Is The Crypto Market Maturing? An Analysis For Entrepreneurs

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By Tyler Gallagher, CEO and founder of Regal Assets, an international alternative assets firm with offices in Beverly Hills, Toronto, London and Dubai.

Bitcoin — and the cryptocurrency market as a whole — has gone through several periods of sudden popularity and, indeed, media frenzy, before crashing back down to reality. Although the charts would indicate that today we’re seeing another speculative bubble ready to pop, this time really does feel different. 

While the jury’s still out on the NFT craze — which saw over $220 million in sales in March alone — there’s no denying the longevity and stability of the latest crypto bull run. Unlike before, today’s crypto market is being propelled by institutional adoption and big money entering the field rather than retail investors piling in out of FOMO. 

As an entrepreneur, it’s important that you keep your ear to the grindstone regarding the crypto market. Not only is it an option for diversifying your personal or business investments, but it’s also becoming an increasingly safe industry for starting a business. 

In this article, I’ll bring you up to speed on why, as an investment professional, I think cryptocurrencies are here to stay this time around. (Disclosure: I hold investments in a variety of cryptocurrencies — however, my analysis is sourced by independent and objective reports and industry news.)

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Cryptomania: What Happened?

Since autumn 2020, the cryptocurrency market has seen a near-continuous bull run that’s seen Bitcoin rocket in value from $10,645 on October 7, 2020, to an all-time high of $63,346 on April 15, 2021. That represents a gain of about +600% in just a six-month span. 

Bitcoin wasn’t the only asset of its class to catch the interest of investors. In the seven-month period between October 7, 2020, and May 7, 2021, the crypto market saw the following successes:

• Zcash (ZEC): +480%  

• Chainlink (LINK): +557%

• Ripple (XRP): +660% 

• Litecoin (LTC): +770%  

• Ethereum (ETH): +1,025%

The altcoins listed above have multi-billion dollar market caps, and yet we’ve seen sustained (though at times volatile) growth over the last couple of quarters. And that’s to say nothing of Dogecoin (DOGE), whose meme appeal has catapulted it off the charts

Why The Sudden Resurgence Of Cryptocurrency? 

Last fall, Bitcoin once again caught investors’ interest, but not the same investors as last time. Individual retail investors drove the 2017-2018 Bitcoin bubble. This time, institutional investors, endowments, hedge funds and private corporations are investing in digital assets.

Payment settlement company Square invested $50 million in Bitcoin in October 2020 (still, only 1% of its total assets). Around the same time, famed hedge fund manager Paul Tudor Jones signaled his support for the digital asset. In March, PayPal started accepting Bitcoin as a payment option for their 25 million+ vendors.

Traditional financial institutions, which largely ignored or derided Bitcoin in 2017, are now taking the asset more seriously. Goldman Sachs recently announced that Bitcoin will soon be on offer to clients in their wealth management division. Morgan Stanley made a similar announcement only a month prior. Even Fidelity Investments has filed with the SEC to start their own actively managed cryptocurrency ETF.

In the crypto market, a rising tide lifts all ships. When Bitcoin rallies due to widespread institutional adoption, the rest of the altcoin market tends to follow suit. We’ve seen this since October, when the initial wave of institutional support carried over to not only Bitcoin but also Litecoin, Ethereum, Ripple and several other coins.

The Liquidity Difference

A recent Chainalysis report confirmed what myself and many analysts in the field had previously assumed: Bitcoin demand is being driven by highly illiquid accounts. Right now, 77% of all 14.8 million mined Bitcoin is held in illiquid wallets (i.e., those that send less than one-quarter of the Bitcoin they’ve received). This comprises a much larger relative share of the total circulating Bitcoin than in 2017-2018.

This is a strong bullish signal for Bitcoin because it signifies that the cryptocurrency is being held by more resilient long-term value investors rather than traders. Value investors are more likely to weather the storm than sell off their assets during a period of negative price movement.

The Macro Difference

In 2017, none of us could’ve predicted the economic conditions we’d be living through today. The Covid-19 pandemic and the subsequent financial market activity and monetary policies are novel. As such, they have pushed a sizable segment of the investing public to alternative assets like Bitcoin as a safe store of value uncorrelated to the equities market.

Whether Bitcoin will continue to serve as a reliable hedge against macroeconomic uncertainty is still up for debate. If it fails, however, it won’t just be small-time holders and retail investors absorbing the losses — it’ll also be hedge funds, investment firms and tech companies. There’s more at stake this time and also more stabilizing forces at play.

Bitcoin 2021: The Maturation Of A New Hedge

History can always repeat itself. Although it’s unlikely that we’ll see another repeat of 2017 and 2013, there’s no predicting what the future holds for an asset class that’s still in its infancy. Nonetheless, the novelty of the Covid-19 impact, the illiquidity of the Bitcoin market and the unprecedented levels of institutional adoption have changed the landscape.

As an entrepreneur, it’s crucial that you stay abreast of the crypto market. And today, the whales are holding, not trading. This portends good things for Bitcoin and the digital asset market as a whole, and for entrepreneurs. Today’s economic environment for business owners is difficult — cryptocurrency, however, might be a suitable solution to diversify your investment portfolio to retain more of your wealth through a downturn.

In years past, there was reason to believe that Bitcoin existed purely within a speculative bubble. As such, it was too risky of an investment decision for many cautious entrepreneurs. These days, economic and market conditions tell a different story, and entrepreneurs should have much stronger confidence in the utility and longevity of the crypto market.