The Role of Stablecoins in the Crypto Industry 1

The Role of Stablecoins in the Crypto Industry

Digitex
• Dave Reiter
April 27, 2021

During the past decade, several new innovative products have been created in an effort to disrupt the financial services industry. Arguably, the product that has unleashed the most disruption is stablecoins. The first stablecoin was Tether (USDT), officially launched in October 2014.

Immediately upon its introduction to the crypto industry, Tether became incredibly popular and quite useful. Since the release of Tether, over 200 stablecoins have been announced. However, the majority of these coins are still lingering in the phase of research and development (R&D). Additionally, 10% have been discontinued. Currently, 36 stablecoins are in existence with a market capitalization of $75.7 billion. Let’s examine a list of the top 5 stablecoins.

  • Tether (USDT) – $48.7 billion
  • USD Coin (USDC) – $11.3 billion
  • Binance USD (BUSD) – $5.4 billion
  • Dai – (DAI) $3.6 billion
  • TerraUSD (UST) – $1.8 billion

As you can see, Tether is clearly the leader within the stablecoin universe. In fact, Tether’s market capitalization comprises 64% of the entire industry. The top five coins represent 94% of all stablecoins. Essentially, five coins dominate the entire space.

Stablecoins Versus Traditional Cryptocurrencies

Although stablecoins share many of the same features and characteristics of cryptocurrencies, they were designed to solve some of the problems inherently rooted in cryptocurrencies. Let’s discuss the details.

When Satoshi Nakamoto launched the world’s first cryptocurrency on a decentralized ledger in January 2009, Nakamoto could not possibly have forecasted the substantial price appreciation that would transpire during the first decade of its existence. Of course, the cryptocurrency we are referring to is Bitcoin (BTC).

The dramatic increase in the value of BTC in the years following its release was both a benefit and a curse within the global crypto community. Obviously, Bitcoin’s price increase was a huge benefit because a substantial number of investors enjoyed historic rates of return. However, the extraordinary price appreciation was also a major detriment to Bitcoin investors because these price advances also included a great deal of volatility.

Many people in the crypto community were unaware that Nakamoto’s original concept for Bitcoin was a peer-to-peer payment system. In fact, the initial paragraph of the Bitcoin white paper describes “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

As you can clearly see from the white paper, Nakamoto was enamored with the idea of an electronic P2P payment system without the need for a third-party intermediary. From 2009 through 2017, the vast majority of the crypto community supported Nakamoto’s belief that Bitcoin was designed to be a payment system that would ultimately replace Visa, Mastercard, PayPal, and other payment forms as the preferred method for daily transactions.

Following the historic rally in 2017 and subsequent collapse in early-2018, Bitcoiners came to the realization that BTC was much too volatile to be used as a method of payment for daily transactions. Beginning in 2018, the Bitcoin narrative began to change from “method of payment” to “store of value.” Based on the fact that BTC had substantially outperformed gold and all other major asset classes since its inception in 2009, the best use case for Bitcoin going forward was a store of value.

Although the Bitcoin community had successfully changed the BTC narrative in 2018, they still had to deal with the fact that cryptocurrencies were inherently volatile. In order to solve this problem, stablecoins were rolled out on a large-scale basis. Stablecoins are an excellent vehicle for performing day-to-day transactions because they are simplistic, stable, scalable, and secure. Stablecoins fulfilled the role of Nakamoto’s original intent for Bitcoin, which was a peer-to-peer payment system.

Unlike cryptocurrencies, stablecoins are not prone to dramatic price fluctuations because each stablecoin is linked to a fiat currency like the US Dollar or Euro. It is collateralized by the value of the underlying asset. Additionally, each stablecoin is pegged at a 1:1 ratio with the underlying asset. This explains how stablecoins are able to maintain price stability even if other cryptocurrencies are experiencing dramatic volatility.

Types of Stablecoins

Stablecoins can be placed in four different categories. Let’s briefly review each category.

Fiat-collateralized – The vast majority of stablecoins are fiat-collateralized. This means that the stablecoins are backed by fiat currencies like US Dollar, Euro, British Pound and other fiat currencies. As we previously mentioned, stablecoins are linked at a 1:1 ratio with the underlying fiat currency. For each stablecoin in existence, fiat currency is held in a bank account as collateral. When a trader initiates a stablecoin withdrawal, the crypto exchange transfers fiat currency to the trader’s bank account and the corresponding stablecoin is taken out of the trader’s crypto account and removed from circulation.

Commodity-collateralized – As the name implies, commodity-collateralized stablecoins are supported by interchangeable assets such as commodities. The most popular asset in this category is precious metals, specifically gold. In addition to gold, other assets include silver, crude oil and even real estate. The most attractive feature of commodity-collateralized stablecoins is that the owners of these coins hold a tangible asset with real value. This is in stark contrast to other cryptocurrencies, which typically have no tangible value.

Crypto-collateralized – These stablecoins are backed 100% by other cryptocurrencies. Many crypto investors don’t support fiat-collateralized stablecoins because they are linked to the legacy financial services industry through fiat money. Instead, these investors prefer 100% decentralized stablecoins, with all transactions conducted on the blockchain. Even though crypto-collateralized stablecoins are inherently more volatile, there is a growing list of supporters who are willing to tolerate the volatility in exchange for a purely decentralized transaction.

Non-collateralized – Even though stablecoins have been in existence since 2014, very few non-collateralized stablecoins have been issued. The demand for such a coin is relatively small because it carries the greatest amount of risk among all stablecoins. Despite its inherent risk, there is a small group of crypto investors who prefer this type of stablecoin because it is the most decentralized and independent form of stablecoin. Its decentralization stems from the fact that the coin is not collateralized to any other asset. Therefore, it avoids dealing with centralized assets such as fiat money and commodities.

Use Cases for Stablecoins

Even though stablecoins have only been in existence for six years, crypto experts have discovered several different use cases. Let’s review a few of the ways stablecoins are being used within the cryptocurrency ecosystem.

Without question, the most common use case for stablecoins is the ability of crypto traders to easily transfer their funds between various crypto assets. Prior to the introduction of stablecoins, traders were unable to move their crypto assets to a safe and secure coin. Instead, they were forced to liquidate their cryptocurrencies, convert the proceeds back to a fiat currency and also remove their funds from the crypto exchange. Thanks to the introduction of stablecoins, traders have the option of liquidating their cryptocurrencies and parking the proceeds in a stablecoin. This allows all funds to remain in the cryptocurrency ecosystem. Thanks to stablecoins, traders and investors can completely avoid the fiat system.

As stablecoins continue to gain widespread acceptance, the retail community could ultimately become the biggest beneficiary. As we previously discussed, Satoshi Nakamoto’s original use case for Bitcoin was a medium of exchange for day-to-day transactions. However, the daily use of BTC never gained widespread adoption because Bitcoin was simply too volatile. Stablecoins have solved the volatility problem. Therefore, stablecoins have the potential to be used as a daily medium of exchange, finally realizing Nakamoto’s original use case for Bitcoin.

Another use case for stablecoins involves smart contracts. During the past few years, several industries have explored the idea of using smart contracts in an effort to lower their costs by removing third party intermediaries. However, companies have been reluctant to use smart contracts because the payment method usually involved a volatile cryptocurrency like Bitcoin or Ethereum. Thanks to stablecoins, several industries are reexamining the use of smart contracts because the problem of volatility has been solved.

Crypto experts believe that we are just beginning to scratch the surface in terms of how stablecoins will be used as a bridge to connect the old legacy financial services industry with a new system based on decentralized finance. Stablecoins could easily become the fastest growing sector within the cryptocurrency universe.

 

Digitex writers and/or guest authors may or may not have a vested interest in the Digitex project and/or other businesses mentioned throughout the site. None of the content on Digitex is investment advice nor is it a replacement for advice from a certified financial planner.

April 27, 2021
Digitex

The Role of Stablecoins in the Crypto Industry

Dave Reiter
The Role of Stablecoins in the Crypto Industry 2

During the past decade, several new innovative products have been created in an effort to disrupt the financial services industry. Arguably, the product that has unleashed the most disruption is stablecoins. The first stablecoin was Tether (USDT), officially launched in October 2014.

Immediately upon its introduction to the crypto industry, Tether became incredibly popular and quite useful. Since the release of Tether, over 200 stablecoins have been announced. However, the majority of these coins are still lingering in the phase of research and development (R&D). Additionally, 10% have been discontinued. Currently, 36 stablecoins are in existence with a market capitalization of $75.7 billion. Let’s examine a list of the top 5 stablecoins.

  • Tether (USDT) – $48.7 billion
  • USD Coin (USDC) – $11.3 billion
  • Binance USD (BUSD) – $5.4 billion
  • Dai – (DAI) $3.6 billion
  • TerraUSD (UST) – $1.8 billion

As you can see, Tether is clearly the leader within the stablecoin universe. In fact, Tether’s market capitalization comprises 64% of the entire industry. The top five coins represent 94% of all stablecoins. Essentially, five coins dominate the entire space.

Stablecoins Versus Traditional Cryptocurrencies

Although stablecoins share many of the same features and characteristics of cryptocurrencies, they were designed to solve some of the problems inherently rooted in cryptocurrencies. Let’s discuss the details.

When Satoshi Nakamoto launched the world’s first cryptocurrency on a decentralized ledger in January 2009, Nakamoto could not possibly have forecasted the substantial price appreciation that would transpire during the first decade of its existence. Of course, the cryptocurrency we are referring to is Bitcoin (BTC).

The dramatic increase in the value of BTC in the years following its release was both a benefit and a curse within the global crypto community. Obviously, Bitcoin’s price increase was a huge benefit because a substantial number of investors enjoyed historic rates of return. However, the extraordinary price appreciation was also a major detriment to Bitcoin investors because these price advances also included a great deal of volatility.

Many people in the crypto community were unaware that Nakamoto’s original concept for Bitcoin was a peer-to-peer payment system. In fact, the initial paragraph of the Bitcoin white paper describes “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

As you can clearly see from the white paper, Nakamoto was enamored with the idea of an electronic P2P payment system without the need for a third-party intermediary. From 2009 through 2017, the vast majority of the crypto community supported Nakamoto’s belief that Bitcoin was designed to be a payment system that would ultimately replace Visa, Mastercard, PayPal, and other payment forms as the preferred method for daily transactions.

Following the historic rally in 2017 and subsequent collapse in early-2018, Bitcoiners came to the realization that BTC was much too volatile to be used as a method of payment for daily transactions. Beginning in 2018, the Bitcoin narrative began to change from “method of payment” to “store of value.” Based on the fact that BTC had substantially outperformed gold and all other major asset classes since its inception in 2009, the best use case for Bitcoin going forward was a store of value.

Although the Bitcoin community had successfully changed the BTC narrative in 2018, they still had to deal with the fact that cryptocurrencies were inherently volatile. In order to solve this problem, stablecoins were rolled out on a large-scale basis. Stablecoins are an excellent vehicle for performing day-to-day transactions because they are simplistic, stable, scalable, and secure. Stablecoins fulfilled the role of Nakamoto’s original intent for Bitcoin, which was a peer-to-peer payment system.

Unlike cryptocurrencies, stablecoins are not prone to dramatic price fluctuations because each stablecoin is linked to a fiat currency like the US Dollar or Euro. It is collateralized by the value of the underlying asset. Additionally, each stablecoin is pegged at a 1:1 ratio with the underlying asset. This explains how stablecoins are able to maintain price stability even if other cryptocurrencies are experiencing dramatic volatility.

Types of Stablecoins

Stablecoins can be placed in four different categories. Let’s briefly review each category.

Fiat-collateralized – The vast majority of stablecoins are fiat-collateralized. This means that the stablecoins are backed by fiat currencies like US Dollar, Euro, British Pound and other fiat currencies. As we previously mentioned, stablecoins are linked at a 1:1 ratio with the underlying fiat currency. For each stablecoin in existence, fiat currency is held in a bank account as collateral. When a trader initiates a stablecoin withdrawal, the crypto exchange transfers fiat currency to the trader’s bank account and the corresponding stablecoin is taken out of the trader’s crypto account and removed from circulation.

Commodity-collateralized – As the name implies, commodity-collateralized stablecoins are supported by interchangeable assets such as commodities. The most popular asset in this category is precious metals, specifically gold. In addition to gold, other assets include silver, crude oil and even real estate. The most attractive feature of commodity-collateralized stablecoins is that the owners of these coins hold a tangible asset with real value. This is in stark contrast to other cryptocurrencies, which typically have no tangible value.

Crypto-collateralized – These stablecoins are backed 100% by other cryptocurrencies. Many crypto investors don’t support fiat-collateralized stablecoins because they are linked to the legacy financial services industry through fiat money. Instead, these investors prefer 100% decentralized stablecoins, with all transactions conducted on the blockchain. Even though crypto-collateralized stablecoins are inherently more volatile, there is a growing list of supporters who are willing to tolerate the volatility in exchange for a purely decentralized transaction.

Non-collateralized – Even though stablecoins have been in existence since 2014, very few non-collateralized stablecoins have been issued. The demand for such a coin is relatively small because it carries the greatest amount of risk among all stablecoins. Despite its inherent risk, there is a small group of crypto investors who prefer this type of stablecoin because it is the most decentralized and independent form of stablecoin. Its decentralization stems from the fact that the coin is not collateralized to any other asset. Therefore, it avoids dealing with centralized assets such as fiat money and commodities.

Use Cases for Stablecoins

Even though stablecoins have only been in existence for six years, crypto experts have discovered several different use cases. Let’s review a few of the ways stablecoins are being used within the cryptocurrency ecosystem.

Without question, the most common use case for stablecoins is the ability of crypto traders to easily transfer their funds between various crypto assets. Prior to the introduction of stablecoins, traders were unable to move their crypto assets to a safe and secure coin. Instead, they were forced to liquidate their cryptocurrencies, convert the proceeds back to a fiat currency and also remove their funds from the crypto exchange. Thanks to the introduction of stablecoins, traders have the option of liquidating their cryptocurrencies and parking the proceeds in a stablecoin. This allows all funds to remain in the cryptocurrency ecosystem. Thanks to stablecoins, traders and investors can completely avoid the fiat system.

As stablecoins continue to gain widespread acceptance, the retail community could ultimately become the biggest beneficiary. As we previously discussed, Satoshi Nakamoto’s original use case for Bitcoin was a medium of exchange for day-to-day transactions. However, the daily use of BTC never gained widespread adoption because Bitcoin was simply too volatile. Stablecoins have solved the volatility problem. Therefore, stablecoins have the potential to be used as a daily medium of exchange, finally realizing Nakamoto’s original use case for Bitcoin.

Another use case for stablecoins involves smart contracts. During the past few years, several industries have explored the idea of using smart contracts in an effort to lower their costs by removing third party intermediaries. However, companies have been reluctant to use smart contracts because the payment method usually involved a volatile cryptocurrency like Bitcoin or Ethereum. Thanks to stablecoins, several industries are reexamining the use of smart contracts because the problem of volatility has been solved.

Crypto experts believe that we are just beginning to scratch the surface in terms of how stablecoins will be used as a bridge to connect the old legacy financial services industry with a new system based on decentralized finance. Stablecoins could easily become the fastest growing sector within the cryptocurrency universe.

 

Digitex writers and/or guest authors may or may not have a vested interest in the Digitex project and/or other businesses mentioned throughout the site. None of the content on Digitex is investment advice nor is it a replacement for advice from a certified financial planner.

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Should You Invest in a Bitcoin ETF? 3

Should You Invest in a Bitcoin ETF?

Digitex Futures
Digitex
• Dave Reiter
April 22, 2021

The global investment community was introduced to exchange-traded funds (ETFs) on January 22, 1993, when State Street Global Advisors launched the SPDR S&P 500 ETF. It was designed to track the daily performance of the S&P 500 stock index. The State Street ETF immediately became a popular product among individual and institutional investors because it provided a low-cost approach to portfolio diversification.

