Bitcoin futures at the CBOE are trading just above $10,000. I think they will trade below $5000 and probably settle below there by the end of the year. Futures markets have a way of disciplining cash markets. If they add options strikes to the market this year, it will discipline the marketplace more. It doesn’t matter why I think Bitcoin will trade down. It’s not important.
However, I think looking at the true value of cryptocurrency in sum is important. I have seen a lot of things trying to determine how to value it and I don’t think they get to the core heart of the reason crypto is important.
One thing that I got from being a trader in a pit all those years is feeling the heartbeats of a market. Markets are living entities. Some people aren’t cut out for different markets. Each market had its own personality. You could do a couple of dances and decide if you wanted to continue. My own makeup and personality didn’t fit with trading Forex or S&P’s. I liked markets that had spread markets built into them.
Watching the development of bitcoin has been totally fascinating for me. I think I understand it differently than a lot of people because much of it is visceral to me. The trading pit was the original blockchain, we just didn’t know it yet!
What’s important to analyze when you are looking at which crypto might be successful?
First, each blockchain is an experiment. A single blockchain is a hypothesis at this point. Some experiments work and some fail. I don’t think anyone should be penalized for failing when they give it an honest old college try. Clearly, some cryptos are being issued just because they couldn’t raise money any other way. But, some have a real purpose.
Second, there are some assumptions that you have to believe if you think cryptocurrency can change the world. The biggest assumption you have to make is that a free market will allocate capital better than a pick and choose mandated bureaucratic market. Free markets work. The crypto’s that have the best free market principles baked into their blockchains will be more powerful than the ones that are highly restricted. Mandates and restrictions work like price floors and price ceilings and contribute inefficiency to a market. A crypto that has a narrow use will be far less valuable than one that can become broad.
A bit more on that. I think traditional startup metrics apply with the use of crypto. While the issuer might think “you can use it here, you can use it here, you can also use it here” that becomes a Shamwow approach to business. Is there anything it can’t do? I think focusing on a segment that you can dominate is a good strategy with the idea that you can get into other segments once you dominate the first one.
Third, it doesn’t matter what company is issuing the crypto. That crypto has to be core to its mission. It has to have a reason to exist. An addendum to that is that a network will solve the problem more efficiently and in a more sustainable matter than a central database. When a network becomes involved, it ought to solve the problem by making the network bigger. Blockchains that grow and get more users and have higher demand will survive.
For the eye-rollers and naysayers, crypto is here to stay and in the next five years, you will use it in some way. For the true believers and #hodlers, the idea that Bitcoin will trade $100,000 a coin anytime soon is about the same chance that the US will send a mission to Mars in the next two years. You got lucky there was a hype cycle. Now the real work begins. There had to be a reason to #hodler it besides price appreciation.