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This is part two of a comprehensive primer on cryptocurrencies and distributed ledger technology (DLT) that reviews a large sample (over 50 sources) of recent information, from International Monetary Fund (IMF) and Goldman Sachs reports to cryptocurrency “expert” analyses to crypto-industry updates. Combined, both parts provide the user with an interpretive template for application. Part one covered understanding cryptocurrencies, blockchains, and DLT in the context of value, advantages, and returns. The focus in part two is on the risks of investing, an update on the current state of the crypto markets, and how to invest.
The Bedford Park Opportunities Fund returned 13.5% net of all fees and expenses in the second quarter of 2021, bringing its year-to-date return to 27.6%. Q2 2021 hedge fund letters, conferences and more In the fund's second-quarter investor letter, which ValueWalk has been able to review, Jordan Zinberg, the President and CEO of Bedford Read More
As I noted in part one, gold was discovered in California in 1848 leading to the largest land migration the world has ever seen. The next “gold rush” may be under way but the migration is to what Goldman Sachs has called a “new technology of trust.” The “rush” is to digital currencies, such as Bitcoin, Ethereum, Litecoin, and others, that have exchange value with fiat currencies and that are based on the technology of blockchain. However, it is not primarily the currencies but rather the blockchain and DLT that may end up transforming financial services and a myriad of industries in the future. The currencies have exchange utility, but are also the digital representation of a future technological revolution on the verge of breaking out.
According to Coinbase, a large crypto exchange, there are currently more than 800 cryptocurrencies worldwide. The top 10, including the three listed above, account for most of the capital. The market capitalization of Bitcoin today is over $40 billion. All cryptocurrencies are valued at over $100 billion. According to Aswath Damodaran, a professor of finance at NYU Stern, one dollar invested in Bitcoin at the beginning of 2012 was worth $1,026 on July 29, 2017. According to Michael Lebowtiz, since Bitcoin started trading in July of 2010 its value has risen over 51,000%. There are those who invested $50,000 in Bitcoin a few years ago who have seen it grow to $2,000,000 today. The two-year gain as of late August 2017 is 1,870%.
According to Ronnie Moas of Standpoint Research, in July of 2017, an investment in select cryptocurrencies could bring returns of 12x within the next decade. A 1,200% gain is a conservative estimate based on 1% of global assets moving into the space.
An analyst writing in Forbes predicts a $619,047 price for Bitcoin in 10 years. Another analyst has a 2027 target of $100,000 for Bitcoin. He predicted in December 2016, when Bitcoin was at $754, that it would hit $2,000. Bitcoin hit that target in May 2017. Moas’ 2027 target on Bitcoin in late July was $50,000 (it was about $3,760 on September 25). That assumes 28% compounded annually for 10 years. His three-year target is $15,000-$20,000. His price target for next year is $7,500.
However, even Moas, one of the recent spokesmen for cryptocurrencies on business channels like CNBC, expresses caution and states there are numerous risks.
What could go wrong?
On risks and what could go wrong
Analysts like Peter Schiff and Jim Rickards believe that cryptocurrencies, Bitcoin especially, are a bubble that will crash. (But, remember, both analysts have also incorrectly predicted a major financial crash repeatedly for years). Mohammed El-Erian, economist and former head of PIMCO, stated recently that cryptocurrencies will never see wide use due to government regulations. Still, he takes the underlying technology seriously.
In the meantime, more than one researcher has noted, “Netscape and AOL shareholders can tell you that early market leadership does not always translate into future market dominance.” At the least, the cryptocurrencies you choose to invest in could be the key to your future gain or loss. It is also possible that one of the lesser known currencies today might dominate the market tomorrow.
By Seaborn Hall, read the full article here.