Below Finance Monthly hears from Brian G. Sewell, Founder of Rockwell Trades, on the prospects of cryptocurrencies moving forward. Brian argues that cryptocurrency is still in the run for driving the future of commerce.
I would rather see the SEC make a methodical decision, with thoughtful guidelines, to approve a cryptocurrency ETF than a rash decision to reject one. And though the agency may not reach a final decision until next year on the proposed SolidX Bitcoin Shares ETF, I think the agency will eventually approve it. The proposal (requiring a minimum investment of 25 bitcoins, or $165,000, assuming a BTC price of $6,500) seems to meet the SEC's criteria -- on valuation, liquidity, fraud protection/custody, and potential manipulation.
Cryptocurrency’s Challenges and Potential
Since 2010, when it emerged as the first legitimate cryptocurrency, bitcoin has been declared “dead” by pundits over 300 times. Critics have cited the cryptocurrency’s hair-raising price volatility, it’s scalability challenges, or the improbability of a central bank ceding monetary control to a piece of pre-set software code. Yet since 2009, bitcoin has facilitated over 300 million consumer payment transactions, while hundreds of other cryptocurrencies have emerged, promising to disrupt a host of industries. Granted, no more than 3.5% of households worldwide have adopted cryptocurrency as a payment method. But I think cryptocurrency will transform how the world does business as developers, regulators, and demographics resolve the following key issues:
Data underscores the receptiveness of Developing World consumers to cryptocurrency. The Asia Pacific region has the highest proportion of global users of cryptocurrency as a transaction medium (38%), followed by Europe (27%), North America (17%), Latin America (14%), and Africa/The Middle East (4%), according to a University of Cambridge estimate. Although the study’s authors caution that their figures may underestimate North American cryptocurrency usage, they cite additional data suggesting that cryptocurrency transaction volume is growing disproportionately in developing regions, especially in:
Demographics will also likely drive cryptocurrency adoption in the Developing World, home to 90% of the global population under age 30.
Remember The Internet - Investment Bubbles and Bursts Will Identify The Winners
High volatility is inherent in the investment value of this nascent technology, due to factors including technological setbacks and breakthroughs, the impact of pundits, the uneven pace of adoption, and regulatory uncertainty. Bitcoin, for example, generated a four-year annualized return as of January 31st 2018 up 393.8%, a one-year 2017 performance up 1,318% -- and year-to-date, a return of down over 50%. Bitcoin has previously experienced even larger percentage drops before resuming an upward trajectory.
In my view, bitcoin and other cryptocurrencies will experience many more bubbles and bursts, in part, fueled by speculators. But the bursting of an investment bubble may signal both a crash and the dawn of a new era. While irrational investments in internet technology in the 1990’s fueled the dotcom bust, some well-run companies survived and led the next phase of the internet revolution. Similarly, I believe a small group of cryptocurrencies and other blockchain applications, including bitcoin, will become integrated into our daily lives, both behind the scenes and in daily commerce.
Although “irrational exuberance” will continue to impact the price of cryptocurrencies, this disruptive technology represents not only the future of money, but of how the world will do business.