Between the time I draft this month’s Iconic Insider (Wednesday the 25th) and this issue date, Bitcoin may have hit a new all-time high! How exciting is that? The crypto industry hasn’t been this exciting since late 2017. The hype, the intrigue, the promise of a decentralized financial future feels eerily reminiscent of the tear Bitcoin and other crypto went on during the ICO craze.
Yet, 2020 feels almost entirely different. 2017’s pump to Bitcoin’s $20,000 price was largely driven by speculative retail interest, particularly due to new entrants FOMO’ing into Bitcoin, Ether, and ICOs. The pump effect was compounded by poor infrastructural rails and participants, leading to relatively low liquidity for nearly all crypto assets. In 2020 the infrastructure problems have largely been solved, paving the way not just for retail speculators, but the likes of PayPal, MicroStrategy, and genuine financial institutions to jump in headfirst.
Earlier this year, I predicted that 2020 was the Perfect Storm for Bitcoin. Given the May halving event, coupled with endless money printing of governments to combat COVID, I hypothesized that Bitcoin would become a safe haven asset, akin to gold, given fears of inflation and risks from other macroeconomic forces. While I was correct, I should have been bolder and predicted that Bitcoin would not only further position itself as a digital store of value but would begin to position itself as the world’s most trusted form of money. Given the very hard nature of Bitcoin and the increasing awareness institutions and the general public have of money printing, this does not come as a surprise. Frankly, the Dollar is more at risk of going to zero than Bitcoin is today.
The heightened focus on Bitcoin has seemingly pulled the rest of the crypto market up as well. Major altcoins have realized massive gains, and you certainly know it is alt-season when the XRP Army begins to resurface. Some of the gains, such as with Ethereum, seem to be driven by software upgrades such as the launch of ETH 2.0, meanwhile others appear to be piggybacking off the hype of Bitcoin. Just this week, Iconic itself has realized a gain of about 170% on its position in Stellar (XLM), and we have seen indices our investment products track double or even triple YTD.
One of the most important defining principles of Portfolio Theory Management is diversification. Even in a nascent industry like crypto, the importance of diversification cannot be understated, is evidenced by the most recent month of crypto asset performances. My colleague recently covered this in an article where he noted the different value drivers of crypto assets lead to different investment performance results and are less correlated to Bitcoin’s performance than originally thought.
While crypto may seem hotter than ever, it is still worth noting that the industry is still very early stage and subject to wild swings of volatility. Any newcomers should really educate themselves, do their own research, and try their best to understand just what it is they are investing into. At Iconic, we issue weekly thought pieces as well as quarterly empirical studies to help drive education, and we are always available to answer any questions you may have. No question is a stupid question, especially when it is about crypto (I was even asked by a close friend what it means when I reference 15, 16, and 20K in terms of Bitcoin just last week). Once you are as convinced of crypto’s future as I am, you can even learn of the various ways to invest yourself.
I cannot believe an entire year has nearly passed already. While this will be my last Iconic Insider of 2020, I look forward to the next one after the holiday season where I will reflect back on 2020 as well as share some insights on what 2021 has in store for Iconic and crypto. I wish you all a happy and safe holiday season and will see you again in the new year!
- Debunking 9 Bitcoin Myths
- Correlations in Portfolio Theory
- Crypto Assets In A Portfolio Theory Context
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