This Is Not A Crypto Bear Market.

News across the cryptoverse tends to focus on the year-long bear market, also referred to as the crypto winter. It is true that prices have fallen dramatically and remained depressed and stagnant since the crash of December 2017. But this is not a bear market, nor is it cause for alarm. In fact, it is cause for celebration, because we are on the cusp of a revolution that will transform every aspect of the financial world. This revolution will also present a unique opportunity for those who opt in early to make massive returns on their investment.

Let me explain.

According to Coinmarketcap.com, the total market cap for all cryptocurrencies on December 17, 2017 was more than $587 Billion. Bitcoin alone enjoyed a market cap of more than $320 Billion, which was driven by its $19,140 price, which was astronomical at the time. Within days, however, prices started to tumble, with investors panicking and stop-loss orders kicking in. Throughout 2018 prices continued to decline. Now, in early February 2019, the total market cap is under $114 Billion, less than one-fifth the value of just one year previous. Bitcoin, still the cryptocurrency with the highest market cap, only commands a price of $3,471, which equates to a $60 Billion market cap.

With consistently low prices and essentially negative or no return on investment, why is this not a bear market? Because it isn’t a market at all, at least not in terms of a fully developed market.

For a market to work efficiently, it needs to operate with several criteria:

First, there must be regulatory clarity in which it is clear which government agency has responsibility for regulatory oversight. All participants in the market are also aware of the rules, regulations, and policies that govern a particular market. This is not yet the case for a cryptocurrency market in the United States, nor in most countries, however there is movement in Congress to provide regulatory clarity. Examples are the Token Taxonomy Act (John-Paul Walton provides a good run-down on the act at https://medium.com/ethex-market/the-token-taxonomy-act-and-the-future-of-useful-tokens-59376fee9531) and the Congressional Blockchain Caucus. The need for regulatory clarity, particularly in the US and UK, cannot be overstated as it is a critical foundation piece that Hodor, who you should follow, described in “XRP: By the Numbers.”

Second, it should be easy for investors to move fiat currency into an exchange, conduct trades, and move money out of the exchange. While there are new crypto exchanges appearing on the scene every month, easy to use on-ramps and off-ramps for investors are not commonplace or standardized. Getting into and out of an exchange must become much easier for individual retail investors and institutional investors.

Third, all participants in the marketplace should have access to sufficient information to make informed decisions about their investments. In the securities market, publicly traded companies are required to provide investors and potential investors with specific information on the company’s performance on a regularly scheduled basis. This will come to the crypto market with regulation.

Forth, regulatory clarity will enable Exchange Traded Funds (ETFs), mutual funds, and other investment instruments that can be included in retirement accounts and institutional investment. This will enable a massively larger pool of money to participate in the crypto market. Not surprisingly, this also is entirely dependent on regulatory clarity.

We should ignore price fluctuations.

Although the cryptocurrency “market” does not yet have any of these requisite building blocks, these foundational pieces are being assembled quickly. That is very good news, because as soon as they are in place, the market can take off on what is potentially the steepest and most dramatic growth trajectory of any asset class in history.

In the title, I suggested that we should ignore price fluctuations. I wasn’t just trying to avoid thinking about the currently depressed prices, which can be depressing to any investor. Rather, I believe that the price fluctuations that we’ve seen so far are irrelevant. Why? Because the market is so small right now that price fluctuations are the result of a relatively tiny number of retail investors making speculative investments in a relatively tiny market.

A CNBC article (March 16, 2018) found that fewer than 8% of Americans own cryptocurrency, while a 2017 Gallup poll reported that 54% of Americans own stock. Just imagine if Americans invested in cryptocurrency at the same rate as stocks. Now extrapolate that to the global population and the size of potential investment in cryptocurrency gets massive.

When we think back to the bullish run-up of cryptocurrency of December 2017, that was caused by speculative investment by a tiny fraction of the global population, without any institutional money being invested. When instutional investment is added, which comes with regulatory clarity, the value of investments can grow exponentially.

Even with institutional money coming into the market as investment, this still only accounts for a small fraction of the crypto market’s potential value. The really big growth in value will come from the use of cryptocurrency in transactions. This adoption and use will be based on the utility of each cryptocurrency and the systems in which it is used.

How big can this get? As of October 2017, The Money Project calculated the value of the world’s asset classes as:

- Above-ground gold: $7.7 Trillion

- Global stock markets: $73 Trillion

- Global money supply: $90.4 Trillion

- Global debt: $215 Trillion

- Global real estate: $217 Trillion

- Derivatives Market: $544 Trillion (may be as high as $1.2 Quadrillion)

- TOTAL: $1.14 Quadrillion

One of the unique characteristics of cryptocurrency as an asset class is that it can be used to tokenize all of the other asset classes. We can and will use digital tokens to exchange money, stocks, bonds, real estate, and other assets. Because of the distributed, immutable ledger that is integral to cryptocurrencies, these financial exchanges and associated contracts will be visible and verifiable, which provides a clear record of transactions, ownership, contracts, and so forth.

Will we see this new asset class cannibalize all of the other asset classes through tokenization of the $1 Quadrillion global portfolio of assets? It’s possible, though probably not in the next few years. What I believe is much more likely is that cryptocurrency prices will increase dramatically in 2019–2020 through institutional investment and through the tokenization of a few select markets, such as XRP being used to facilitate retail cross-border payments via RippleNet and interbank transactions via R3’s Corda Settler. I expect that will be followed by sustained growth in the value of cryptocurrencies as an asset class as adoption increases, along with institutional investment as the prices rise.

To view cryptocurrencies in the same way as stocks or bonds is to lose sight of the true potential. After all, this is the first new asset class since the city of Amsterdam issued bonds in 1517 and the Bank of England issued the first national government bonds in 1694. As a new asset class, we aren’t yet conditioned to think about cryptocurrencies in a particular way; they are new, foreign, and for many people, scary. But that is why they are such a potential gold mine of an investment.

And that brings us to my final point: This revolution in cryptocurrencies can present a unique opportunity for those who opt in early to make massive returns on their investment. Once everyone understands and is comfortable with investing in and using cryptos, the opportunity for exponential returns will mostly have passed.

Although the crypto market is still developing and regulation is in its formative stage, there is opportunity for those willing to step out of their comfort zones. Prices are deeply discounted and ripe for investment.

What do you think?

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Disclaimer: I am not a financial advisor, just an enthusiast who is convinced that DLT, blockchain, and other technologies (e.g., Holochain and Hedera Hashgraph) are the future of all financial transactions. Because of this, I am invested in cryptocurrencies, with a focus on Ripple Labs, XRP, Tron’s TRX, and Holochain’s HOT. Now, go away, bears!