Today, 28 years after its launch date, SPY remains one of the most heavily traded investment vehicles within the global financial services industry. It’s not uncommon for daily volume to exceed 100 million shares.

ETFs Gain Popularity Following the Dotcom Crash

During the past three decades, ETFs have exploded in popularity. However, they certainly did not become an overnight sensation. For the first 10 years of their existence, investors basically ignored ETFs because the industry did a poor job of marketing their products and communicating the benefits of owning exchange-traded funds.

Despite the fact that stocks had experienced a roaring bull market throughout the decade of the 1990s, most investors lost money by aggressively speculating in the “high flying” internet stocks. Therefore, by the early-2000s, investors were searching for a low-cost, diversified method for participating in the stock market. ETFs were the perfect solution.

In 2003, the size of the global ETF industry was USD $204.3 billion. Investments in ETFs have exploded during the past 18 years. In fact, with the exception of 2008, the value of exchange-traded funds has increased every year since 2003. In 2010, the ETF asset class reached its first major milestone by exceeding USD $1 trillion in market capitalization.

As you can see from the following table, investors have been pouring money into ETFs during the past decade. In fact, since 2010, the asset class has expanded by 489%. By 2023, the global market capitalization of exchange-traded funds is projected to be USD $12.0 trillion, making it one of the fastest-growing investment vehicles of all time. These numbers are based on data provided by Statista.

  • 2010 – USD $1.313 trillion
  • 2013 – USD $2.283 trillion
  • 2015 – USD $3.423 trillion
  • 2017 – USD $4.690 trillion
  • 2019 – USD $6.194 trillion
  • 2020 – USD $7.736 trillion

ETFs Viewed Through the Lens of Technological Innovation

For the past several decades, the financial services industry has been constantly criticized for its lack of innovation, particularly as it relates to technology. The industry has always been behind the curve in regard to technological innovation. In fact, technology improvements were practically non-existent for the majority of the 20th century.

However, in 1992, one of the most disruptive innovations in the history of financial services was unveiled when E*Trade introduced online trading. This new financial technology introduced millions of first-time traders to the stock market. For example, in 1995, only 300,000 investors in the United States had an online brokerage account. Five years later, in 2000, 11.3 million traders were participating in online trading. This represents a dramatic increase of 3,667%.

Is it simply a coincidence that exchange-traded funds were introduced to the investing public at precisely the same time as online trading? The short answer is, “no.” It’s not uncommon for innovative solutions to arrive in waves or clusters. An important new discovery (like online trading) usually lays the groundwork for other innovators to roll out new trailblazing technology (like ETFs).

In terms of its impact on the financial services industry, ETFs will go down in the history books as one of the most disruptive forces in comparison to other major industry groups. Please review the following list taken from data provided by the U.S. Census Bureau, Statista, BlackRock, and the International Federation of Robotics.

Annual Technology Adoption Rate Since 2009 (CAGR):

  • Smartphones – 24.3%
  • ETFs – 18.0%
  • Social media – 13.0%
  • Retail sales via e-commerce – 11.8%
  • Industrial robots – 10.9%

When most people view this list for the first time, they are shocked to discover how impactful ETFs have been on the financial services industry compared to major innovations across other industry groups. Exchange-traded funds have easily been one of the most disruptive forces of the past 50 years.

Two Disruptive Technologies Join Forces: Bitcoin and ETFs

Bitcoin was launched by Satoshi Nakamoto on January 3, 2009. The early years of Bitcoin (BTC) were very similar to exchange-traded funds. Investors were not the least bit interested in learning about the benefits of owning BTC, which is exactly the same type of reception received by ETFs. It’s not uncommon for people to ignore new discoveries, particularly technological discoveries.

As a general rule, people prefer to avoid disruptive innovations because they don’t like daily changes to their routine. This explains why it takes several years for some of the best discoveries to reach mainstream adoption.

As we previously mentioned, ETFs exploded in popularity beginning in the early-2000s, as investors discovered the benefits of owning exchange-traded funds. It took 17 years for ETFs to reach USD $1 trillion in market capitalization. Bitcoin achieved the same level in 12 years. In fact, BTC became the fastest asset class to reach USD $1 trillion in market capitalization. Most likely, Bitcoin will eventually exceed the asset level of ETFs, which currently stands at approximately USD $8 trillion.

During the past few years, several investment firms have attempted to gain regulatory approval for a Bitcoin ETF. In the United States, the Securities and Exchange Commission (SEC) has not yet approved any Bitcoin ETF application.

However, Canadian regulators provided clearance to Purpose Investments Inc by allowing the investment company to become the world’s first Bitcoin ETF. The official launch date was February 18, 2021. Although the Bitcoin ETF has only been in existence for two months, it has attracted a substantial number of new investors. Recently, Purpose Investments announced that its Bitcoin ETF exceeded USD $1 billion of assets under management. Most likely, this trend will continue as United States investors patiently wait for the SEC to approve a Bitcoin ETF.

Why are Bitcoin ETFs so highly anticipated within the global investment community? Because both of these innovative products provide investors with an opportunity to own a completely new asset class by using a low-cost vehicle like an ETF. Let’s briefly review a few of the main features and characteristics of an ETF.

Low cost

In comparison to mutual funds, exchange-traded funds are much cheaper in terms of the fees investors are required to pay. For example, a typical mutual fund charges a wide variety of fees. The list includes management fees, 12b-1 fee, administrative fees, operating fees, trading fees, auditing fees, and legal fees. The list of fees is endless.

All of these mutual fund fees are added together to create an expense ratio, which represents the total cost paid by the investor to own shares of the mutual fund. It’s not uncommon for investors to pay 1.5% to 2.0% annually. The fees are even higher if the investor uses a financial advisor.

ETFs offer some of the lowest fees in the financial services industry. The average annual ETF fee is 0.4%. Many exchange-traded funds are lower than 0.4%. In fact, many ETFs to charge less than 0.1%. This explains why investors have moved a substantial portion of their investment dollars into ETFs during the past 20 years.

Liquidity

As we previously discussed, the dollar value of ETFs has increased substantially during the past decade. The current value of assets invested in ETFs is approximately USD $8 trillion. This provides investors with a tremendous amount of liquidity to buy and sell without affecting the price of the underlying ETF. The bid/ask spread for the average ETF is very tight because of liquidity.

Accessibility

Exchange-traded funds are available on many stock exchanges across the world. ETFs trade in the same format as stocks. They are quoted on a per share basis and can be bought or sold throughout each trading day. In terms of user experience, trading an ETF is exactly the same as trading a stock.

Transparency

Over the course of the past 20 years, the financial services industry has introduced a wide variety of new investment products to the global investment community. The majority of these products were released prior to the 2008 Global Financial Crisis.

Unfortunately, many individual investors, large institutions, and public pension plans found themselves locked in these opaque and highly complex investment products. When the financial markets began to unravel in late-2008, it became impossible for investors to liquidate their positions. Of course, this only exacerbated the financial crisis.

The financial crisis taught many investors to avoid highly sophisticated investments. This explains why there has been a large increase in ETF activity since 2009. ETFs are one of the most transparent investment products within the financial services industry because ETF providers openly communicate important information to investors in terms of how these products are structured. Consequently, investors have a much better experience participating in ETFs compared to other financial products.

Diversification

Exchange-traded funds are an excellent choice for investors who are attempting to diversify their portfolios. Unlike individual stocks or bonds, ETFs provide investors with the opportunity to select various sectors, industry groups, and geographic locations.

As of 2020, the total number of listed ETFs in the United States was 2,445. Investors can select from a number of different categories: stocks, bonds, commodities, currencies, real estate, and alternative assets. These various categories provide investors with a tremendous amount of diversification. This data is provided by ETF Database.

As you can see, exchange-traded funds provide investors with several excellent features. These features and characteristics are the main reason why investors find Bitcoin ETFs so attractive. It will be a low-cost way for investors to gain exposure to BTC. Due to regulatory constraints, many investors have been unable to purchase BTC through a traditional brokerage account. Therefore, Bitcoin ETFs will allow these investors to purchase BTC for the first time.

GBTC Is Not a Bitcoin ETF

In September 2013, Grayscale Investments launched the Grayscale Bitcoin Trust, which allowed accredited investors to gain exposure to BTC through a private placement offering. The minimum investment was USD $50,000. While this product is still actively managed, it is no longer accepting new investors.

In May 2015, Grayscale received approval from the Financial Industry Regulatory Authority (FINRA) to allow shares of the Grayscale Bitcoin Trust to trade publicly on the over-the-counter (OTC) market, using the ticker symbol GBTC. This allowed individual investors to buy and sell shares of GBTC through a traditional brokerage account.

During the past six years, GBTC has become an incredibly popular product within the Bitcoin community. Prior to the launch of Purpose Investments’ Bitcoin ETF in February, GBTC was the only way to invest in Bitcoin without purchasing BTC through a crypto brokerage account. GBTC exploded in popularity during the 2017 BTC bull market. In late-2020, GBTC experienced another wave of new money, as Bitcoin enjoyed a dramatic rally. As of March 31, GBTC has USD $45.6 billion of assets under management, making it one of the most popular investment products within the financial services industry.

Despite its popularity, many investors are under the impression that GBTC is an ETF. This is not true. Even though it trades on a regulated exchange like other ETFs, GBTC is officially an exchange-traded note (ETN). Essentially, an ETN is an unsecured debt instrument issued by a financial institution. In the case of GBTC, Grayscale Investments created the Grayscale Bitcoin Trust for the purpose of issuing the ETN.

Exchange-traded notes are designed to track an underlying index or security. In terms of GBTC, the underlying security is Bitcoin. When an investor buys GBTC, Grayscale purchases an equal amount of Bitcoin. The investor does not own the BTC. Instead, the BTC is held by Grayscale in the name of the trust.

Grayscale Bitcoin Trust was legally established as an investment trust, which means that the trust is a closed-end fund. The distinguishing characteristic of a closed-end fund is that it issues a limited number of shares when a new product is launched, like the Grayscale Bitcoin Trust. Therefore, GBTC has a limited number of shares that trade on the OTC exchange. These shares can trade at a discount or a premium to the underlying security, which is Bitcoin.

Consequently, it’s not uncommon for the share price of GBTC to trade in the opposite direction of Bitcoin. There are days when the price of Bitcoin rises while the share price of GBTC declines.

ETFs are a much better product because they are not structured like GBTC. Additionally, ETF fees are substantially lower compared to ETN fees. For example, the annual management fee for GBTC is 2.0%. As you know from our previous discussions, the average ETF fee is substantially lower than 2.0%.

Overall, a Bitcoin ETF is a much better product than GBTC. This explains why many investors are waiting to invest in Bitcoin until an ETF is launched in the United States. Most likely, Bitcoin ETFs will go down in the history books as one of the greatest investment products of the 21st century.

Digitex writers and/or guest authors may or may not have a vested interest in the Digitex project and/or other businesses mentioned throughout the site. None of the content on Digitex is investment advice nor is it a replacement for advice from a certified financial planner.

April 22, 2021
Digitex Futures
Digitex

Should You Invest in a Bitcoin ETF?

Dave Reiter
Should You Invest in a Bitcoin ETF? 4

The global investment community was introduced to exchange-traded funds (ETFs) on January 22, 1993, when State Street Global Advisors launched the SPDR S&P 500 ETF. It was designed to track the daily performance of the S&P 500 stock index. The State Street ETF immediately became a popular product among individual and institutional investors because it provided a low-cost approach to portfolio diversification.

Today, 28 years after its launch date, SPY remains one of the most heavily traded investment vehicles within the global financial services industry. It’s not uncommon for daily volume to exceed 100 million shares.

ETFs Gain Popularity Following the Dotcom Crash

During the past three decades, ETFs have exploded in popularity. However, they certainly did not become an overnight sensation. For the first 10 years of their existence, investors basically ignored ETFs because the industry did a poor job of marketing their products and communicating the benefits of owning exchange-traded funds.

Despite the fact that stocks had experienced a roaring bull market throughout the decade of the 1990s, most investors lost money by aggressively speculating in the “high flying” internet stocks. Therefore, by the early-2000s, investors were searching for a low-cost, diversified method for participating in the stock market. ETFs were the perfect solution.

In 2003, the size of the global ETF industry was USD $204.3 billion. Investments in ETFs have exploded during the past 18 years. In fact, with the exception of 2008, the value of exchange-traded funds has increased every year since 2003. In 2010, the ETF asset class reached its first major milestone by exceeding USD $1 trillion in market capitalization.

As you can see from the following table, investors have been pouring money into ETFs during the past decade. In fact, since 2010, the asset class has expanded by 489%. By 2023, the global market capitalization of exchange-traded funds is projected to be USD $12.0 trillion, making it one of the fastest-growing investment vehicles of all time. These numbers are based on data provided by Statista.

  • 2010 – USD $1.313 trillion
  • 2013 – USD $2.283 trillion
  • 2015 – USD $3.423 trillion
  • 2017 – USD $4.690 trillion
  • 2019 – USD $6.194 trillion
  • 2020 – USD $7.736 trillion

ETFs Viewed Through the Lens of Technological Innovation

For the past several decades, the financial services industry has been constantly criticized for its lack of innovation, particularly as it relates to technology. The industry has always been behind the curve in regard to technological innovation. In fact, technology improvements were practically non-existent for the majority of the 20th century.

However, in 1992, one of the most disruptive innovations in the history of financial services was unveiled when E*Trade introduced online trading. This new financial technology introduced millions of first-time traders to the stock market. For example, in 1995, only 300,000 investors in the United States had an online brokerage account. Five years later, in 2000, 11.3 million traders were participating in online trading. This represents a dramatic increase of 3,667%.

Is it simply a coincidence that exchange-traded funds were introduced to the investing public at precisely the same time as online trading? The short answer is, “no.” It’s not uncommon for innovative solutions to arrive in waves or clusters. An important new discovery (like online trading) usually lays the groundwork for other innovators to roll out new trailblazing technology (like ETFs).

In terms of its impact on the financial services industry, ETFs will go down in the history books as one of the most disruptive forces in comparison to other major industry groups. Please review the following list taken from data provided by the U.S. Census Bureau, Statista, BlackRock, and the International Federation of Robotics.

Annual Technology Adoption Rate Since 2009 (CAGR):

  • Smartphones – 24.3%
  • ETFs – 18.0%
  • Social media – 13.0%
  • Retail sales via e-commerce – 11.8%
  • Industrial robots – 10.9%

When most people view this list for the first time, they are shocked to discover how impactful ETFs have been on the financial services industry compared to major innovations across other industry groups. Exchange-traded funds have easily been one of the most disruptive forces of the past 50 years.

Two Disruptive Technologies Join Forces: Bitcoin and ETFs

Bitcoin was launched by Satoshi Nakamoto on January 3, 2009. The early years of Bitcoin (BTC) were very similar to exchange-traded funds. Investors were not the least bit interested in learning about the benefits of owning BTC, which is exactly the same type of reception received by ETFs. It’s not uncommon for people to ignore new discoveries, particularly technological discoveries.

As a general rule, people prefer to avoid disruptive innovations because they don’t like daily changes to their routine. This explains why it takes several years for some of the best discoveries to reach mainstream adoption.

As we previously mentioned, ETFs exploded in popularity beginning in the early-2000s, as investors discovered the benefits of owning exchange-traded funds. It took 17 years for ETFs to reach USD $1 trillion in market capitalization. Bitcoin achieved the same level in 12 years. In fact, BTC became the fastest asset class to reach USD $1 trillion in market capitalization. Most likely, Bitcoin will eventually exceed the asset level of ETFs, which currently stands at approximately USD $8 trillion.

During the past few years, several investment firms have attempted to gain regulatory approval for a Bitcoin ETF. In the United States, the Securities and Exchange Commission (SEC) has not yet approved any Bitcoin ETF application.

