Crypto Markets

Crypto markets melted down over the weekend.  This morning, they are recovering.  Lots of pundits had various reasons for the plunge ranging from “too much leverage” to “it’s about time this tulip bulb market bursts”.   I don’t know why they broke, but Elon Musk’s comments and China’s action to crack down on Bitcoin certainly didn’t help.

When markets are illiquid, and cryptocurrency markets certainly are despite what advocates say about them, they will move hard on news.  The volatility in crypto shows its illiquidity.  No regulated listed market moves like that.

To be clear, I am not calling for regulation but making the point that crypto is an immature market that is illiquid.

If you are going to put assets in crypto, you better be prepared for a wild ride.  I am hearing that wealth managers at seminars are telling high net worth individuals to put 1%-2% of their assets in crypto.  To me, it sounds like they are just covering their asses.  I don’t think they truly understand the crypto market.  I think they have read some things about it, saw the assets increase in value, got calls from clients about it, and now because it is trendy are telling people to put a small amount of money in it.  If it goes to 0, 1%-2% won’t hurt that much.  They can chalk it up to taking a risk that didn’t work out.

High net worth individuals might be better off putting 1%-2% of their net worth into venture funds instead based on recent fund returns.

I can see both sides of the arguments from tulip bulbs to becoming a valuable piece of transactional finance.  When I first started looking at this a long time ago, I postulated that big corporations would eventually embrace crypto to create walled gardens.  Crypto has the potential to blow up existing walled gardens, and corporates don’t want that.

It’s pretty easy to envision Amazon tokens only being used on Amazon like gift cards are used today.  What about airline miles or loyalty points?  Someday, there might be markets in tokenized loyalty points that look like FOREX markets today.  Facebook has already looked at doing its own currency and took a step back.

In the long term, I think cryptocurrency that actually has a use case will be the most valuable.  I don’t think Bitcoin will be the most valuable crypto in the end.  It was simply first.

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