This will be the first edition of a series I'm going to be writing about different currencies and how they are correlated to one another, in good and bad ways.
Cryptocurrencies are the fastest growing asset class on the face of the Earth. To prove this let's look at some other assets compared to Bitcoin.
These metrics are from mid-late 2021, they aren't perfect, but my point will be made nonetheless. If you had held these assets for 10 years prior to 2021, you would have made these amounts in return.
Gold - (-6%) Loss Bonds - (+35%) S&P 500 - (+344%) Google - (+937%) Apple - (+1,112%) Microsoft - (+1,280%) Amazon - (+1,427%) Netflix - (+2,337) NVIDIA - (+6,053) Tesla - (+15,200%) ...
But Bitcoin? My guy... Bitcoin - (+994,608%)
Point made.
While I won't get into philosophy of how this came to be I'm going to do a deep dive on Bitcoin's number one competitor, Ethereum. While holding the second largest market cap in the crypto space for the entirety of Bitcoin's existence the argument of when or if Ethereum will ever take over Bitcoin has been a fierce debate. Today I'd like to diagnose this idea in depth. While this war has been going on for nearly 15 years now, I'd like to focus my microscope on the last 3 years, the reason being this has been the time period where we've seen the entire landscape of the space change as world scale institutional adoption has taken hold.
First let's talk about price action. When it comes to cryptocurrency, Bitcoin has always been the front runner of the macro market. Cryptocurrency has a very well established macro movement pattern. Typically, Bitcoin will pump, the top 20 alt-coins will follow, then the s**tcoin market moves. This is not always 100% the case, but 9/10 times, it is.
Why is this? Well, much like I explain on my trading channel and to my students who take my course, the market moves due to three factors, fundamental analysis, market sentiment and technical analysis. This is the analytical tools institutions are using to make their decisions on why they'd take a position in cryptocurrency. If you read my previous papers on my global macro perspective on Bitcoin or why I am bearish for all the worlds market environments you'd understand that if you're really trying to understand the macro price movement, you NEED to think like an institution.
Institutional trading is EXTREMELY different from what people like you or I may do. While a trader like myself is largely technical based, also called a growth investor, most institutions are value investors. What does this mean? Let's break this down.
Value investing is a fundamental based practice that looking at variable like what the product or service does, the profits and earnings of the company and the companies balance sheets.
Growth investing is using the full range of analytical skills to generate the highest percentage profit over time.
In the macro space we see amplitudes of institutions and even countries onboarding crypto into their monetary policy. This is a large indication to me that the space is changing. What was once, many years ago, a space of like minded individuals and retail investors has now became a globalized landscape of some of some of the highest net value institutions that exist in the world. This brings to light one my main focuses when analyzing the world markets, market correlation. What we've seen in this last 3 years is the integration of the world economy. This is why you see Bitcoin trading in similar price action to certain U.S. stock market indexes.
These institutions are what is moving the price action right now. Michael Saylor, CEO of Micro Strategies owns roughly 129,000 Bitcoins to date. Retail investors speak for very little bitcoins market cap at this point and like I had mentioned in my article on Bitcoins future, the market is in an extremely critical position, globally. Our market cap was extremely over-leveraged and some claim it still is. Add a monetary tightening cycle into the mix that is trying to combat hyperinflation from the world markets crashing and you have the crash we just witnessed since the end of 2021. Bitcoin moved, then alt-coins, then s**tcoins followed.
How about the future though? We always hear the Ethereum community talk about when the "Flippening" will happen. This is when, or if, Ethereum's market cap becomes larger than Bitcoins. To put simply, because it is a very long discussion to be had with many factors to consider, I don't see this happening in the next 1-5 years and that is my BEST estimate. Bitcoin, however, has a specific tactical advantage against Ethereum when it comes to adoption.
When a company has an advantage over its competitors due to a certain feature it has over others, this is a companies "mote." Let's consider we're talking about countries adopting a cryptocurrency, what are some major things they'd consider? Well, one thing about Ethereum that is completely different than Bitcoin is that it's a company run by people and the creator is from Russia. You could assume, that there are going to be certain countries because of that fact alone that will not consider it as a possibility. We need to remember that, regardless of the advantages Ethereum has technologically or monetarily. Bitcoin is the one true "decentralized" financial network. There is no other coin that works the way Bitcoin does in this sense. This is what makes it so attractive to the global landscape. So when it comes to the potential of Ethereum getting the institutional "bag" over Bitcoin, I don't see this happening over the time period i stated before. At best, it's a long way away.