However, Canadian regulators provided clearance to Purpose Investments Inc by allowing the investment company to become the world’s first Bitcoin ETF. The official launch date was February 18, 2021. Although the Bitcoin ETF has only been in existence for two months, it has attracted a substantial number of new investors. Recently, Purpose Investments announced that its Bitcoin ETF exceeded USD $1 billion of assets under management. Most likely, this trend will continue as United States investors patiently wait for the SEC to approve a Bitcoin ETF.

Why are Bitcoin ETFs so highly anticipated within the global investment community? Because both of these innovative products provide investors with an opportunity to own a completely new asset class by using a low-cost vehicle like an ETF. Let’s briefly review a few of the main features and characteristics of an ETF.

Low cost

In comparison to mutual funds, exchange-traded funds are much cheaper in terms of the fees investors are required to pay. For example, a typical mutual fund charges a wide variety of fees. The list includes management fees, 12b-1 fee, administrative fees, operating fees, trading fees, auditing fees, and legal fees. The list of fees is endless.

All of these mutual fund fees are added together to create an expense ratio, which represents the total cost paid by the investor to own shares of the mutual fund. It’s not uncommon for investors to pay 1.5% to 2.0% annually. The fees are even higher if the investor uses a financial advisor.

ETFs offer some of the lowest fees in the financial services industry. The average annual ETF fee is 0.4%. Many exchange-traded funds are lower than 0.4%. In fact, many ETFs to charge less than 0.1%. This explains why investors have moved a substantial portion of their investment dollars into ETFs during the past 20 years.

Liquidity

As we previously discussed, the dollar value of ETFs has increased substantially during the past decade. The current value of assets invested in ETFs is approximately USD $8 trillion. This provides investors with a tremendous amount of liquidity to buy and sell without affecting the price of the underlying ETF. The bid/ask spread for the average ETF is very tight because of liquidity.

Accessibility

Exchange-traded funds are available on many stock exchanges across the world. ETFs trade in the same format as stocks. They are quoted on a per share basis and can be bought or sold throughout each trading day. In terms of user experience, trading an ETF is exactly the same as trading a stock.

Transparency

Over the course of the past 20 years, the financial services industry has introduced a wide variety of new investment products to the global investment community. The majority of these products were released prior to the 2008 Global Financial Crisis.

Unfortunately, many individual investors, large institutions, and public pension plans found themselves locked in these opaque and highly complex investment products. When the financial markets began to unravel in late-2008, it became impossible for investors to liquidate their positions. Of course, this only exacerbated the financial crisis.

The financial crisis taught many investors to avoid highly sophisticated investments. This explains why there has been a large increase in ETF activity since 2009. ETFs are one of the most transparent investment products within the financial services industry because ETF providers openly communicate important information to investors in terms of how these products are structured. Consequently, investors have a much better experience participating in ETFs compared to other financial products.

Diversification

Exchange-traded funds are an excellent choice for investors who are attempting to diversify their portfolios. Unlike individual stocks or bonds, ETFs provide investors with the opportunity to select various sectors, industry groups, and geographic locations.

As of 2020, the total number of listed ETFs in the United States was 2,445. Investors can select from a number of different categories: stocks, bonds, commodities, currencies, real estate, and alternative assets. These various categories provide investors with a tremendous amount of diversification. This data is provided by ETF Database.

As you can see, exchange-traded funds provide investors with several excellent features. These features and characteristics are the main reason why investors find Bitcoin ETFs so attractive. It will be a low-cost way for investors to gain exposure to BTC. Due to regulatory constraints, many investors have been unable to purchase BTC through a traditional brokerage account. Therefore, Bitcoin ETFs will allow these investors to purchase BTC for the first time.

GBTC Is Not a Bitcoin ETF

In September 2013, Grayscale Investments launched the Grayscale Bitcoin Trust, which allowed accredited investors to gain exposure to BTC through a private placement offering. The minimum investment was USD $50,000. While this product is still actively managed, it is no longer accepting new investors.

In May 2015, Grayscale received approval from the Financial Industry Regulatory Authority (FINRA) to allow shares of the Grayscale Bitcoin Trust to trade publicly on the over-the-counter (OTC) market, using the ticker symbol GBTC. This allowed individual investors to buy and sell shares of GBTC through a traditional brokerage account.

During the past six years, GBTC has become an incredibly popular product within the Bitcoin community. Prior to the launch of Purpose Investments’ Bitcoin ETF in February, GBTC was the only way to invest in Bitcoin without purchasing BTC through a crypto brokerage account. GBTC exploded in popularity during the 2017 BTC bull market. In late-2020, GBTC experienced another wave of new money, as Bitcoin enjoyed a dramatic rally. As of March 31, GBTC has USD $45.6 billion of assets under management, making it one of the most popular investment products within the financial services industry.

Despite its popularity, many investors are under the impression that GBTC is an ETF. This is not true. Even though it trades on a regulated exchange like other ETFs, GBTC is officially an exchange-traded note (ETN). Essentially, an ETN is an unsecured debt instrument issued by a financial institution. In the case of GBTC, Grayscale Investments created the Grayscale Bitcoin Trust for the purpose of issuing the ETN.

Exchange-traded notes are designed to track an underlying index or security. In terms of GBTC, the underlying security is Bitcoin. When an investor buys GBTC, Grayscale purchases an equal amount of Bitcoin. The investor does not own the BTC. Instead, the BTC is held by Grayscale in the name of the trust.

Grayscale Bitcoin Trust was legally established as an investment trust, which means that the trust is a closed-end fund. The distinguishing characteristic of a closed-end fund is that it issues a limited number of shares when a new product is launched, like the Grayscale Bitcoin Trust. Therefore, GBTC has a limited number of shares that trade on the OTC exchange. These shares can trade at a discount or a premium to the underlying security, which is Bitcoin.

Consequently, it’s not uncommon for the share price of GBTC to trade in the opposite direction of Bitcoin. There are days when the price of Bitcoin rises while the share price of GBTC declines.

ETFs are a much better product because they are not structured like GBTC. Additionally, ETF fees are substantially lower compared to ETN fees. For example, the annual management fee for GBTC is 2.0%. As you know from our previous discussions, the average ETF fee is substantially lower than 2.0%.

Overall, a Bitcoin ETF is a much better product than GBTC. This explains why many investors are waiting to invest in Bitcoin until an ETF is launched in the United States. Most likely, Bitcoin ETFs will go down in the history books as one of the greatest investment products of the 21st century.

Digitex writers and/or guest authors may or may not have a vested interest in the Digitex project and/or other businesses mentioned throughout the site. None of the content on Digitex is investment advice nor is it a replacement for advice from a certified financial planner.

Latest News

Ethereum

The Future Price of Ethereum — Technical Analysis

Digitex Futures
• Dave Reiter
April 12, 2021

Similar to other coins and tokens, Ethereum has generated a substantial rally throughout the past six months. Specifically, ETH has increased 498%, outperforming BTC by approximately 60% during the same time period (see chart 1 below). So, where do we go from here? How will ETH perform for the remainder of 2021 and beyond? Let’s explore the details.

The Future Price of Ethereum — Technical Analysis 5

The Difference Between Ethereum and Ether

In terms of market capitalization, ETH is the second-largest cryptocurrency in the crypto universe. Only Bitcoin has a larger market capitalization. ETH has enjoyed some explosive price moves throughout its brief 6-year history. But, before we analyze the future price direction of ETH, let’s briefly discuss the difference between Ethereum and Ether.

There seems to be some confusion regarding these two crypto terms. Ethereum is a blockchain-based platform used for writing autonomous smart contracts and decentralized applications. Ether is the cryptocurrency that serves as the fuel to power the smart contracts, apps, and other transactions on the Ethereum blockchain.

Although most people in the crypto community (including many crypto websites) use these words interchangeably, they are actually quite different in terms of how they are used in the crypto ecosystem.

Use Cases for Ethereum Blockchain Continue to Expand

In this article, we will be analyzing the price direction of Ether (ETH), the cryptocurrency. However, it’s also important to discuss Ethereum, the blockchain, because it lays the foundation for the current ETH bull market. It seems almost impossible to believe that Ether was trading below $100 per token less than 15 months ago (see chart 2).

The Future Price of Ethereum — Technical Analysis 6

Over the course of the past 15 months, ETH has exploded to the upside by increasing 2,226%. Since March 2020, ETH has been one of the top-performing cryptocurrencies within the entire crypto universe. Ether easily outperformed Bitcoin during this particular time period, 2,226% versus 1,388%.

The majority of Ether’s gains can be attributed to the fact that the total number of use cases for the Ethereum blockchain has increased substantially. Unlike the Bitcoin blockchain, Ethereum can be used for multiple applications across a wide variety of industries. Several of these applications have evolved into legitimate and profitable business enterprises with exponential growth potential. Let’s briefly examine a few of these Ethereum-based businesses.

DeFi (Decentralized Finance)

Without question, the most exciting new business linked to Ethereum is decentralized finance, more commonly known as DeFi. Although DeFi has been in existence for less than four years, it has gained an incredible amount of interest from venture capital firms and angel investors who see the enormous potential in this new space.

Without going into great detail, DeFi competes head-to-head with the legacy financial services industry, with an estimated value of $26.5 trillion by 2022, according to data gathered by The World Bank. Based on these numbers, the upside potential in DeFi is massive. This is great news if you are an owner of ETH because the overwhelming majority of the DeFi ecosystem operates on the Ethereum blockchain.

NFTs (Non-Fungible Tokens)

Another business venture associated with Ethereum is non-fungible tokens (NFT), which have witnessed a tremendous wave of enthusiasm from investors and speculators during the past few months. Very briefly, non-fungible tokens allow non-fungible assets to possess unique properties that completely change the user and development relationship of these assets.

Examples of non-fungible digital assets include digital collectibles, such as in-game items and characters, virtual pets, and representations of fine art. By attaching unique properties such as immutability and scarcity to non-fungible assets, it substantially increases the value of said assets.

Almost the entire NFT industry operates on the Ethereum blockchain, which is obviously bullish for ETH. Arguably, the most exciting part of NFTs is the fact that young people are heavily involved in this exciting new space. Consequently, this will provide Generation Z with an opportunity to familiarize themselves with cryptocurrencies and other digital assets. This is very bullish from a long-term perspective.

In addition to DeFi and NFT, the Ethereum blockchain is also actively engaged in enterprise software, which is used by organizations, businesses, charities, schools, and governments to handle day-to-day operations across a wide variety of internal departments within each organization.

These daily operations would include such tasks as human resources, supply chain management, database management, CRM, security, and billing systems. Enterprise software companies are using a privatized version of the Ethereum network to provide their services to companies like Microsoft, IBM, JPMorgan Chase, and Deloitte.

These are just a few examples of how the Ethereum blockchain is linked to industries and businesses across the global economy. Of course, this is extremely bullish for ETH because these companies and businesses must purchase ETH in order to pay for their services on the Ethereum blockchain. Many crypto experts believe that the number of use cases for Ethereum will continue to expand as blockchain technology becomes more common throughout the global economy.

Using TA to Forecast the Price of ETH

Technical analysis has been extremely useful in forecasting the future price direction of ETH. Let’s review a few of these indicators.

Arguably, the most reliable technical indicator in modern history was created by a twelfth-century Italian mathematician by the name of Leonardo Fibonacci. The vast majority of mathematical historians consider Fibonacci to be the greatest mathematician of the Middle Ages. In fact, many experts in the field of mathematics claim that Fibonacci was one of the ten greatest mathematicians of all time.

Fibonacci made several important contributions to the field of mathematics throughout his life. However, he will always be most famously known for Fibonacci numbers, which are a sequence of numbers developed by Fibonacci circa 1202.

Fibonacci numbers are used in the study of nature, music, agriculture, computer applications, price forecasting, and several other fields of study. Stock and commodity traders use “Fib” numbers to calculate support and resistance levels.

The most common Fib levels are:

  • .236
  • .382
  • .500
  • .618
  • .786
  • 000

It’s not uncommon for financial assets like cryptocurrencies to fluctuate between Fibonacci support and resistance levels for long periods of time. When a major breakout finally occurs, it usually marks the beginning of a substantial move.

The crypto trading community would love to know the final top in ETH before a new bear market ensues, probably near the end of 2021 or early-2022. Of course, it’s impossible to accurately forecast the final top of any speculative asset. Cryptocurrencies are particularly difficult because we have such a small sample size of historical data. However, we can use Fibonacci numbers to develop an educated forecast concerning the final top for Ether. Please review the calculation on Chart 3 below:

The Future Price of Ethereum — Technical Analysis 7

There are several different ways to use Fib levels as a forecasting device. The most popular format involves calculating the price difference between two important price levels. For this particular calculation, we selected the historic high from January 2018 and the subsequent low achieved in December of the same year.

The majority of Fibonacci experts agree that .618 is the most significant Fib level. Therefore, we will use this number in our calculation. Based on the Fibonacci calculation, the final top for this cycle will be 4,921.73. If ETH follows the same path as the 2017 bull market, the top will occur in late-2021.

Another useful technical indicator is the Relative Strength Index (RSI), which was created by J Welles Wilder Jr, one of the greatest technical analysts in the history of financial markets. RSI is a momentum indicator that measures the overbought or oversold condition of a speculative asset. RSI is typically displayed in an oscillator format, which fluctuates between 0 and 100.

Generally speaking, a market is considered overbought if the RSI reading exceeds 70. Conversely, the market is considered oversold if the RSI reading falls below 30. Many traders will use a reading above 70 as a trigger to generate a sell signal and a reading below 30 will generate a buy signal. However, this is not a good strategy to follow in a momentum-fueled environment like cryptocurrencies. Please review Chart number 4:

The Future Price of Ethereum — Technical Analysis 8

The RSI reading has been above 70 since November 9, 2020, when ETH was trading @ 446.10. Obviously, this was not a good time to sell ETH. In fact, this would have been a great time to buy Ether. Therefore, an argument could be made that the optimum way to use RSI for trending markets like cryptocurrencies is to wait for a bullish breakout above 70 as a buy signal. A bearish breakout below 30 would constitute a sell signal. Trying to pick tops and bottoms in a trending market is a recipe for disaster. As Chart #4 clearly demonstrates, the best course of action is to follow the momentum.

In addition to RSI, another momentum-based indicator is the Money Flow Index (MFI). This indicator measures the inflow and outflow of money into a speculative asset over a specific period of time. It uses price and volume to calculate trading pressure. Arguably, MFI is the purest way to determine the amount of money entering and leaving a particular asset class.

Similar to RSI, the index fluctuates between 0 and 100. In terms of trending markets like cryptocurrencies, the best way to apply MFI is to wait for a bullish breakout above 70 or a bearish breakout below 30. MFI is located at the bottom of Chart #5.

The Future Price of Ethereum — Technical Analysis 9

An Ether buy signal was generated @ 509.11 on November 23, 2020, when MFI penetrated the 70 level. MFI has been continuously above 70 for the past five months. This is a perfect example of why it’s best to follow the trend of the market and avoid the temptation to pick a top or bottom.

At least for now, the trend of ETH is clearly in favor of the bulls. The vast majority of technical indicators are forecasting a continuation of the bull market. In addition to technical analysis, the fundamental backdrop for Ether is extremely bullish, as more use cases are being added to the Ethereum blockchain. Eventually, this bullish cycle will end and a new bear cycle will begin. However, this current bullish phase could easily continue for the remainder of 2021.

Don’t forget that whether the price of ETH goes up or down, you can make money trading ETH futures on our zero-fee rapid-fire ladder trading platform. Sign up here to find out how easy it is to profit from even the smallest of price fluctuations when you’re not constantly losing out to commissions. 

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.

April 12, 2021
Digitex Futures

The Future Price of Ethereum — Technical Analysis

Dave Reiter
Ethereum

Similar to other coins and tokens, Ethereum has generated a substantial rally throughout the past six months. Specifically, ETH has increased 498%, outperforming BTC by approximately 60% during the same time period (see chart 1 below). So, where do we go from here? How will ETH perform for the remainder of 2021 and beyond? Let’s explore the details.

