Crypto Dips & Dives: A Long-Term Perspective
Extreme hype or FUD (Fear, Uncertainty, Doubt) oftentimes drive the price of crypto assets up and down — this presents an opportunity for the long-term investor.
Preface — Long Term Conviction is Critical
[Skip ahead for Bitcoin Price Analysis]
Disclosure: I have no idea what makes the price of crypto assets rise or fall in the short term. I’m not a fan of charting, of triangles, of ‘support lines’, or reading tea leaves…
At Apollo Capital, we have strong conviction in a small collection of crypto assets.
These crypto assets will likely be fundamental to the emerging Web 3.0 stack on which sophisticated applications hosting money, financial services, credit, debt, and derivatives will be built.
In the above graph, the top layer will consist of millions of applications mostly funded by equity. These will likely remain centralized entities, built specifically for the unique preferences, tastes, and regulatory climate of each target market.
At the bottom, there will be tens of core blockchains. These are the railroads of the new Web 3.0 stack. Assets such as Bitcoin, Ethereum, and perhaps Dfinity and others will run on and will be funded by crypto assets.
In between, we will have thousands of middleware crypto assets such as stablecoins, oracles, and file storage. Smart contracts built on top of blockchains will interact with these middleware building blocks.
For example, in this new decentralized world that we call Web 3.0, a smart contract interacting with a stablecoin and an oracle could provide the basis for an application providing trustless and permissionless lending and borrowing.
This exists — Dhama and Compound are two leading examples.
We see now that there will only be a few major winners in the core, fundamental blockchain layer. These blockchains will optimize on these key variables:
The key criteria to evaluate are:
- What is the project’s capacity to build the critical network effect?
- Is the optimization between the different ‘properties’ attractive (listed above) and differentiated enough from other projects?
Value will accrue to moneyness and governance, not utility tokens. There will be a limited number of successful crypto assets that will be tremendously valuable.
We will trust these blockchains to run the world’s native crypto assets, decentralized applications, and today’s securities.
I bring this up to demonstrate the key attributes of quality crypto assets.
When investing long-term in crypto, a conviction in the value of your assets is critical — because in this market, weathering multiple 50–90% dips in your asset’s value is a certainty, and it’s how one reacts and responds to these events that is important.
In the rest of this article, I will go back in time and look at bitcoin’s price data. I limit this analysis to bitcoin because it has the largest sample space and is used as a leading indicator for other crypto assets.
This will demonstrate that we have seen many bubbles and many bursting bubbles in the history of bitcoin. It is par of the course when investing in an emerging form of money.
I hope that this will make you feel more confident in the longevity and robustness of quality crypto assets over time.
Bitcoin Price Analysis 2010–2018
July 2010: The first major increase in the price of bitcoin. The price of bitcoin increased from $0.008 to $0.08 (a 900% increase) in five days.
June 8, 2011: Bitcoin reaches a new all-time high of approximately $30. This is often thought of as the ‘First Bubble’ in bitcoin:
July to October 2011: The bubble then bursts and the price of bitcoin declines by about 95%.
Early 2013: From March to the beginning of April the price of bitcoin soared from $32 to a new record high of $230:
April 2013: Bitcoin then plummeted for about a week — all the way to $68 — a decline of 70%.
Late November 2013: On the MtGox exchange, the price of bitcoin soars to its highest price of approximately $1,100.
February 2014: it was discovered that the price increase over October — December 2013 was partially due to the closure of MtGox and their 800,000 lost bitcoins – the cause of the start of the next bear market.
The price of bitcoin plummeted over the rest of rest of Q1 2014:
The price of bitcoin did not begin to significantly recover again and indeed worsened. In August 2015, bitcoin was trading at approximately $200 — an 80% decline.
There was a slow recovery: it took until January 2017 for it to reach the $1000 region again:
January to October 2017: the price of bitcoin climbs to $6000 (a 500% increase):
Early December 2017: Bitcoin surpasses $10,000, marking a 900% increase in price that year:
And it didn’t stop.
December 17 2017: Bitcoin reached a record high of $19,783, just falling short of $20,000.
January 2018 — Now: Bitcoin has declined approximately 78.5% from its high of approximately $17,000 to $3700–$4000 in recent days.
We have seen this all before. We have gone through multiple steep, downward corrections in the history of bitcoin. And we will go through some more until this money is freely and widely accepted globally.
Gold as money has been accepted for millennia — Bitcoin has only existed for 10 years. These things take time.
Keep in mind one thing: throughout all these turbulent moments, the fundamentals of Bitcoin have not changed.
If you have conviction in the need of a digital hard money, a global decentralized settlement layer for the internet, for Web 3.0, these short-term price cycles should be seen as a blessing: they present buying opportunities.
James Simpson is an investment analyst at Apollo Capital — Australia’s Premier Crypto Fund. The Apollo Capital Fund is a professionally managed portfolio of crypto assets, offering investors exposure to the fast growing crypto market. For more information, please see apollocap.io.