Beyond Bulls & Bears


Quick Thoughts: Cryptocurrency Fascination

Our Chief Market Strategist Stephen Dover believes cryptocurrency (crypto) is evolving into its next cycle of innovation. As an integral foundation for an alternative financial and internet ecosystem, crypto’s disruptions, opportunities, risks, and long-term implications are worth watching.

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Cryptocurrency (crypto) is one of the most fascinating financial trends in recent history as its technological breakthroughs facilitate the digitalisation of value. Recently, Anthony Hardy, CFA, an analyst for the Franklin Equity Group, and I discussed the crypto ecosystem, its smashing the US$1 trillion market capitalization threshold in just over a decade,1 its boom-and-bust cycles, and how it may transform the internet and some of the largest money and financial markets in the world.

  • With the largest crypto market cap, bitcoin’s key “store of value” characteristics include scarcity, fungibility, divisibility, and portability. Bitcoin could potentially serve as a hedge against inflation and currency devaluation, earning its moniker as “digital gold”. Unlike physical gold, bitcoin is natively digital.
  • There is a fixed supply to bitcoin, in contrast to fiat currencies where supply can be influenced by central bank actions. Relative to fiat currencies though, crypto currently has limited use as a means of exchange. That is quickly starting to change.
  • As crypto infrastructure advances to its next cycle of innovation, fintech apps, asset managers, exchanges, payment systems, and institutional investors will likely continue to support and launch crypto tools and investments, adding macro, technology, and ecosystem drivers that may increase the use of cryptos.
  • Companies involved in the crypto industry (currently most are private), may create significant value for investors willing to invest long term in the emerging crypto ecosystem.
  • The bullish crypto view is that we are likely witnessing the birth of a new financial and internet ecosystem. The bearish view is that it may be a massive bubble fraught with risks. The range of potential long-term outcomes for cryptos are extremely wide, but whatever the outcome, the foundation for an alternative financial and internet ecosystem is being set.
  • At current prices, bitcoin is trading at about US$48,000 per coin, up from about US$10,000 one year ago. Hypothetically, if we were to see a similar percentage increase again this year, and if each bitcoin was worth US$200,000, then likely over half of the world’s billionaires would likely be from crypto.2

As our fascination continues, we will delve into insights involving crypto’s disruptions, opportunities, risks, and long-term implications.


What Are the Risks?

All investments involve risks, including the possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. The technology industry can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants as well as general economic conditions. Buying
and using blockchain-enabled digital currency carries risks, including the loss of principal. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk. Among other risks, interactions with companies claiming to offer cryptocurrency payment platforms or other cryptocurrency-related products and services may expose users to fraud. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. Investing in cryptocurrencies and ICOs is highly speculative and an investor can lose the entire amount of their investment. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.

Important Legal Information

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. All investments involve risks, including possible loss of principal.

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1. Source: CoinMarketCap.

2. Source: The Coinbase Blog, “What will happen to cryptocurrency in the 2020s,” by Brian Armstrong, 3 January 2020.


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