The Future Price of Ethereum — Technical Analysis 10

The Difference Between Ethereum and Ether

In terms of market capitalization, ETH is the second-largest cryptocurrency in the crypto universe. Only Bitcoin has a larger market capitalization. ETH has enjoyed some explosive price moves throughout its brief 6-year history. But, before we analyze the future price direction of ETH, let’s briefly discuss the difference between Ethereum and Ether.

There seems to be some confusion regarding these two crypto terms. Ethereum is a blockchain-based platform used for writing autonomous smart contracts and decentralized applications. Ether is the cryptocurrency that serves as the fuel to power the smart contracts, apps, and other transactions on the Ethereum blockchain.

Although most people in the crypto community (including many crypto websites) use these words interchangeably, they are actually quite different in terms of how they are used in the crypto ecosystem.

Use Cases for Ethereum Blockchain Continue to Expand

In this article, we will be analyzing the price direction of Ether (ETH), the cryptocurrency. However, it’s also important to discuss Ethereum, the blockchain, because it lays the foundation for the current ETH bull market. It seems almost impossible to believe that Ether was trading below $100 per token less than 15 months ago (see chart 2).

The Future Price of Ethereum — Technical Analysis 11

Over the course of the past 15 months, ETH has exploded to the upside by increasing 2,226%. Since March 2020, ETH has been one of the top-performing cryptocurrencies within the entire crypto universe. Ether easily outperformed Bitcoin during this particular time period, 2,226% versus 1,388%.

The majority of Ether’s gains can be attributed to the fact that the total number of use cases for the Ethereum blockchain has increased substantially. Unlike the Bitcoin blockchain, Ethereum can be used for multiple applications across a wide variety of industries. Several of these applications have evolved into legitimate and profitable business enterprises with exponential growth potential. Let’s briefly examine a few of these Ethereum-based businesses.

DeFi (Decentralized Finance)

Without question, the most exciting new business linked to Ethereum is decentralized finance, more commonly known as DeFi. Although DeFi has been in existence for less than four years, it has gained an incredible amount of interest from venture capital firms and angel investors who see the enormous potential in this new space.

Without going into great detail, DeFi competes head-to-head with the legacy financial services industry, with an estimated value of $26.5 trillion by 2022, according to data gathered by The World Bank. Based on these numbers, the upside potential in DeFi is massive. This is great news if you are an owner of ETH because the overwhelming majority of the DeFi ecosystem operates on the Ethereum blockchain.

NFTs (Non-Fungible Tokens)

Another business venture associated with Ethereum is non-fungible tokens (NFT), which have witnessed a tremendous wave of enthusiasm from investors and speculators during the past few months. Very briefly, non-fungible tokens allow non-fungible assets to possess unique properties that completely change the user and development relationship of these assets.

Examples of non-fungible digital assets include digital collectibles, such as in-game items and characters, virtual pets, and representations of fine art. By attaching unique properties such as immutability and scarcity to non-fungible assets, it substantially increases the value of said assets.

Almost the entire NFT industry operates on the Ethereum blockchain, which is obviously bullish for ETH. Arguably, the most exciting part of NFTs is the fact that young people are heavily involved in this exciting new space. Consequently, this will provide Generation Z with an opportunity to familiarize themselves with cryptocurrencies and other digital assets. This is very bullish from a long-term perspective.

In addition to DeFi and NFT, the Ethereum blockchain is also actively engaged in enterprise software, which is used by organizations, businesses, charities, schools, and governments to handle day-to-day operations across a wide variety of internal departments within each organization.

These daily operations would include such tasks as human resources, supply chain management, database management, CRM, security, and billing systems. Enterprise software companies are using a privatized version of the Ethereum network to provide their services to companies like Microsoft, IBM, JPMorgan Chase, and Deloitte.

These are just a few examples of how the Ethereum blockchain is linked to industries and businesses across the global economy. Of course, this is extremely bullish for ETH because these companies and businesses must purchase ETH in order to pay for their services on the Ethereum blockchain. Many crypto experts believe that the number of use cases for Ethereum will continue to expand as blockchain technology becomes more common throughout the global economy.

Using TA to Forecast the Price of ETH

Technical analysis has been extremely useful in forecasting the future price direction of ETH. Let’s review a few of these indicators.

Arguably, the most reliable technical indicator in modern history was created by a twelfth-century Italian mathematician by the name of Leonardo Fibonacci. The vast majority of mathematical historians consider Fibonacci to be the greatest mathematician of the Middle Ages. In fact, many experts in the field of mathematics claim that Fibonacci was one of the ten greatest mathematicians of all time.

Fibonacci made several important contributions to the field of mathematics throughout his life. However, he will always be most famously known for Fibonacci numbers, which are a sequence of numbers developed by Fibonacci circa 1202.

Fibonacci numbers are used in the study of nature, music, agriculture, computer applications, price forecasting, and several other fields of study. Stock and commodity traders use “Fib” numbers to calculate support and resistance levels.

The most common Fib levels are:

  • .236
  • .382
  • .500
  • .618
  • .786
  • 000

It’s not uncommon for financial assets like cryptocurrencies to fluctuate between Fibonacci support and resistance levels for long periods of time. When a major breakout finally occurs, it usually marks the beginning of a substantial move.

The crypto trading community would love to know the final top in ETH before a new bear market ensues, probably near the end of 2021 or early-2022. Of course, it’s impossible to accurately forecast the final top of any speculative asset. Cryptocurrencies are particularly difficult because we have such a small sample size of historical data. However, we can use Fibonacci numbers to develop an educated forecast concerning the final top for Ether. Please review the calculation on Chart 3 below:

The Future Price of Ethereum — Technical Analysis 12

There are several different ways to use Fib levels as a forecasting device. The most popular format involves calculating the price difference between two important price levels. For this particular calculation, we selected the historic high from January 2018 and the subsequent low achieved in December of the same year.

The majority of Fibonacci experts agree that .618 is the most significant Fib level. Therefore, we will use this number in our calculation. Based on the Fibonacci calculation, the final top for this cycle will be 4,921.73. If ETH follows the same path as the 2017 bull market, the top will occur in late-2021.

Another useful technical indicator is the Relative Strength Index (RSI), which was created by J Welles Wilder Jr, one of the greatest technical analysts in the history of financial markets. RSI is a momentum indicator that measures the overbought or oversold condition of a speculative asset. RSI is typically displayed in an oscillator format, which fluctuates between 0 and 100.

Generally speaking, a market is considered overbought if the RSI reading exceeds 70. Conversely, the market is considered oversold if the RSI reading falls below 30. Many traders will use a reading above 70 as a trigger to generate a sell signal and a reading below 30 will generate a buy signal. However, this is not a good strategy to follow in a momentum-fueled environment like cryptocurrencies. Please review Chart number 4:

The Future Price of Ethereum — Technical Analysis 13

The RSI reading has been above 70 since November 9, 2020, when ETH was trading @ 446.10. Obviously, this was not a good time to sell ETH. In fact, this would have been a great time to buy Ether. Therefore, an argument could be made that the optimum way to use RSI for trending markets like cryptocurrencies is to wait for a bullish breakout above 70 as a buy signal. A bearish breakout below 30 would constitute a sell signal. Trying to pick tops and bottoms in a trending market is a recipe for disaster. As Chart #4 clearly demonstrates, the best course of action is to follow the momentum.

In addition to RSI, another momentum-based indicator is the Money Flow Index (MFI). This indicator measures the inflow and outflow of money into a speculative asset over a specific period of time. It uses price and volume to calculate trading pressure. Arguably, MFI is the purest way to determine the amount of money entering and leaving a particular asset class.

Similar to RSI, the index fluctuates between 0 and 100. In terms of trending markets like cryptocurrencies, the best way to apply MFI is to wait for a bullish breakout above 70 or a bearish breakout below 30. MFI is located at the bottom of Chart #5.

The Future Price of Ethereum — Technical Analysis 14

An Ether buy signal was generated @ 509.11 on November 23, 2020, when MFI penetrated the 70 level. MFI has been continuously above 70 for the past five months. This is a perfect example of why it’s best to follow the trend of the market and avoid the temptation to pick a top or bottom.

At least for now, the trend of ETH is clearly in favor of the bulls. The vast majority of technical indicators are forecasting a continuation of the bull market. In addition to technical analysis, the fundamental backdrop for Ether is extremely bullish, as more use cases are being added to the Ethereum blockchain. Eventually, this bullish cycle will end and a new bear cycle will begin. However, this current bullish phase could easily continue for the remainder of 2021.

Don’t forget that whether the price of ETH goes up or down, you can make money trading ETH futures on our zero-fee rapid-fire ladder trading platform. Sign up here to find out how easy it is to profit from even the smallest of price fluctuations when you’re not constantly losing out to commissions. 

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.

Latest News

bitcoin

$300K Bitcoin by 2022? Veteran TA Says It’s Possible, Here’s Why

Digitex Futures
• Dave Reiter
April 9, 2021

Bitcoin (BTC) has been in existence since Jan 3, 2009, when Satoshi Nakamoto mined the first 50 bitcoins into existence. Today, it seems almost impossible to believe that BTC was practically worthless for the first two years of its existence. Of course, even the most bullish Bitcoin enthusiasts were completely unprepared for the spectacular price increase that would occur over the course of the next decade.

Even though BTC has advanced exponentially since 2009, many crypto experts are forecasting substantially higher prices for the remainder of this decade. Will Bitcoin continue to grind its way higher despite the fact that prices have already increased over 400% during the past six months? Let’s take a closer look.

Obviously, accurately determining the future price of any asset class is incredibly difficult. However, we can improve our forecasting results by examining price patterns from previous bull market cycles. Bitcoin is a difficult asset to analyze because it has only been in existence for a relatively short period of time. Consequently, we have a fairly small sample of data to analyze.

It’s much easier to forecast a market with 100 years of data in comparison to an asset class like cryptocurrencies, with only 10 years of historical data. Despite the fact that BTC has a limited supply of historical data, there does appear to be a reliable price pattern that has emerged within the past decade. Let’s review the data.

Bitcoin Halving Is The “Key” To Future Price Direction

Basic economics teaches us that the price of goods and services is directly influenced by its underlying supply. As the supply increases, prices will decline. Conversely, as the supply decreases, prices will rise. This basic formula is known as the law of supply and demand, which was made famous by Adam Smith in his book, The Wealth of Nations, first published in 1776.

By examining Bitcoin’s price pattern during the past decade, it becomes quite clear that BTC has been heavily influenced by the law of supply and demand since its inception in 2009. For those who follow BTC on a regular basis, you are probably aware that all Bitcoin transactions must be verified prior to being permanently added to the blockchain.

Miners are responsible for verifying the legitimacy of each transaction. In exchange for their work, miners are rewarded with Bitcoin. When Satoshi Nakamoto released the original Bitcoin white paper in October 2008, she/he included a detailed report outlining the reward schedule for Bitcoin miners.

Based on Nakamoto’s white paper, the mining reward would be systematically reduced approximately once every four years. By lowering the mining reward, Nakamoto was essentially shrinking the number of Bitcoin in circulation. Remember, prices will rise as the underlying supply is reduced.

The reduction of mining rewards in the Bitcoin ecosystem is known as a “halving.” So far, the Bitcoin community has experienced three halving cycles since Nakamoto launched BTC in January 2009. The initial mining reward in 2009 was 50 BTC. The reward has been diminished by 50% following each halving date. The current mining reward is 6.25 BTC. This number will be reduced to 3.125 BTC on May 13, 2024.

Did the halving cycles follow Adam Smith’s law of supply and demand by pushing up the price of BTC in the wake of a supply reduction? Let’s review the results.

Halving Dates and Mining Rewards:

  • November 28, 2012 – mining reward reduced to 25 BTC
  • July 9, 2016 – mining reward reduced to 12.5 BTC
  • May 11, 2020 – mining reward reduced to 6.25 BTC
  • May 13, 2024 – mining reward reduced to 3.125 BTC

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 15

As you can see from the table, the first halving date occurred on November 28, 2012. The price on the halving date was $12.25. 18 months later, BTC had risen to $582.88. In percentage terms, Bitcoin increased by 4,658%. Clearly, the first halving cycle was extremely bullish for BTC.

Let’s examine the second halving date, which officially arrived on July 9, 2016. BTC was trading at $647.62. Once again, the reduction in mining rewards had an incredibly bullish impact on the price, as Bitcoin increased 2,146% over the course of the next 18 months.

The third halving arrived approximately 11 months ago on May 11, 2020, with a Bitcoin price tag of $8,638.11. The 18-month window will close on January 11, 2022. Will the halving cycle create another explosion in the price of Bitcoin? So far, the answer appears to be “Yes.”

BTC has advanced approximately 550% since the halving occurred in May 2020. The average price increase during the previous two halving events was 3,402%.

If Bitcoin follows the same path as the previous two halving cycles, the price will be hovering near $302,500 in January 2022.

Based on the fact that BTC is currently trading at $58,500 this price forecast seems to be wildly optimistic. However, since its inception in January 2009, Bitcoin has recorded several spectacular price increases. Therefore, it’s certainly possible that BTC could be approaching  $300K in early-2022.

The fourth BTC halving cycle is scheduled to commence on 13 May 2024, which will reduce the mining reward to 3.125 BTC. Financial historians and investment professionals have noted on several occasions that Bitcoin is the only major asset class that experiences a reduction in the circulating supply on a pre-determined basis.

This explains why BTC has achieved such an explosive price move following each halving date. Professional economists point to the Bitcoin halving cycle as verifiable proof that the law of supply and demand still works as long as speculative markets are allowed to be freely traded without being manipulated by a third party.

Examining Bitcoin with Technical Analysis

Bitcoin’s price action has been extremely bullish over the course of the past several months. Let’s examine a few popular technical indicators in an effort to determine the future price direction of BTC.

Chart 1 below covers six months of recent price action. As you can see from the chart, Bitcoin has generated a series of higher highs dating back to October 2020. This is a classic sign of a bull market. Whenever a speculative asset continues to make a series of higher highs, this is a clear indication that the underlying momentum is heavily in favor of the bulls.

The most recent high was recorded on March 15 @ 61,749. Therefore, in order to maintain the bullish momentum, BTC must penetrate 61,749 within the next few weeks.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 16

Chart 2 includes approximately seven months of historical data. The green line on the chart represents the 50-day simple moving average (SMA) of Bitcoin. In terms of technical analysis, moving averages are one of the most popular indicators within the trading community. They have been used by traders and investors for 120 years, dating back to 1901.

Moving averages can be divided into several different time frames. In regard to Bitcoin, the 50-day SMA has generated the most consistent results based on historical testing.

As you can see from the chart, a buy signal was generated on October 12, 2020, when BTC moved above the 50-day SMA @ 11,093. Bitcoin has remained above its 50-day SMA for six consecutive months. As long as the price stays above the green line on the chart, BTC will continue to remain bullish.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 17

Chart 3 displays four months of recent price activity. Bitcoin is currently trading well above the trendline. In order to drop below the bullish trendline, the price must fall below 48,609. At least for now, this type of price decline is highly unlikely.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 18

Chart 4 contains intraday price action for the past two weeks. BTC has struggled to penetrate 60K. In fact, Bitcoin has made six unsuccessful attempts to exceed 60,000 since March 18. Most likely, BTC will successfully push above 60K within the next few weeks. The momentum is still clearly in favor of the bulls.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 19

Chart 5 includes a list of the important Fibonacci support levels. BTC is currently trading comfortably above the Fib support levels. The first sign of trouble for the Bitcoin bulls would be a daily close below 50,595. It’s certainly possible for BTC to drop below the Fib support level. However, the most likely scenario is a continuation of higher prices.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 20

Based on technical analysis, Bitcoin is clearly in the middle of a raging bull market. All of the major technical indicators are currently forecasting higher prices. At least for now, the path of least resistance is to the upside.