I still don't believe we're out of the water in the sense of the sell off we've seen this year. It's my prediction we'll continue to move down. With Three Arrows Capital bankrupt, and just today, Celsius filing for bankruptcy I believe this is going to leave an extremely bad taste in the mouths of the investors. As for Ethereum being adopted world wide, this is already largely happening and in this sense it may be a good thing long term. Institutions can get in low to minimize risk, early investors make their fortunes and we all win at the end of the day.
Let's just hope the world doesn't collapse before then, while we're still here, I'm going to be trading these markets. Thanks for reading!
- Watson
I am not a financial advisor and this is not financial advice. This is for educational purposes only. Investing is risky and you should always consult a financial advisor before making financial decisions in your life. Any risk taken is of your own doing and I will not be held accountable for your actions.
Sure, but is cryptocurrency really an asset? Technically yes, since cash is considered an asset. But there is nothing backing it. The only value it has is what the people buying it are willing to pay for it. The rapid growth is simple. People want massive returns and they want them fast. That's why every kid and their mother trades crypto. If ANY sign of weakness ever gets displayed, maybe much tighter regulations such as excessive taxes or literally any other of the hundreds of possibilities. Well, you get where I am going with this. The faster the rise, the faster the crash. If stocks can crash as hard as they do during tough times, imagine what would happen when trading an "asset" that doesn't have anything behind it to determine what it's worth. You have to have balls of steel or an incredible amount of ignorance to even touch crypto. Assuming it's not small amounts of money we are talking about.
WatsonsView
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@jeffmthompson, I think you're very misinformed about the nature of "currency" in its whole. You say crypto it not backed by anything, you obviously don't understand the U.S. Dollar or euro dollar system. I'd highly suggest you study up on your monetary policy. You'll soon find out that there is not a currency on this earth "backed' by something, unless we're talking about hard currencies, like gold. I understand the bias you have towards crypto. Many people share your sentiment. Not many people can trade it successfully, especially retail investors who end up getting wiped out. I don't have balls of steel, I have tried and true short term strategies I display here, completely transparent and practical. My strategies weigh in 60% of the technical data I accrue, 20% of the fundamental data and 10% of sentiment. I then build profitable short term strategies accordingly. You can see the profits I consistently pull. You have a lot to learn about how currency actually works throughout the world. Start studying more!
WatsonsView
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Sorry for the spelling and grammar errors. I wrote this in a rush.
jeffmthompson
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@WatsonsView I read about the top half of your reply because you didn't read what I wrote properly. Maybe try and not scan through it and actually read. I specifically said it technically can be considered an asset because the dollar is. I clearly understand the dollar is not backed by anything and that's why I said it. But we don't invest in the dollar, do we bud? Most people try and get rid of the dollar for real assets. Not exchange like for like. There's no risk with holding a dollar. That's about all its good for. I can't say the same about crypto. The fact that you have to convince me that it's the same as currency enables you to completely dodge everything I wrote that mattered.
WatsonsView
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@jeffmthompson, I didn’t scan through anything I just wanted to clearly state the reality of each point. To say we don’t “invest” in the dollar is completely wrong as well. What is a “World Reserve Currency” well, it’s the majority of our continental networks (investing) in the dollar to create the best ecosystem for our markets to move through. Also, UUP is a etf for the dollar itself. So you’re not right, at all. For you to say there is no risk to holding a dollar is absolutely ridiculous. I truly understand you are not viewing this space correctly, largely. I’m not trying to “convince” you of anything. Just explaining to you the reality of the markets we are both participating in. There’s TONS of risks with holding a dollar. In the last 51 years I could tell you 10-11 times where it wiped investors just as consistently as crypto has been doing to people lately. Please study more.
jeffmthompson
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@WatsonsView, Jesus, you are one of those stubborn people that doesn't have a real legitimate point so you resort to knit picking my words and veering so far off the path that if I engage in the nonsense we'd just end up topic hopping.
WatsonsView
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@jeffmthompson, Can you explain what your point is then? I've answered everyone one of your questions and points. I don't know what you're even talking about at this point. YOU aren't making sense. I'm having my friends read this and they don't know what you're talking about.
jeffmthompson
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@WatsonsView, I am not surprised that it's over your friends heads too. The blind leading the blind. My points are in the entire initial paragraph I wrote to you. You then responded with a nonsensical rant about how the dollar isn't backed by anything as if that had anything to do with what I said. Then you start ranting about the utility of the dollar on a global level. You steered this conversation into no man's land and I am not going to engage in that. You killed it and pushed it further away my friend. Good luck with your crypto investments. Hopefully these digital "assets" that are assigned an arbitrary value by the fools giving them that value with nothing to show for it work out for you bud. 👍🏼 I will stick with investing that allows me to evaluate the worthiness of what I am investing in and not just just hitting the buy button on something that I believe will go up because it did in the past. 😊