Cryptocurrency: Adoption should be investors’ main focus
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By Jonty Sacks & Chris McCormick
The great majority of cryptocurrency spectators are far too focused on the short-term price movement of cryptocurrencies. Their distraction by the volatility of this market has blinded them from the developments and activities within the cryptocurrency ecosystem. These ignorant spectators rely on cryptocurrency volatility as a means of discouraging investment. Consequently, I believe they will miss out on the investment opportunity at this stage and will most likely become late adopters.
Where potential investors should be focusing the majority of their time, is on the activities and adoption rate within this asset class.
Let me offer a few areas of focus:
1) On-chain analysis
Despite the recent selloff in the market, activities within the sector continue to increase. As illustrated in the below chart, over the past 180 days revenue generated by the top 5 industry players (excluding Bitcoin) exceed USD 100 million each, with Ethereum leading the numbers with revenue far surpassing USD 2 billion.
2) Regulation
The introduction of regulations globally is a clear sign that cryptocurrencies are here to stay. Most people haven't realised that the introduction of regulations will result in large financial institutions offering customers access to cryptocurrencies through their existing platforms.
This point shouldn't be overlooked! The introduction of regulations will result in the banking sector unlocking access to this asset class to billions of people, the result of which should see the value of cryptocurrencies significantly increase.
Despite a lack of regulations to date, these developments are already happening. Standard Chartered has positioned itself as a cryptocurrency custodian, Wells Fargo has established a cryptocurrency fund for its wealth clients, Morgan Stanley offers its wealth management clients access to bitcoin assets, and JP Morgan not only offers its clients access to cryptocurrency through its trading desk but also has a major strategy in tokenising US Treasuries and money market funds, and finally, Citibank is taking a slightly different approach in that they are providing a blueprint for organisations that are looking to adopt cryptocurrency payments into their businesses.
There are sound bites in the local market that Binance (one of the world's largest cryptocurrency exchanges) is in the process of finalising a transaction with one of South Africa's largest banks.
For information about Jaltech's Cryptocurrency Basket, click here.
Where are we with regulations?
If one considers the most recent developments locally, the South African Reserve Bank announced that cryptocurrencies will be regulated within the next 12-18 months. Similar developments have been announced in other countries such as the EU, US, UK, Australia, Israel, Singapore, South Korea, Switzerland and many more. Developing nations have also announced moves to regulate – these countries include Colombia, Andorra, Paraguay, and the Bahamas, to name a few.
3) User Adoption
User adoption is a key metric to understanding this asset class's scale and exponential growth. The graph below demonstrates that citizens globally are increasing their exposure to cryptocurrency across multiple jurisdictions. From the sample below, 11 countries have more than 20% of the population who own cryptocurrency, with a further 9 countries close to crossing the 20% threshold. The latest data reflects that the total number of cryptocurrency users exceeds 300 million people worldwide.
Another metric to assess the adoption rate is the number of addresses created (with Bitcoin almost touching the 1 billion mark) as well as the number of transactions on the Ethereum blockchain network. The below graphs reflect these two metrics.
4) Business Adoption
Leading technology companies have been the first to realise the potential of this market, as major tech companies like IBM, Microsoft, Oracle, Intel and others are all in varying phases of using or testing blockchain-based applications in their businesses. From food handling and private equity solutions (IBM) and blockchain-based marine insurance (Microsoft) to becoming part of the Enterprise Ethereum Alliance (Intel), these companies are actively (albeit in the early phase) participating in the blockchain revolution.
Adoption is taking place in the online shopping and retail market too. Users of PayPal can make payments on its platform using cryptocurrency. Shoppers at Whole Foods, Nordstrom, and Office Depot in the US can pay with cryptocurrency when shopping using the Flexa app. Buyers on Amazon are able to make purchases using their Bitcoin through various third-party solutions. Visa has also joined the ranks by rolling out its "bitcoinblack" VIP cryptocurrency credit card, a card offered to its high-net-worth clients that can be used wherever Visa is accepted, giving users a way to spend their cryptocurrency easily.
The above are just a few areas of focus, I have left out areas such as blockchain adoption by businesses (protocols), on-chain payment transaction statistics and the increase in demand for DeFi products (to name a few). But fundamentally, my opinion is that the absence of regulations at this point in time is the biggest opportunity for investors, as once this asset class is globally regulated, prices are most likely going to be much higher than they are today.
Despite the lack of regulation to date, we have seen major adoption taking place across the board in the various market segments that will drive price performance over the coming years. It's realistic to say that with regulations coming and adoption continuing an upward trend, the cryptocurrency market will continue to grow and mature.
For information about Jaltech's Cryptocurrency Basket, click here.
- Jonty Sacks & Chris McCormick – Jaltech Fund Managers
Jaltech offers investors exposure to a basket of cryptocurrencies which is selected and managed by a team of cryptocurrency experts.
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