April 9, 2021
Digitex Futures

$300K Bitcoin by 2022? Veteran TA Says It’s Possible, Here’s Why

Dave Reiter
bitcoin

Bitcoin (BTC) has been in existence since Jan 3, 2009, when Satoshi Nakamoto mined the first 50 bitcoins into existence. Today, it seems almost impossible to believe that BTC was practically worthless for the first two years of its existence. Of course, even the most bullish Bitcoin enthusiasts were completely unprepared for the spectacular price increase that would occur over the course of the next decade.

Even though BTC has advanced exponentially since 2009, many crypto experts are forecasting substantially higher prices for the remainder of this decade. Will Bitcoin continue to grind its way higher despite the fact that prices have already increased over 400% during the past six months? Let’s take a closer look.

Obviously, accurately determining the future price of any asset class is incredibly difficult. However, we can improve our forecasting results by examining price patterns from previous bull market cycles. Bitcoin is a difficult asset to analyze because it has only been in existence for a relatively short period of time. Consequently, we have a fairly small sample of data to analyze.

It’s much easier to forecast a market with 100 years of data in comparison to an asset class like cryptocurrencies, with only 10 years of historical data. Despite the fact that BTC has a limited supply of historical data, there does appear to be a reliable price pattern that has emerged within the past decade. Let’s review the data.

Bitcoin Halving Is The “Key” To Future Price Direction

Basic economics teaches us that the price of goods and services is directly influenced by its underlying supply. As the supply increases, prices will decline. Conversely, as the supply decreases, prices will rise. This basic formula is known as the law of supply and demand, which was made famous by Adam Smith in his book, The Wealth of Nations, first published in 1776.

By examining Bitcoin’s price pattern during the past decade, it becomes quite clear that BTC has been heavily influenced by the law of supply and demand since its inception in 2009. For those who follow BTC on a regular basis, you are probably aware that all Bitcoin transactions must be verified prior to being permanently added to the blockchain.

Miners are responsible for verifying the legitimacy of each transaction. In exchange for their work, miners are rewarded with Bitcoin. When Satoshi Nakamoto released the original Bitcoin white paper in October 2008, she/he included a detailed report outlining the reward schedule for Bitcoin miners.

Based on Nakamoto’s white paper, the mining reward would be systematically reduced approximately once every four years. By lowering the mining reward, Nakamoto was essentially shrinking the number of Bitcoin in circulation. Remember, prices will rise as the underlying supply is reduced.

The reduction of mining rewards in the Bitcoin ecosystem is known as a “halving.” So far, the Bitcoin community has experienced three halving cycles since Nakamoto launched BTC in January 2009. The initial mining reward in 2009 was 50 BTC. The reward has been diminished by 50% following each halving date. The current mining reward is 6.25 BTC. This number will be reduced to 3.125 BTC on May 13, 2024.

Did the halving cycles follow Adam Smith’s law of supply and demand by pushing up the price of BTC in the wake of a supply reduction? Let’s review the results.

Halving Dates and Mining Rewards:

  • November 28, 2012 – mining reward reduced to 25 BTC
  • July 9, 2016 – mining reward reduced to 12.5 BTC
  • May 11, 2020 – mining reward reduced to 6.25 BTC
  • May 13, 2024 – mining reward reduced to 3.125 BTC

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 21

As you can see from the table, the first halving date occurred on November 28, 2012. The price on the halving date was $12.25. 18 months later, BTC had risen to $582.88. In percentage terms, Bitcoin increased by 4,658%. Clearly, the first halving cycle was extremely bullish for BTC.

Let’s examine the second halving date, which officially arrived on July 9, 2016. BTC was trading at $647.62. Once again, the reduction in mining rewards had an incredibly bullish impact on the price, as Bitcoin increased 2,146% over the course of the next 18 months.

The third halving arrived approximately 11 months ago on May 11, 2020, with a Bitcoin price tag of $8,638.11. The 18-month window will close on January 11, 2022. Will the halving cycle create another explosion in the price of Bitcoin? So far, the answer appears to be “Yes.”

BTC has advanced approximately 550% since the halving occurred in May 2020. The average price increase during the previous two halving events was 3,402%.

If Bitcoin follows the same path as the previous two halving cycles, the price will be hovering near $302,500 in January 2022.

Based on the fact that BTC is currently trading at $58,500 this price forecast seems to be wildly optimistic. However, since its inception in January 2009, Bitcoin has recorded several spectacular price increases. Therefore, it’s certainly possible that BTC could be approaching  $300K in early-2022.

The fourth BTC halving cycle is scheduled to commence on 13 May 2024, which will reduce the mining reward to 3.125 BTC. Financial historians and investment professionals have noted on several occasions that Bitcoin is the only major asset class that experiences a reduction in the circulating supply on a pre-determined basis.

This explains why BTC has achieved such an explosive price move following each halving date. Professional economists point to the Bitcoin halving cycle as verifiable proof that the law of supply and demand still works as long as speculative markets are allowed to be freely traded without being manipulated by a third party.

Examining Bitcoin with Technical Analysis

Bitcoin’s price action has been extremely bullish over the course of the past several months. Let’s examine a few popular technical indicators in an effort to determine the future price direction of BTC.

Chart 1 below covers six months of recent price action. As you can see from the chart, Bitcoin has generated a series of higher highs dating back to October 2020. This is a classic sign of a bull market. Whenever a speculative asset continues to make a series of higher highs, this is a clear indication that the underlying momentum is heavily in favor of the bulls.

The most recent high was recorded on March 15 @ 61,749. Therefore, in order to maintain the bullish momentum, BTC must penetrate 61,749 within the next few weeks.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 22

Chart 2 includes approximately seven months of historical data. The green line on the chart represents the 50-day simple moving average (SMA) of Bitcoin. In terms of technical analysis, moving averages are one of the most popular indicators within the trading community. They have been used by traders and investors for 120 years, dating back to 1901.

Moving averages can be divided into several different time frames. In regard to Bitcoin, the 50-day SMA has generated the most consistent results based on historical testing.

As you can see from the chart, a buy signal was generated on October 12, 2020, when BTC moved above the 50-day SMA @ 11,093. Bitcoin has remained above its 50-day SMA for six consecutive months. As long as the price stays above the green line on the chart, BTC will continue to remain bullish.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 23

Chart 3 displays four months of recent price activity. Bitcoin is currently trading well above the trendline. In order to drop below the bullish trendline, the price must fall below 48,609. At least for now, this type of price decline is highly unlikely.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 24

Chart 4 contains intraday price action for the past two weeks. BTC has struggled to penetrate 60K. In fact, Bitcoin has made six unsuccessful attempts to exceed 60,000 since March 18. Most likely, BTC will successfully push above 60K within the next few weeks. The momentum is still clearly in favor of the bulls.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 25

Chart 5 includes a list of the important Fibonacci support levels. BTC is currently trading comfortably above the Fib support levels. The first sign of trouble for the Bitcoin bulls would be a daily close below 50,595. It’s certainly possible for BTC to drop below the Fib support level. However, the most likely scenario is a continuation of higher prices.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 26

Based on technical analysis, Bitcoin is clearly in the middle of a raging bull market. All of the major technical indicators are currently forecasting higher prices. At least for now, the path of least resistance is to the upside.

Latest News

Cryptocurrency

The Month in Review: Analyzing the Cryptocurrency Markets for October

Digitex Futures
• Dave Reiter
October 30, 2020

October was a very good month for the large cap crypto universe. The cryptocurrencies with the largest market capitalization turned in the best performance. Bitcoin led the way, with an impressive gain of 25.8%. Historically, it’s a good sign for the entire crypto space whenever BTC generates a healthy rate of return. It means that investors are increasing their exposure to digital currencies. NEO was the notable loser of the month, with a sharp decline of 19.5%. 

The Month in Review: Analyzing the Cryptocurrency Markets for October 27

What to Expect in 2021 and Beyond: BTC, ETH, DGTX

Bitcoin (BTC)

As we enter the final 60 days of 2020, it appears that BTC will deliver another spectacular yearly performance. Bitcoin has enjoyed a YTD return of 90.3% so far. As you know, BTC was launched in 2009. However, for the first two years of its existence, pricing information was rather sporadic. Reliable price data became available in late-2010. Since 2011, BTC has generated an average annual return of 965.9%. 

  • 2011 1,344.8% 
  • 2012 220.7%
  • 2013 5,586.5%
  • 2014 58.8% (-)
  • 2015 35.6%
  • 2016 123.4%
  • 2017 1,420.8%
  • 2018 74.6% (-)
  • 2019 94.7%

Where do we go from here? What’s in store for Bitcoin as the cryptocurrency approaches its 13th year of existence in January 2021? Without question, BTC is firmly on the path to mainstream adoption.

2020 will be remembered as the year that Bitcoin was first embraced by the global investment community as a major asset class. Although COVID-19 has unleashed a considerable amount of pain and distress all across the world, it has certainly pushed forward the adoption rate of digital assets like Bitcoin. Three major events have occurred in the Bitcoin space during the past few months which have laid the groundwork for mainstream acceptance of cryptocurrencies. Let’s take a closer look.

Comptroller of the Currency (OCC)

On July 22, the Office of the Comptroller of the Currency (OCC) published a letter allowing banks to provide cryptocurrency custody services for customers. Essentially, this ruling by the OCC gives banks in the United States the authority to offer their customers crypto lending, crypto deposits, crypto merchant services, and crypto custody services. This landmark decision by the OCC opens the door for the Securities and Exchange Commission (SEC) to allow investment banks to offer crypto products and services. Most likely, the SEC will give registered investment advisors permission to promote cryptocurrency products to their clients.        

The MicroStrategy Move

The second major crypto event occurred on August 11, when MicroStrategy purchased $250 million of Bitcoin from its corporate cash reserves. This marked the first time that a publicly-traded company used the cash on its balance sheet to purchase a cryptocurrency like BTC. MicroStrategy made another substantial purchase on September 14, when the company invested $175 million to acquire 16,796 BTC. The total investment was $425 million. 

Three weeks later, on October 8, Square announced an investment of $50 million in Bitcoin. This is just the tip of the iceberg. Very soon, other publicly traded companies will follow the lead of MicroStrategy and Square by investing cash holdings in BTC. This will be the launchpad for much higher prices in 2021.

PayPal

The third major crypto event was the PayPal announcement on October 21, which allows PayPal customers to buy and sell Bitcoin. It also provides PayPal merchants with the ability to accept Bitcoin as a method of payment. This is huge news for Bitcoin because PayPal has over 346 million customers. The company has more customers than JPMorgan Chase, Bank of America, and Wells Fargo, combined. PayPal will introduce millions of new people to Bitcoin through its mobile app and online website. This is incredibly bullish for Bitcoin.

In addition to the bullish fundamental news, BTC also looks quite bullish from a technical perspective. The Bitcoin chart pattern turned bullish when it penetrated the important resistance level at 12,476 (Chart #1). 

The Month in Review: Analyzing the Cryptocurrency Markets for October 28

The next major resistance level for BTC is 14,557 (Chart #2). 

The Month in Review: Analyzing the Cryptocurrency Markets for October 29

How high will Bitcoin climb in 2021 and beyond? Let’s review the current Fibonacci numbers for Bitcoin.

  • Level 1 23,804
  • Level 2 26,242
  • Level 3 30,185
  • Level 4 42,946
  • Level 5 46,889
  • Level 6 63,593

These numbers are calculated based on the trading range between the ATH in December 2017 and the subsequent low in December 2018.

It certainly appears as though Bitcoin could be on the verge of having a breakout year in 2021. For the first time in its history, BTC is bullish from both a fundamental perspective and a technical perspective. Mass adoption of Bitcoin is finally becoming a reality, particularly at the institutional level. 

Ethereum (ETH)

ETH is following in the footsteps of BTC by generating a successful performance in 2020. In fact, Ethereum has substantially outperformed Bitcoin based on its YTD results. Through the first 10 months of 2020, ETH has gained 201.8%. It is the top-performing major cryptocurrency in 2020. Why has Ethereum enjoyed such a spectacular year? Let’s review the details.

The driving force behind the big rally in Ethereum has been decentralized finance, more commonly known as DeFi. For those of you who may not be familiar with this topic, DeFi is a merger of traditional bank services with decentralized technologies like blockchain. The goal of the DeFi community is to completely disrupt the legacy financial services industry by offering decentralized financial products. These products include checking, savings, lending, debit cards, insurance, merchant services, and more. DeFi separates itself from traditional financial services based on the fact that it removes all intermediaries from the equation.

DeFi has exploded in popularity during the past 12 months. In fact, DeFi is currently the fastest growing sector in blockchain. The future growth potential is mind-boggling because the financial services industry is so large. Based on data provided by the World Bank, by 2022, the size of the global financial services industry will be $26.5 trillion. This figure does not include banking or insurance, which has a combined global market capitalization of $13.1 trillion. If we combine financial services, banking, and insurance, the total global market cap is $39.6 trillion. This is a massive amount of money and it highlights the future growth potential of DeFi. 

As of August 2020, the current size of DeFi is only $9.1 billion. This is a “drop in the ocean” compared to $39.6 trillion. As you can see, DeFi has enormous upside potential. This is very bullish for ETH because the vast majority of DeFi applications are built on top of Ethereum. DeFi is the reason why ETH has easily outperformed BTC in 2020. It also explains why many crypto investors believe that ETH will continue to outperform BTC over the course of the next several years.

Ethereum TA

In terms of technical analysis, ETH generated a bullish breakout when it penetrated the 2019 high @  363.69 (Chart #3). 

The Month in Review: Analyzing the Cryptocurrency Markets for October 30

The next important resistance level is 628.11 (Chart #4). 

The Month in Review: Analyzing the Cryptocurrency Markets for October 31

Let’s review the current Fibonacci numbers for ETH.

  • Level 1 1,735
  • Level 2 1,930
  • Level 3 2,246
  • Level 4 3,268
  • Level 5 3,583
  • Level 6 4,920

These numbers are calculated based on the trading range between the ATH in January 2018 and the subsequent low in December 2018.

Based on Fibonacci calculations, ETH has substantially more upside potential versus BTC. A weekly close above 628.11 opens the door to much higher prices. Without question, the major catalyst for Ethereum will be the continued growth of decentralized finance which has the potential to completely disrupt an industry valued at $40 trillion. 

Digitex Futures (DGTX)

Digitex Futures achieved great success in 2020. The company made history on April 27 by successfully launching the first-ever zero-fee crypto futures exchange. The public launch occurred on July 31, providing traders with a state-of-the-art user interface, combined with a commission-free trading experience. The first two markets available on the exchange were BTC and ETH. However, that was just the beginning. 

DGTX TA

Based on technical analysis, DGTX has penetrated a few important support levels during the past few weeks. Currently, the momentum is in favor of the bears. The next important support level is the 2020 low @ .0135. In order to recapture the momentum, the bulls need a weekly close above .0470. Let’s review the current Fibonacci numbers for DGTX.

  • Level 1 .1944
  • Level 2 .2153
  • Level 3 .2490
  • Level 4 .3584
  • Level 5 .3921
  • Level 6 .5352

As you examine these Fibonacci numbers, keep in mind that this is an intermediate-term price forecast. These numbers are calculated based on the trading range between the ATH in October 2018 and the recent low in October 2020. 

Personal Comments

The first time I heard about Digitex Futures Exchange was in July 2018, when I stumbled across Adam Todd’s white paper describing a commission-free crypto futures exchange. I was immediately impressed with Adam’s concept of minting a native currency in lieu of charging transaction fees. This was an incredibly novel idea to level the playing field in favor of the customer by removing burdensome fees and commissions. Based on my research in 2018, Adam was the only person in the crypto space who was working on such a project. This is a true testament to Adam’s innovation and ingenuity, which has become part of the culture of Digitex.

