Bitcoin market drivers, perceptions

Bitcoin market drivers, perceptions

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Flaubert famously wrote “There is no truth. There is only perception.” Washington, DC politics aside, there’s no better description of the bitcoin and cryptocurrency market today.

Let’s revisit bitcoin market perceptions to see if we can extract some truth about where bitcoin is headed in the next six months.

Pantera Capital’s market perceptions


Dan Morehead, CEO of Pantera Capital, offers some interesting perspectives in the fund manager’s recent newsletter. First, with US tax season over, Morehead believes the downward price pressure is over for bitcoin because people have finished some selling of cryptocurrency and paid their taxes on cryptocurrency capital gains for 2017.

He provides a comparison of cryptocurrency market growth from November 2014 to April 2018 with several indicators that make up part of the Pantera Bitindex.

Pantera Bitindex Constituents

Where bitcoin’s boomed


Bitcoin’s price grew from $375 to $8,163 by April 2018 an increase of 2,076%. User adoption by the number of digital wallets grew from 2.6 million to 24.5 million wallets, an increase of 845%.

Morehead notes that an important factor for market and price growth – transaction volume – has only doubled. It’s a key factor that limits adoption and use because bitcoin is unable to scale to reach the transaction volume of legacy systems today.

Bitcoin’s dominance of the market trading volume has decreased from 85% to roughly 30% in the past five years, partly due to the growth of cryptocurrencies and tokens from 529 in 2014 to nearly 1,600 in 2018.

Institutional investors ahead


Morehead’s final arguments are compelling. Watch for the impact of institutional investors.

“Blockchain is the first half-a-trillion dollar market that nobody owns. Almost all institutions have zero exposure to a $0.5 trillion market. That is Just mind-blowing. I think that’s going to change in the next, say, 12 to 18 months.”

cryptocurrency bullsThe impact of institutional investors is already starting to shape up as Goldman Sachs, CBOE, CME and even NASDAQ are taking steps to open up cryptocurrency markets.

As we noted in a recent post, hedge funds are also growing quickly. a record 107 cryptocurrency hedge funds launched in 2017 and more than 100 are expected to launch in 2018.

Final bitcoin barriers to growth


There are two remaining areas of uncertainty – regulations and custody – and they’re connected. Morehead writes:

“The one box we couldn’t check, SEC-regulated custodian. That’s the one box you still can’t check five years later. There have been big firms like State Street that have announced they intend to do custody of crypto. When that happens that’s literally the last box checked. My advice is the adage on Wall Street, “Buy the rumor, sell the fact”. When the CBOE and CME announced futures the price tripled, when they launched futures it didn’t do anything. When some big custodian announces they’re doing crypto custody the price is gonna, I think, go up more than triple.”

cryptocurrency custodyAs the SEC and other global regulators weigh the need for strict regulations, the industry is charging ahead despite the regulatory clouds overhead.

In Techcrunch, Ouriel Ohayon writes “Custody for cryptos has to be improved; the industry will not grow without it. We need better security — which involves both solution providers and platforms — more convenience and a better approach to safety. This is actually something that prevents institutional money from being poured in the industry and of course if you are a company raising hundreds of millions of dollars in crypto money for an ICO, custody is an even bigger issue (right Kodak?).”

Morehead’s cryptocurrency investment perspectives are always valuable. We’ll be watching to see if his predictions pay off in the next several months.

Author: Jeff Domansky, Managing Editor

Visuals: chart via Pantera Capital; graphic via Techcrunch