taste and wealth, so you should be able to buy the right to a talent's future creation.

Imagine discovering K-pop artists like Jennie Kim or Chou Tzu-yu at an early stage, and buying a few ORB hours of performance from them as they fund the start of your career! Many of us have favorite artists, actors, athletes or maybe even lawyers, investors, consultants, where we are convinced that they will make a big impact in the future. Maybe even a classmate who can not afford tennis college in the United States. If you can buy a few hours today and exchange them in the future, the monetary increase in value, or the perceived benefit, can be enormous. SEK 300 today for a VIP ticket to the Wimbledon final in 10 years!

But above all, one can speculate in and trade the possibility that the contract rises in value. Buying a "consulting hour" from a kitsch artist today for SEK 300 with the possibility that it is worth SEK 3,000 (or SEK 30,000) in the future may sound more like charity than an investment but the opportunity to speculate in value development, not to mention that be able to show off their “inventory” (a computer game term for one's fortune and stockpiles of powers, sorcery, tools and weapons) of ORBs for social status, could have the potential to become a huge market.

The GIG economy (a labour market characterised by short-term contracts and freelance work rather than permanent jobs) with many different sources of income without a central employer is already commonplace for many. With increased digitalization, teleworking, self-employment, decentralized currencies such as Bitcoin, and not least incipient steps into digital worlds, multiverses, even digital persona including inventory is becoming increasingly interesting to define who you are and what value you can contribute. The development has accelerated in connection with the covid pandemic's tolerance for teleworking. During the Covid measures, it suddenly began to feel completely normal to work alone from home or hire someone who did it. As in a true meritocracy, what was produced was more important than the number of hours spent in a common office.

Marrying these two themes into a GIG-a-ORB could drive the demand for cryptocurrencies significantly, and this is unlikely to be the last use case. We are only at the beginning of the transition to a digital economy where most of the value-creating activity takes place in an virtual metaverse. Some say this could be ecologically sustainable, others fear just the opposite – sustainability risks arising from increased use of cryptocurrencies due to the extreme power demand for mining for example. Whatever the outcome is, own responsibility, own money, decentralization, GIG structure and ORB holdings could in that scenario raise the need for the cryptocurrencies' economic bandwidth both one and two orders of magnitude. Who knows.

@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 capital protected, 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.

03/12/2021 02:52:03

 

Write a Comment

 

  

 

  

 

* Required fields need to be filled in