In late-2019, each of the major legacy brokerage firms adopted a commission-free model. This included Charles Schwab, E*Trade, Fidelity Investments, and TD Ameritrade. Adam was way ahead of the curve. In 2018, he was already positioning Digitex as a commission-free exchange based on his belief that the industry was headed in this direction. 

Based on my experience from being involved in the internet mania of the late-1990s, the long-term winners in the crypto revolution will be the companies that are pushing the envelope in terms of product innovation and product expansion. Digitex is a step in the right direction, as the company positions itself in this new era of decentralization and crypto innovation.     

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner. 

October 30, 2020
Digitex Futures

The Month in Review: Analyzing the Cryptocurrency Markets for October

Dave Reiter
Cryptocurrency

October was a very good month for the large cap crypto universe. The cryptocurrencies with the largest market capitalization turned in the best performance. Bitcoin led the way, with an impressive gain of 25.8%. Historically, it’s a good sign for the entire crypto space whenever BTC generates a healthy rate of return. It means that investors are increasing their exposure to digital currencies. NEO was the notable loser of the month, with a sharp decline of 19.5%. 

The Month in Review: Analyzing the Cryptocurrency Markets for October 32

What to Expect in 2021 and Beyond: BTC, ETH, DGTX

Bitcoin (BTC)

As we enter the final 60 days of 2020, it appears that BTC will deliver another spectacular yearly performance. Bitcoin has enjoyed a YTD return of 90.3% so far. As you know, BTC was launched in 2009. However, for the first two years of its existence, pricing information was rather sporadic. Reliable price data became available in late-2010. Since 2011, BTC has generated an average annual return of 965.9%. 

  • 2011 1,344.8% 
  • 2012 220.7%
  • 2013 5,586.5%
  • 2014 58.8% (-)
  • 2015 35.6%
  • 2016 123.4%
  • 2017 1,420.8%
  • 2018 74.6% (-)
  • 2019 94.7%

Where do we go from here? What’s in store for Bitcoin as the cryptocurrency approaches its 13th year of existence in January 2021? Without question, BTC is firmly on the path to mainstream adoption.

2020 will be remembered as the year that Bitcoin was first embraced by the global investment community as a major asset class. Although COVID-19 has unleashed a considerable amount of pain and distress all across the world, it has certainly pushed forward the adoption rate of digital assets like Bitcoin. Three major events have occurred in the Bitcoin space during the past few months which have laid the groundwork for mainstream acceptance of cryptocurrencies. Let’s take a closer look.

Comptroller of the Currency (OCC)

On July 22, the Office of the Comptroller of the Currency (OCC) published a letter allowing banks to provide cryptocurrency custody services for customers. Essentially, this ruling by the OCC gives banks in the United States the authority to offer their customers crypto lending, crypto deposits, crypto merchant services, and crypto custody services. This landmark decision by the OCC opens the door for the Securities and Exchange Commission (SEC) to allow investment banks to offer crypto products and services. Most likely, the SEC will give registered investment advisors permission to promote cryptocurrency products to their clients.        

The MicroStrategy Move

The second major crypto event occurred on August 11, when MicroStrategy purchased $250 million of Bitcoin from its corporate cash reserves. This marked the first time that a publicly-traded company used the cash on its balance sheet to purchase a cryptocurrency like BTC. MicroStrategy made another substantial purchase on September 14, when the company invested $175 million to acquire 16,796 BTC. The total investment was $425 million. 

Three weeks later, on October 8, Square announced an investment of $50 million in Bitcoin. This is just the tip of the iceberg. Very soon, other publicly traded companies will follow the lead of MicroStrategy and Square by investing cash holdings in BTC. This will be the launchpad for much higher prices in 2021.

PayPal

The third major crypto event was the PayPal announcement on October 21, which allows PayPal customers to buy and sell Bitcoin. It also provides PayPal merchants with the ability to accept Bitcoin as a method of payment. This is huge news for Bitcoin because PayPal has over 346 million customers. The company has more customers than JPMorgan Chase, Bank of America, and Wells Fargo, combined. PayPal will introduce millions of new people to Bitcoin through its mobile app and online website. This is incredibly bullish for Bitcoin.

In addition to the bullish fundamental news, BTC also looks quite bullish from a technical perspective. The Bitcoin chart pattern turned bullish when it penetrated the important resistance level at 12,476 (Chart #1). 

The Month in Review: Analyzing the Cryptocurrency Markets for October 33

The next major resistance level for BTC is 14,557 (Chart #2). 

The Month in Review: Analyzing the Cryptocurrency Markets for October 34

How high will Bitcoin climb in 2021 and beyond? Let’s review the current Fibonacci numbers for Bitcoin.

  • Level 1 23,804
  • Level 2 26,242
  • Level 3 30,185
  • Level 4 42,946
  • Level 5 46,889
  • Level 6 63,593

These numbers are calculated based on the trading range between the ATH in December 2017 and the subsequent low in December 2018.

It certainly appears as though Bitcoin could be on the verge of having a breakout year in 2021. For the first time in its history, BTC is bullish from both a fundamental perspective and a technical perspective. Mass adoption of Bitcoin is finally becoming a reality, particularly at the institutional level. 

Ethereum (ETH)

ETH is following in the footsteps of BTC by generating a successful performance in 2020. In fact, Ethereum has substantially outperformed Bitcoin based on its YTD results. Through the first 10 months of 2020, ETH has gained 201.8%. It is the top-performing major cryptocurrency in 2020. Why has Ethereum enjoyed such a spectacular year? Let’s review the details.

The driving force behind the big rally in Ethereum has been decentralized finance, more commonly known as DeFi. For those of you who may not be familiar with this topic, DeFi is a merger of traditional bank services with decentralized technologies like blockchain. The goal of the DeFi community is to completely disrupt the legacy financial services industry by offering decentralized financial products. These products include checking, savings, lending, debit cards, insurance, merchant services, and more. DeFi separates itself from traditional financial services based on the fact that it removes all intermediaries from the equation.

DeFi has exploded in popularity during the past 12 months. In fact, DeFi is currently the fastest growing sector in blockchain. The future growth potential is mind-boggling because the financial services industry is so large. Based on data provided by the World Bank, by 2022, the size of the global financial services industry will be $26.5 trillion. This figure does not include banking or insurance, which has a combined global market capitalization of $13.1 trillion. If we combine financial services, banking, and insurance, the total global market cap is $39.6 trillion. This is a massive amount of money and it highlights the future growth potential of DeFi. 

As of August 2020, the current size of DeFi is only $9.1 billion. This is a “drop in the ocean” compared to $39.6 trillion. As you can see, DeFi has enormous upside potential. This is very bullish for ETH because the vast majority of DeFi applications are built on top of Ethereum. DeFi is the reason why ETH has easily outperformed BTC in 2020. It also explains why many crypto investors believe that ETH will continue to outperform BTC over the course of the next several years.

Ethereum TA

In terms of technical analysis, ETH generated a bullish breakout when it penetrated the 2019 high @  363.69 (Chart #3). 

The Month in Review: Analyzing the Cryptocurrency Markets for October 35

The next important resistance level is 628.11 (Chart #4). 

The Month in Review: Analyzing the Cryptocurrency Markets for October 36

Let’s review the current Fibonacci numbers for ETH.

  • Level 1 1,735
  • Level 2 1,930
  • Level 3 2,246
  • Level 4 3,268
  • Level 5 3,583
  • Level 6 4,920

These numbers are calculated based on the trading range between the ATH in January 2018 and the subsequent low in December 2018.

Based on Fibonacci calculations, ETH has substantially more upside potential versus BTC. A weekly close above 628.11 opens the door to much higher prices. Without question, the major catalyst for Ethereum will be the continued growth of decentralized finance which has the potential to completely disrupt an industry valued at $40 trillion. 

Digitex Futures (DGTX)

Digitex Futures achieved great success in 2020. The company made history on April 27 by successfully launching the first-ever zero-fee crypto futures exchange. The public launch occurred on July 31, providing traders with a state-of-the-art user interface, combined with a commission-free trading experience. The first two markets available on the exchange were BTC and ETH. However, that was just the beginning. 

DGTX TA

Based on technical analysis, DGTX has penetrated a few important support levels during the past few weeks. Currently, the momentum is in favor of the bears. The next important support level is the 2020 low @ .0135. In order to recapture the momentum, the bulls need a weekly close above .0470. Let’s review the current Fibonacci numbers for DGTX.

  • Level 1 .1944
  • Level 2 .2153
  • Level 3 .2490
  • Level 4 .3584
  • Level 5 .3921
  • Level 6 .5352

As you examine these Fibonacci numbers, keep in mind that this is an intermediate-term price forecast. These numbers are calculated based on the trading range between the ATH in October 2018 and the recent low in October 2020. 

Personal Comments

The first time I heard about Digitex Futures Exchange was in July 2018, when I stumbled across Adam Todd’s white paper describing a commission-free crypto futures exchange. I was immediately impressed with Adam’s concept of minting a native currency in lieu of charging transaction fees. This was an incredibly novel idea to level the playing field in favor of the customer by removing burdensome fees and commissions. Based on my research in 2018, Adam was the only person in the crypto space who was working on such a project. This is a true testament to Adam’s innovation and ingenuity, which has become part of the culture of Digitex.

In late-2019, each of the major legacy brokerage firms adopted a commission-free model. This included Charles Schwab, E*Trade, Fidelity Investments, and TD Ameritrade. Adam was way ahead of the curve. In 2018, he was already positioning Digitex as a commission-free exchange based on his belief that the industry was headed in this direction. 

Based on my experience from being involved in the internet mania of the late-1990s, the long-term winners in the crypto revolution will be the companies that are pushing the envelope in terms of product innovation and product expansion. Digitex is a step in the right direction, as the company positions itself in this new era of decentralization and crypto innovation.     

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner. 

Latest News

bull market

Risk-On Assets Are in the Early Stages of a Raging Bull Market

Digitex Futures
• Dave Reiter
September 1, 2020

You’re used to trading cryptocurrencies by now most likely in both bull and bear markets. But in this fascinating article, lifelong trader and resident Digitex contributor Dave Reiter examines the macro factors in the market and explains why risk-on assets (including cryptocurrencies) are in the early stages of a raging bull market. Check it out.

Risk-on risk-off is an indicator used for measuring investors’ appetite for speculative investments. Generally speaking, investors have a tendency to move in the same direction, particularly on a short-term basis. This explains why financial markets have a history of generating dramatic intraday price movements across all asset classes.

Risk-on/risk-off is driven by investor psychology along with emotional responses to financial reports, macro-economic events, geopolitical announcements, and unexpected changes to the global investment landscape. It’s not uncommon for investors to be locked in the same risk environment for several months in a row. Suddenly, usually without warning, an unexpected economic event or major financial report will cause investors to change their tolerance for risk. This “herd mentality” will usually produce a substantial movement in the global financial markets.

In terms of specific investments, which are considered risk-on and which are considered risk-off? Let’s review the following list:

Risk-On Assets   

  • Stocks
  • Commodities
  • Real Estate
  • Precious Metals
  • Cryptocurrencies
  • Alternative Assets

 Risk-Off Assets 

  • Government Bonds
  • Cash
  • US Dollar

It’s not surprising that risk-on assets include highly speculative investments like stocks, commodities, and cryptocurrencies. Risk-off assets include safe-haven investments like bonds, cash, and US Dollar. 

Cash is comprised of several different short-term investments like money market accounts, bank savings accounts, Treasury Bills, money market mutual funds, and any type of liquid investment with a maturity date of less than one year. In the crypto universe, stablecoins are viewed as cash. 

Several months prior to the start of the global pandemic in February 2020, investors were leaning heavily in favor of holding risk-on assets. In fact, an argument could be made that a risk-on bull market had been in effect since late-2016.

The Short-Lived Risk-Off Bull Run

Beginning in February, investors immediately abandoned their risk-on assets when it became abundantly clear that our planet was on the verge of a worldwide pandemic. Almost overnight, global investors switched from risk-on to risk-off. Global equity markets plummeted, commodities collapsed, precious metals took a tumble, and crypto prices experienced a sharp decline. Suddenly, risk-off assets found themselves in a roaring bull market. Bond prices skyrocketed to the upside, the US Dollar soared to a multi-year high and investors were piling into cash.

 The vast majority of the investment universe was convinced that the coronavirus would force risk-on assets to remain in a bear market for the next several months or longer. However, thanks to massive central bank money printing, the risk-off bull market lasted a grand total of approximately six weeks. Investors soon realized that world leaders would stabilize the global economy with unprecedented levels of monetary and fiscal stimulus. Therefore, the global investment community quickly liquidated their risk-off assets in exchange for stocks, commodities, precious metals, and crypto.

The Risk-On Bull Run

During the past five months, risk-on assets have enjoyed an incredible bull market. For example, global equities (as measured by Vanguard Total World Stock Index ETF) have risen 56%, gold has advanced 35% and Bitcoin has exploded by 196%. Risk-off assets like the US Dollar have experienced substantial declines during the same period. Investors are abandoning the safety of the US Dollar in favor of risk-on assets.

Despite the recent dramatic rally, risk-on assets are in the early stages of a long-term bull market. Why? Because global central banks and government leaders have no intention of reducing or eliminating money printing programs or fiscal stimulus programs. In fact, several governments and monetary authorities have plans to increase their stimulus programs. The risk-on bull market is just getting started, which should be quite bullish for cryptocurrencies.  

Cash Is Trash

During the past few months, several of the most successful investors on Wall Street have publicly advocated for moving out of cash in favor of risk-on assets. Global central banks have made it perfectly clear that they will continue to devalue paper money by printing excessive amounts of fiat currency units. Additionally, the vast majority of G20 monetary leaders have pushed interest rates to 0%. In fact, some countries are below 0%. Of course, this means that savers are watching their account balances slowly erode over time.

To make matters worse, the Federal Reserve recently announced that it would allow the level of US inflation to rise above its target rate of 2%. There has never been a time in the 100+ year history of the Federal Reserve where Fed leaders have completely abandoned their policy objective of maintaining price stability. Essentially, monetary authorities (led by the actions of the Federal Reserve) will do “whatever it takes” to create inflation in an effort to resurrect the global economy.   

Based on central bank policy decisions, it is becoming crystal clear that monetary authorities are discouraging investors and savers from holding cash balances. Instead, they want investors to stimulate the global economy by investing in stocks, commodities, real estate, digital assets, precious metals and other alternative assets. History has repeatedly shown us that it’s never a good idea to ignore central banks in regard to their policy objectives. This explains why “cash is trash.”

Digitex Continues to Forge Ahead

As you know, Digitex Futures made history this year by successfully launching the first-ever zero-fee crypto futures exchange. The public launch occurred on July 31. Despite a very successful Launch Day, the event was overshadowed by a sharp decline in the price of DGTX. Of course, DGTX investors certainly don’t enjoy watching the price of their token holdings decline in value. However, Digitex investors must remember that successful investing is a marathon. This is not a sprint, particularly when it involves investing in a young startup like Digitex.

Adam Todd and the entire Digitex team continue to deliver on their promise of creating a commission-free crypto exchange with state-of-the-art user experience. Digitex is in the very early stages of becoming a dominant player in the crypto futures exchange universe and will be adding new markets this month including ETH and XRP against the USD and traditional markets like stocks, oil, and gold. Digitex is just getting warmed up.    

Personal Comments

I’ve been trading and investing continuously since 1989. I had the opportunity to witness the internet mania, the Asian financial crisis, the aftermath of 911, the global financial crisis, and most recently, the global pandemic. Without question, the most important thing I have learned from each of these events is that global central banks always ride to the rescue by flooding the financial system with unlimited amounts of fiat currency units. In fact, each crisis dating all the way back to the 1987 stock market crash, is met with ever-increasing amounts of money printing.

This time is no different. In response to COVID-19, monetary leaders have thrown down the gauntlet by unleashing an epic amount of fiat money. This is incredibly bullish for cryptocurrencies and other digital assets. If you are a crypto investor, the “good news” is that this monetary stimulation is not going to disappear anytime soon. The crypto bull is just getting started.

In regard to Digitex, despite the recent decline, let’s not forget that DGTX is still ahead by 408% since its ICO in January 2018. How many other native currencies have generated such a substantial rate of return for their investors? Not many.  

As we recently discussed, it’s not uncommon for startups to experience erratic price behavior during the first few years of their existence. In fact, it’s quite normal. Consequently, I’m not the least bit concerned about the recent performance of DGTX. Of course, I can only speak for myself. Personally, I believe that DGTX should be treated as a long-term investment. And long-term investors and trend traders will be looking to increase their DGTX holdings when the price hits .1606 on a bullish breakout.

Anyone who is expecting DGTX to immediately rally above $1.00 per token will be disappointed. That’s simply unrealistic. It doesn’t work that way. These things take time. In my opinion, DGTX is well worth the wait. 

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.

September 1, 2020
Digitex Futures

Risk-On Assets Are in the Early Stages of a Raging Bull Market

Dave Reiter
bull market

You’re used to trading cryptocurrencies by now most likely in both bull and bear markets. But in this fascinating article, lifelong trader and resident Digitex contributor Dave Reiter examines the macro factors in the market and explains why risk-on assets (including cryptocurrencies) are in the early stages of a raging bull market. Check it out.

Risk-on risk-off is an indicator used for measuring investors’ appetite for speculative investments. Generally speaking, investors have a tendency to move in the same direction, particularly on a short-term basis. This explains why financial markets have a history of generating dramatic intraday price movements across all asset classes.

Risk-on/risk-off is driven by investor psychology along with emotional responses to financial reports, macro-economic events, geopolitical announcements, and unexpected changes to the global investment landscape. It’s not uncommon for investors to be locked in the same risk environment for several months in a row. Suddenly, usually without warning, an unexpected economic event or major financial report will cause investors to change their tolerance for risk. This “herd mentality” will usually produce a substantial movement in the global financial markets.

In terms of specific investments, which are considered risk-on and which are considered risk-off? Let’s review the following list:

Risk-On Assets   

  • Stocks
  • Commodities
  • Real Estate
  • Precious Metals
  • Cryptocurrencies
  • Alternative Assets

 Risk-Off Assets 

  • Government Bonds
  • Cash
  • US Dollar

It’s not surprising that risk-on assets include highly speculative investments like stocks, commodities, and cryptocurrencies. Risk-off assets include safe-haven investments like bonds, cash, and US Dollar. 

Cash is comprised of several different short-term investments like money market accounts, bank savings accounts, Treasury Bills, money market mutual funds, and any type of liquid investment with a maturity date of less than one year. In the crypto universe, stablecoins are viewed as cash. 

Several months prior to the start of the global pandemic in February 2020, investors were leaning heavily in favor of holding risk-on assets. In fact, an argument could be made that a risk-on bull market had been in effect since late-2016.

The Short-Lived Risk-Off Bull Run

Beginning in February, investors immediately abandoned their risk-on assets when it became abundantly clear that our planet was on the verge of a worldwide pandemic. Almost overnight, global investors switched from risk-on to risk-off. Global equity markets plummeted, commodities collapsed, precious metals took a tumble, and crypto prices experienced a sharp decline. Suddenly, risk-off assets found themselves in a roaring bull market. Bond prices skyrocketed to the upside, the US Dollar soared to a multi-year high and investors were piling into cash.

 The vast majority of the investment universe was convinced that the coronavirus would force risk-on assets to remain in a bear market for the next several months or longer. However, thanks to massive central bank money printing, the risk-off bull market lasted a grand total of approximately six weeks. Investors soon realized that world leaders would stabilize the global economy with unprecedented levels of monetary and fiscal stimulus. Therefore, the global investment community quickly liquidated their risk-off assets in exchange for stocks, commodities, precious metals, and crypto.

The Risk-On Bull Run

During the past five months, risk-on assets have enjoyed an incredible bull market. For example, global equities (as measured by Vanguard Total World Stock Index ETF) have risen 56%, gold has advanced 35% and Bitcoin has exploded by 196%. Risk-off assets like the US Dollar have experienced substantial declines during the same period. Investors are abandoning the safety of the US Dollar in favor of risk-on assets.

Despite the recent dramatic rally, risk-on assets are in the early stages of a long-term bull market. Why? Because global central banks and government leaders have no intention of reducing or eliminating money printing programs or fiscal stimulus programs. In fact, several governments and monetary authorities have plans to increase their stimulus programs. The risk-on bull market is just getting started, which should be quite bullish for cryptocurrencies.  

Cash Is Trash

During the past few months, several of the most successful investors on Wall Street have publicly advocated for moving out of cash in favor of risk-on assets. Global central banks have made it perfectly clear that they will continue to devalue paper money by printing excessive amounts of fiat currency units. Additionally, the vast majority of G20 monetary leaders have pushed interest rates to 0%. In fact, some countries are below 0%. Of course, this means that savers are watching their account balances slowly erode over time.

To make matters worse, the Federal Reserve recently announced that it would allow the level of US inflation to rise above its target rate of 2%. There has never been a time in the 100+ year history of the Federal Reserve where Fed leaders have completely abandoned their policy objective of maintaining price stability. Essentially, monetary authorities (led by the actions of the Federal Reserve) will do “whatever it takes” to create inflation in an effort to resurrect the global economy.   

Based on central bank policy decisions, it is becoming crystal clear that monetary authorities are discouraging investors and savers from holding cash balances. Instead, they want investors to stimulate the global economy by investing in stocks, commodities, real estate, digital assets, precious metals and other alternative assets. History has repeatedly shown us that it’s never a good idea to ignore central banks in regard to their policy objectives. This explains why “cash is trash.”

Digitex Continues to Forge Ahead

As you know, Digitex Futures made history this year by successfully launching the first-ever zero-fee crypto futures exchange. The public launch occurred on July 31. Despite a very successful Launch Day, the event was overshadowed by a sharp decline in the price of DGTX. Of course, DGTX investors certainly don’t enjoy watching the price of their token holdings decline in value. However, Digitex investors must remember that successful investing is a marathon. This is not a sprint, particularly when it involves investing in a young startup like Digitex.

Adam Todd and the entire Digitex team continue to deliver on their promise of creating a commission-free crypto exchange with state-of-the-art user experience. Digitex is in the very early stages of becoming a dominant player in the crypto futures exchange universe and will be adding new markets this month including ETH and XRP against the USD and traditional markets like stocks, oil, and gold. Digitex is just getting warmed up.    

Personal Comments

I’ve been trading and investing continuously since 1989. I had the opportunity to witness the internet mania, the Asian financial crisis, the aftermath of 911, the global financial crisis, and most recently, the global pandemic. Without question, the most important thing I have learned from each of these events is that global central banks always ride to the rescue by flooding the financial system with unlimited amounts of fiat currency units. In fact, each crisis dating all the way back to the 1987 stock market crash, is met with ever-increasing amounts of money printing.

This time is no different. In response to COVID-19, monetary leaders have thrown down the gauntlet by unleashing an epic amount of fiat money. This is incredibly bullish for cryptocurrencies and other digital assets. If you are a crypto investor, the “good news” is that this monetary stimulation is not going to disappear anytime soon. The crypto bull is just getting started.

In regard to Digitex, despite the recent decline, let’s not forget that DGTX is still ahead by 408% since its ICO in January 2018. How many other native currencies have generated such a substantial rate of return for their investors? Not many.  

As we recently discussed, it’s not uncommon for startups to experience erratic price behavior during the first few years of their existence. In fact, it’s quite normal. Consequently, I’m not the least bit concerned about the recent performance of DGTX. Of course, I can only speak for myself. Personally, I believe that DGTX should be treated as a long-term investment. And long-term investors and trend traders will be looking to increase their DGTX holdings when the price hits .1606 on a bullish breakout.

Anyone who is expecting DGTX to immediately rally above $1.00 per token will be disappointed. That’s simply unrealistic. It doesn’t work that way. These things take time. In my opinion, DGTX is well worth the wait. 

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.

Latest News

Cryptocurrency

The Month In Review: Analyzing The Cryptocurrency Markets For June

Cryptocurrency
• Dave Reiter
July 2, 2020

The month leading up to July 1 was rather uneventful for the crypto universe, but not for DGTX! Yesterday’s KuCoin listing announcement, together with a boost to trader numbers above 1000, provided a stellar end to the month with a spectacular 15.9% gain compared to June 1.  

Elsewhere, the financial markets continue to remain focused on COVID-19 in terms of how the pandemic will impact the global economy. The rest of the major cryptocurrencies turned in a rather poor performance for the month. As you can see from the table, only three tokens were able to generate a positive rate of return with DGTX obviously the big winner.

Crypto Results For June

Cryptocurrency June 1 July 1 % Change
DGTX .0434 .0503 15.9%
Zcash 51.69 51.93 0.5%
Ethereum 230.98 231.15 0.1%
Monero 65.07 64.63 (0.7%)
Bitcoin 9,461 9,232 (2.4%)
Bitcoin Cash 239.88 223.79 (6.7%)
NEO 10.97 10.16 (7.4%)
Litecoin 45.49 41.72 (8.5%)
Dash 76.53 68.37 (10.7%)
EOS 2.67 2.37 (11.2%)
XRP .2029 .1770 (12.8%)

Source: CoinMarketCap

Digitex Delivers On Its Promise     

Digitex continues to onboard new traders to its state-of-the art trading platform, exceeding 1,000 mainnet users as of last week. The transition from testnet to mainnet has been very successful – so much so, that the DFE will be aggressively increasing the number of mainnet users from now on, aiming for 30,000 by the time of the public launch. This validates the fact that Adam Todd and the entire Digitex team have delivered on their promise to provide a cutting edge trading experience on a zero-fee exchange.

As you can see from the performance table, DGTX has rewarded its HODLers with a substantial rate of return during the past 30 days. Why did the native currency generate such a dramatic rally? Because DGTX has finally gained the recognition to become listed on a major global crypto exchange. 

Crypto traders can now access the DGTX token on KuCoin, which is one of the fastest-growing crypto exchanges, with over five million users. The KuCoin listing is another example of Digitex’s commitment to deliver on its promise to make Digitex one of the premier leaders in the crypto futures exchange industry. 

The future is bright at Digitex.    

Personal Comments

DGTX has the potential to move sharply higher. Please review the Fibonacci levels. 

DGTX Fibonacci Price Levels

Level 1 Level 2 Level 3 Level 4
.0548 .0717 .0886 .1435
Level 5 Level 6 Level 7 Level 8
.1773 .1983 .2152 .2321

Reviewing the Month in Crypto – Why Is Ethereum Outperforming Bitcoin?

Without question, Bitcoin is the undisputed leader of the crypto universe. BTC was the first cryptocurrency to enter the mainstream media. It easily dominates the digital asset ecosystem by controlling 64% of the market capitalization of all cryptocurrencies. When people discuss cryptocurrencies, they are usually referring to Bitcoin. 

However, just because BTC is the most popular cryptocurrency does not necessarily mean that it is the best performing digital asset. Bitcoin enjoyed a dramatic rally in 2017, easily outperforming all cryptocurrencies. 

Nevertheless, during the past 2 ½ years, BTC has struggled to regain its momentum. Although the price of Bitcoin has risen in 2020, it has been outperformed by several cryptocurrencies, most notably Ethereum (ETH). 

For example, ETH has increased by 68.4% during the past three months versus 36.2% for BTC. During the past six months, ETH has dramatically outperformed BTC. The numbers are 82.3% for ETH versus 27.6% for BTC. 

Why has Ethereum outperformed BTC in 2020? More importantly, will this trend continue? Let’s examine the details.    

Why Investors Are Bullish on ETH

Unlike Bitcoin, developers can program Ethereum to build new kinds of decentralized applications. Once these applications are uploaded to Ethereum, they will always run exactly as programmed. During the past few years, thousands of developers all over the world have been building applications on Ethereum.

Now, more Fortune 500 companies use Ethereum than any other cryptocurrency for their blockchain projects. Digitex also relies on the Ethereum blockchain for operating its commission-free crypto futures exchange.           

The most significant development Ethereum has enabled is smart contracts, allowing for the performance of a credible transaction without the need for a third party. You can use these contracts to mint tokens representative of money, property, shares of stock, fine art, automobiles, precious metals, or anything of value. The list is endless. Now, smart contracts are ushering in a new age of decentralized finance.

The Growth of DeFi

Beginning in 2019, several prestigious Wall Street firms began losing their most talented employees. These employees were abandoning six-figure jobs for the opportunity to work in cryptocurrency and blockchain technology. The “hot jobs” were in the area of decentralized finance, which is the migrating of financial services to a decentralized platform. 

DeFi, as it is more commonly known, has exploded in popularity during the past 12 to 18 months. In terms of cryptocurrency use cases, DeFi easily has some of the most upside potential. 

Why? Because financial services is a multi-trillion dollar industry. Specifically, global financial services is projected to reach $26.5 trillion by 2022. The overwhelming majority of crypto companies who are actively involved in DeFi have chosen to use the Ethereum blockchain for their various projects. 

This is simply another example of why ETH has outperformed BTC throughout 2020. Will this trend continue? Of course, it’s impossible to accurately forecast crypto trends. At least for now, traders and investors prefer ETH over BTC.       

Technical Analysis Favors Ethereum Over Bitcoin

In terms of technical analysis, ETH has a more bullish chart pattern than BTC. ETH is on the verge of a bullish breakout @ 252.05 (Chart #1).

The Month In Review: Analyzing The Cryptocurrency Markets For June 37

The bullish breakout for BTC is 10391. As you can see from Chart #2, BTC is not even close to its bullish breakout.

The Month In Review: Analyzing The Cryptocurrency Markets For June 38

Additionally, ETH has easily outperformed BTC during the past six months.      

Wrapping It Up

While BTC remains the first and flagship cryptocurrency, DGTX and ETH both offer more in the way of real-world utility. Nobody is suggesting that BTC is going to lose its position. However, the gains we’ve seen recently demonstrate that there’s an appetite for cryptos that deliver. Both DGTX and ETH are doing just that. 

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.   

July 2, 2020
Cryptocurrency

The Month In Review: Analyzing The Cryptocurrency Markets For June

Dave Reiter
Cryptocurrency

The month leading up to July 1 was rather uneventful for the crypto universe, but not for DGTX! Yesterday’s KuCoin listing announcement, together with a boost to trader numbers above 1000, provided a stellar end to the month with a spectacular 15.9% gain compared to June 1.  

Elsewhere, the financial markets continue to remain focused on COVID-19 in terms of how the pandemic will impact the global economy. The rest of the major cryptocurrencies turned in a rather poor performance for the month. As you can see from the table, only three tokens were able to generate a positive rate of return with DGTX obviously the big winner.

Crypto Results For June

Cryptocurrency June 1 July 1 % Change
DGTX .0434 .0503 15.9%
Zcash 51.69 51.93 0.5%
Ethereum 230.98 231.15 0.1%
Monero 65.07 64.63 (0.7%)
Bitcoin 9,461 9,232 (2.4%)
Bitcoin Cash 239.88 223.79 (6.7%)
NEO 10.97 10.16 (7.4%)
Litecoin 45.49 41.72 (8.5%)
Dash 76.53 68.37 (10.7%)
EOS 2.67 2.37 (11.2%)
XRP .2029 .1770 (12.8%)

Source: CoinMarketCap

Digitex Delivers On Its Promise     

Digitex continues to onboard new traders to its state-of-the art trading platform, exceeding 1,000 mainnet users as of last week. The transition from testnet to mainnet has been very successful – so much so, that the DFE will be aggressively increasing the number of mainnet users from now on, aiming for 30,000 by the time of the public launch. This validates the fact that Adam Todd and the entire Digitex team have delivered on their promise to provide a cutting edge trading experience on a zero-fee exchange.

As you can see from the performance table, DGTX has rewarded its HODLers with a substantial rate of return during the past 30 days. Why did the native currency generate such a dramatic rally? Because DGTX has finally gained the recognition to become listed on a major global crypto exchange. 

Crypto traders can now access the DGTX token on KuCoin, which is one of the fastest-growing crypto exchanges, with over five million users. The KuCoin listing is another example of Digitex’s commitment to deliver on its promise to make Digitex one of the premier leaders in the crypto futures exchange industry. 

The future is bright at Digitex.    

Personal Comments

DGTX has the potential to move sharply higher. Please review the Fibonacci levels. 

DGTX Fibonacci Price Levels

Level 1 Level 2 Level 3 Level 4
.0548 .0717 .0886 .1435
Level 5 Level 6 Level 7 Level 8
.1773 .1983 .2152 .2321

Reviewing the Month in Crypto – Why Is Ethereum Outperforming Bitcoin?

Without question, Bitcoin is the undisputed leader of the crypto universe. BTC was the first cryptocurrency to enter the mainstream media. It easily dominates the digital asset ecosystem by controlling 64% of the market capitalization of all cryptocurrencies. When people discuss cryptocurrencies, they are usually referring to Bitcoin. 

However, just because BTC is the most popular cryptocurrency does not necessarily mean that it is the best performing digital asset. Bitcoin enjoyed a dramatic rally in 2017, easily outperforming all cryptocurrencies. 

Nevertheless, during the past 2 ½ years, BTC has struggled to regain its momentum. Although the price of Bitcoin has risen in 2020, it has been outperformed by several cryptocurrencies, most notably Ethereum (ETH). 

For example, ETH has increased by 68.4% during the past three months versus 36.2% for BTC. During the past six months, ETH has dramatically outperformed BTC. The numbers are 82.3% for ETH versus 27.6% for BTC. 

Why has Ethereum outperformed BTC in 2020? More importantly, will this trend continue? Let’s examine the details.    

Why Investors Are Bullish on ETH

Unlike Bitcoin, developers can program Ethereum to build new kinds of decentralized applications. Once these applications are uploaded to Ethereum, they will always run exactly as programmed. During the past few years, thousands of developers all over the world have been building applications on Ethereum.

Now, more Fortune 500 companies use Ethereum than any other cryptocurrency for their blockchain projects. Digitex also relies on the Ethereum blockchain for operating its commission-free crypto futures exchange.           

The most significant development Ethereum has enabled is smart contracts, allowing for the performance of a credible transaction without the need for a third party. You can use these contracts to mint tokens representative of money, property, shares of stock, fine art, automobiles, precious metals, or anything of value. The list is endless. Now, smart contracts are ushering in a new age of decentralized finance.

The Growth of DeFi

Beginning in 2019, several prestigious Wall Street firms began losing their most talented employees. These employees were abandoning six-figure jobs for the opportunity to work in cryptocurrency and blockchain technology. The “hot jobs” were in the area of decentralized finance, which is the migrating of financial services to a decentralized platform. 

DeFi, as it is more commonly known, has exploded in popularity during the past 12 to 18 months. In terms of cryptocurrency use cases, DeFi easily has some of the most upside potential. 

Why? Because financial services is a multi-trillion dollar industry. Specifically, global financial services is projected to reach $26.5 trillion by 2022. The overwhelming majority of crypto companies who are actively involved in DeFi have chosen to use the Ethereum blockchain for their various projects. 

This is simply another example of why ETH has outperformed BTC throughout 2020. Will this trend continue? Of course, it’s impossible to accurately forecast crypto trends. At least for now, traders and investors prefer ETH over BTC.       

Technical Analysis Favors Ethereum Over Bitcoin

In terms of technical analysis, ETH has a more bullish chart pattern than BTC. ETH is on the verge of a bullish breakout @ 252.05 (Chart #1).

The Month In Review: Analyzing The Cryptocurrency Markets For June 39

The bullish breakout for BTC is 10391. As you can see from Chart #2, BTC is not even close to its bullish breakout.

The Month In Review: Analyzing The Cryptocurrency Markets For June 40

Additionally, ETH has easily outperformed BTC during the past six months.      

Wrapping It Up

While BTC remains the first and flagship cryptocurrency, DGTX and ETH both offer more in the way of real-world utility. Nobody is suggesting that BTC is going to lose its position. However, the gains we’ve seen recently demonstrate that there’s an appetite for cryptos that deliver. Both DGTX and ETH are doing just that. 

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.   

Latest News

The Month In Review: Analyzing The Cryptocurrency Markets For May 41

The Month In Review: Analyzing The Cryptocurrency Markets For May

Crypto Industry
• Dave Reiter
May 30, 2020

Cryptocurrencies have a reputation for being volatile but the month of May has bucked the trend, finishing up rather uneventful. Despite the “big news” of the Bitcoin halving on 11 May, the major cryptos turned in a mediocre performance for the month. Furthermore, Goldman Sachs have been causing uproar in the crypto community this week. This month’s roundup looks at recent events and what it could mean for the future of crypto. 

As you can see from the table, approximately 50% of the coins generated a positive rate of return. The remaining coins generated small losses. NEO was the leader of the pack, with a solid monthly gain of 16.3%.

The Month In Review: Analyzing The Cryptocurrency Markets For May 42

Will Cryptocurrencies Ever Become A Major Asset Class?

Firstly, what is an asset class? It is a group of financial instruments that share similar financial characteristics and behave similarly in the global marketplace. From a broad macro perspective, these financial instruments are divided between real assets and financial assets. 

Real assets consist of commodities and real estate. Financial assets consist of stocks, bonds and cash. Therefore, there are a total of five major asset classes. 

During the past few years, an increasing number of have investors have argued that cryptocurrencies should be listed as a major asset class within the realm of financial assets. Their argument is based on the fact that cryptocurrencies are playing an ever-increasing role in the global investment ecosystem. However, this week, Goldman Sachs made waves in the cryptocurrencies universe as they declared on an investor call that “cryptocurrencies are not an asset class.”

However, there are legitimate reasons why cryptocurrencies have a valid place among other asset classes. Let’s discuss the details.

Without question, the crypto universe has experienced unprecedented growth during the past decade. In terms of Bitcoin market capitalization, the rate of growth has been staggering. Take a look at the market cap of BTC from 2013 through 2020. 

Bitcoin Market Capitalization (Source: Statista):

  • Q1 2013 – $1.02 USD billion
  • Q1 2014 – $5.75 USD billion
  • Q1 2015 – $3.40 USD billion
  • Q1 2016 – $6.41 USD billion
  • Q1 2017 – $17.56 USD billion
  • Q1 2018 – $117.56 USD billion
  • Q1 2019 – $72.34 USD billion
  • Q1 2020 – $117.81 USD billion

During the past seven years, the market capitalization of Bitcoin has increased 11,450%. From a historical perspective, this represents the largest percentage move compared to any other asset class over a 7-year period. 

How does the market capitalization of cryptocurrencies compare with other major asset classes? Well, check out the following data compiled from Bloomberg, Savills PLC, Futures Industry Association and Federal Reserve System.    

Market Capitalization Of Asset Classes  

  • Global Real Estate – $228 trillion
  • Global Bond Market – $102.8 trillion
  • Global Bank Deposits (cash) – $86.5 trillion
  • Global Stock Market – $67.5 trillion
  • Global Commodities – $33.6 trillion

As you can see from the data, the market cap of Bitcoin is tiny compared to the other major asset classes. In fact, even if we include the market cap of all cryptocurrencies ($263.9 billion), the values are not even close. Cryptocurrencies are less than 1% the size of the smallest major asset class, commodities. 

Size isn’t Everything

The relative size of the crypto universe should not be the only determining factor when deciding if cryptocurrencies should be listed as a major asset class. In addition to market cap, another important factor is asset correlation. For example, do cryptos move in the same direction as the other major asset classes? A lack of correlation was one of the key arguments put forward by Goldman Sachs in the recent controversial investor call. 

Based on historical results over the course of the past decade, the answer is “No.” Cryptocurrencies have a tendency to move independently of stocks, bonds, commodities, and real estate. Asset correlation is a very important determining factor because it provides investors with the opportunity to diversify their investment portfolios. However, it’s worth bearing in mind that gold derives a large part of its value precisely because it has an inverse relationship with other asset classes. 

The Reach of Crypto is its Biggest Selling Point 

Arguably, the most important factor in determining the suitability of cryptocurrencies as a major asset class is availability. Are cryptocurrencies available to the global investment community? Can investors from all over the world buy and sell cryptocurrencies? Generally speaking, the answer is “Yes.” 

In fact, in terms of accessibility, cryptocurrencies have a longer global reach than stocks, bonds, or commodities. It’s much easier for people in developing countries to purchase cryptocurrencies in comparison to stocks, bonds, and commodities. 

Why? Because cryptocurrencies are decentralized. They are not linked to centralized exchanges or legacy financial systems. This is a huge “plus” for cryptocurrencies, as it means they’re more likely to become adopted by people in demographical groups who are traditionally excluded from investing in other asset classes.   

Recognizing cryptocurrencies as a major asset class would be incredibly bullish for Bitcoin, because it would encourage institutional investors, pension funds, family offices, and endowments to become crypto investors. 

For the most part, institutional money has remained on the sidelines in regard to cryptocurrencies. Large institutional investors and high net worth individuals have basically ignored Bitcoin and other cryptocurrencies as a legitimate investment vehicle. But the attitude of the global investment community will completely change if cryptocurrencies are classified as a major asset class. 

Based on the continued growth rate of Bitcoin and other cryptocurrencies, it’s surely only a matter of time before Goldman Sachs is proved wrong, and digital assets take their place among other major asset classes.      

Driving Demand is Key to Growth       

If, and when, the global investment community decides to stop resisting the growth of cryptocurrencies, Digitex will be ready. We’re continuing to onboard new traders to our state-of-the art, zero-fee trading platform. 

But this is just the beginning of the Digitex journey. We’re committed to developing the markets, features, and liquidity of our exchange, but more importantly, to driving demand for the DGTX token. The greater the demand, the bigger the value, and the better the chances that cryptocurrencies will receive the recognition they deserve from the global investment community. 

 

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.

 

 

 

 

May 30, 2020
Crypto Industry

The Month In Review: Analyzing The Cryptocurrency Markets For May

Dave Reiter
The Month In Review: Analyzing The Cryptocurrency Markets For May 43

Cryptocurrencies have a reputation for being volatile but the month of May has bucked the trend, finishing up rather uneventful. Despite the “big news” of the Bitcoin halving on 11 May, the major cryptos turned in a mediocre performance for the month. Furthermore, Goldman Sachs have been causing uproar in the crypto community this week. This month’s roundup looks at recent events and what it could mean for the future of crypto. 

As you can see from the table, approximately 50% of the coins generated a positive rate of return. The remaining coins generated small losses. NEO was the leader of the pack, with a solid monthly gain of 16.3%.

The Month In Review: Analyzing The Cryptocurrency Markets For May 44

Will Cryptocurrencies Ever Become A Major Asset Class?

Firstly, what is an asset class? It is a group of financial instruments that share similar financial characteristics and behave similarly in the global marketplace. From a broad macro perspective, these financial instruments are divided between real assets and financial assets. 

Real assets consist of commodities and real estate. Financial assets consist of stocks, bonds and cash. Therefore, there are a total of five major asset classes. 

During the past few years, an increasing number of have investors have argued that cryptocurrencies should be listed as a major asset class within the realm of financial assets. Their argument is based on the fact that cryptocurrencies are playing an ever-increasing role in the global investment ecosystem. However, this week, Goldman Sachs made waves in the cryptocurrencies universe as they declared on an investor call that “cryptocurrencies are not an asset class.”

However, there are legitimate reasons why cryptocurrencies have a valid place among other asset classes. Let’s discuss the details.

Without question, the crypto universe has experienced unprecedented growth during the past decade. In terms of Bitcoin market capitalization, the rate of growth has been staggering. Take a look at the market cap of BTC from 2013 through 2020. 

Bitcoin Market Capitalization (Source: Statista):

  • Q1 2013 – $1.02 USD billion
  • Q1 2014 – $5.75 USD billion
  • Q1 2015 – $3.40 USD billion
  • Q1 2016 – $6.41 USD billion
  • Q1 2017 – $17.56 USD billion
  • Q1 2018 – $117.56 USD billion
  • Q1 2019 – $72.34 USD billion
  • Q1 2020 – $117.81 USD billion

During the past seven years, the market capitalization of Bitcoin has increased 11,450%. From a historical perspective, this represents the largest percentage move compared to any other asset class over a 7-year period. 

How does the market capitalization of cryptocurrencies compare with other major asset classes? Well, check out the following data compiled from Bloomberg, Savills PLC, Futures Industry Association and Federal Reserve System.    

Market Capitalization Of Asset Classes  

  • Global Real Estate – $228 trillion
  • Global Bond Market – $102.8 trillion
  • Global Bank Deposits (cash) – $86.5 trillion
  • Global Stock Market – $67.5 trillion
  • Global Commodities – $33.6 trillion

As you can see from the data, the market cap of Bitcoin is tiny compared to the other major asset classes. In fact, even if we include the market cap of all cryptocurrencies ($263.9 billion), the values are not even close. Cryptocurrencies are less than 1% the size of the smallest major asset class, commodities. 

Size isn’t Everything

The relative size of the crypto universe should not be the only determining factor when deciding if cryptocurrencies should be listed as a major asset class. In addition to market cap, another important factor is asset correlation. For example, do cryptos move in the same direction as the other major asset classes? A lack of correlation was one of the key arguments put forward by Goldman Sachs in the recent controversial investor call. 

Based on historical results over the course of the past decade, the answer is “No.” Cryptocurrencies have a tendency to move independently of stocks, bonds, commodities, and real estate. Asset correlation is a very important determining factor because it provides investors with the opportunity to diversify their investment portfolios. However, it’s worth bearing in mind that gold derives a large part of its value precisely because it has an inverse relationship with other asset classes. 

The Reach of Crypto is its Biggest Selling Point 

Arguably, the most important factor in determining the suitability of cryptocurrencies as a major asset class is availability. Are cryptocurrencies available to the global investment community? Can investors from all over the world buy and sell cryptocurrencies? Generally speaking, the answer is “Yes.” 

In fact, in terms of accessibility, cryptocurrencies have a longer global reach than stocks, bonds, or commodities. It’s much easier for people in developing countries to purchase cryptocurrencies in comparison to stocks, bonds, and commodities. 

Why? Because cryptocurrencies are decentralized. They are not linked to centralized exchanges or legacy financial systems. This is a huge “plus” for cryptocurrencies, as it means they’re more likely to become adopted by people in demographical groups who are traditionally excluded from investing in other asset classes.   

Recognizing cryptocurrencies as a major asset class would be incredibly bullish for Bitcoin, because it would encourage institutional investors, pension funds, family offices, and endowments to become crypto investors. 

For the most part, institutional money has remained on the sidelines in regard to cryptocurrencies. Large institutional investors and high net worth individuals have basically ignored Bitcoin and other cryptocurrencies as a legitimate investment vehicle. But the attitude of the global investment community will completely change if cryptocurrencies are classified as a major asset class. 

Based on the continued growth rate of Bitcoin and other cryptocurrencies, it’s surely only a matter of time before Goldman Sachs is proved wrong, and digital assets take their place among other major asset classes.      

Driving Demand is Key to Growth       

If, and when, the global investment community decides to stop resisting the growth of cryptocurrencies, Digitex will be ready. We’re continuing to onboard new traders to our state-of-the art, zero-fee trading platform. 

But this is just the beginning of the Digitex journey. We’re committed to developing the markets, features, and liquidity of our exchange, but more importantly, to driving demand for the DGTX token. The greater the demand, the bigger the value, and the better the chances that cryptocurrencies will receive the recognition they deserve from the global investment community. 

 

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.

 

 

 

 

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