Why Now’s the Time to Invest in Crypto
By Henry Gillett on ALTCOIN MAGAZINE
Don’t discard your private keys just yet…
Recently, the cryptocurrency market has entered a strong bearish phase. Market capitalisation has dropped from a peak of US $831 billion in January 2017 to US $185 billion. In the September crash US $12 billion was wiped from the market and 97 of the top 100 cryptocurrencies showed significant decline. As the price fell, investors fled; creating a vicious cycle and a self fulfilling prophecy — almost overnight, the most promising and hyped tech became public enemy number one.
In this article I will argue that now is the right time to invest in cryptocurrency. I will reconcile the markets wanes and waxes to a typical technology adoption curve and show how we can predict future movements. I will draw upon technical indicators and relevant financial and economic theory to make my case. In conclusion, I will argue that coins and tokens are ‘on sale’, and selecting the right ones today may secure significant future financial return.
“Be fearful when others are greedy, be greedy when others are fearful” — Warren Buffet
Early Adoption Phase:
Does your grandma still use a turn table to listen to music? Boil her water in a pot on the stove? Watch movies from tapes instead of Netflix? If so, she’s a laggard — a small group of individuals that fall into the far right side of the technology adoption curve.
The technology adoption lifecycle is a sociological model that describes the adoption or acceptance of a new product or innovation, according to the demographic and psychological characteristics of defined adopter groups.
On the other end, a very small percent (2.5%) of people fall to the far left. In his book, “Crossing The Chasms” Geoffrey Moore suggests that for discontinuous innovations a “chasm” forms, separating innovators and early adopters. Moore hypothesises that movement up an S-Curve is an incremental innovation (e.g. improvements a cassette players quality of sound within a cassette industry), where as movements down to a new S-Curve is radical innovation (e.g. abandoning the cassette player and taking a risk on producing CD’s).
Given this information, where do you think crypto-tech falls? Granted, the keystrokes behind this post and those reading it most likely fall into the innovator slice of the pie. However, when you take a step back and look around it is obvious this market is one very young baby. In many cases, the introduction of Bitcoin in 2008 represented a step down to a new S-Curve. Performance fell as issues with scalability, trust, regulation and more hindered its intended use. However, with time performance will improve and radical innovation will take place.
Think of this period of time as equivalent to the 1994 internet era, characterised by dial up modems and a Microsoft homepage that looked like the image below. Bet you wish you sunk a few thousand dollars into this company back then!
Based on readings taken from “The Innovators Imperative” the speed of technological adoption is increasing rapidly, meaning we can hypothesise the emergence of giant Twitter and Facebook-like cryptocurrencies in the next 5–7 years. We’ve already got more than fifteen hundred official digitalised coins, all driven by the same entrepreneurial energy observed in the video above.
The Crypto J-Curve:
The J-Curve effect is noted in economics, political science, medicine and private equity. First discussed in relation to cryptocurrency by Chris Burniske, it helps illustrate how a market may value cryptoassets over time. Burniske breaks crypto valuation into two components, speculative (DEUV) and current utility value (CUV). In 2017, the value of most crypto-assets was derived from speculative value. This meant investors were subject to the whims of the market, and significant risk. When the market collapsed, the value of cryptocurrency fell to just under its CUV. For example, Bitcoin fell from its peak of just under USD $20,000 in 2017 settle at its current support level of around USD $5500.
The benefit of understanding the J-Curve is that market booms and busts become less frightening and more understandable. When Bitcoin (and therefore cryptocurrency) was first introduced in 2008 the tech was comparatively inefficient and less useful than what it is today. On May 22nd 2010 ten-thousand Bitcoin was used by Laszlo Hanyecz to purchase two pizzas in Florida - representing the first time these digitalised coins had enough value to purchase a good or service. In the next five days the price of BTC grew by 900% from $0.008 USD to $0.079USD. This bullish period continued until April 2013, where Bitcoin peaked at $266 USD. Between April and June the price of Bitcoin fell back to US $70, as investors fled the market.
This represents a completed J-Curve cycle. Initially, utility value drove the price. However, speculative value soon took grip leading to significant token appreciation and overpricing. In 2013 saturation point was reached, forcing speculative traders out of the market and price depreciation.
This cycle will continue multiple times and on different scales. Improvements in the underlying technology of cryptocurrencies will drive utility value and price. These improvements will typically fuel speculative trading, increasing the significance of DEUV in the price makeup. A peak point will be hit before investors realise the price does not justify its CUV, leading to depreciation. In theory, price should reset to exactly the tokens CUV (if we disregard behavioural trading) and this CUV should be slightly higher than in the period before.
J-Curve and the Current Market:
This J-Curve pattern can be used to describe the latest trends within the cryptocurrency space. In 2015 Ethereum, an open source, distributed and public blockchain with smart contract scripting functionality, was released. The Ethereum platform streamlined the process of creating cryptocurrency projects and selling tokens via an ICO. From 2015–2017, there was an explosion in the number of cryptocurrencies available for purchase.
A smart contract is a computer code running on top of a blockchain containing a set of rules under which the parties to that smart contract agree to interact with each other. If and when the pre-defined rules are met, the agreement is automatically enforced.
Blockchain technology also improved. A simple ‘cryptocurrency’ search would suffocate researchers with articles about off-chain data storage, different consensus mechanisms, sharding, plasma chains etc. The media covered the evolution of cryptocurrency in a stalker like fashion. If a Bitcoin developer blew their nose, we would know about it.
Understandably then, speculation mounted. Chinese whispers multiplied and the influence of DEUV reached extreme levels. The influence of CUV fell as the price of cryptocurrencies became grossly overvalued. At the end of 2017 saturation point was hit, and speculative investors ran for the hills, forcing prices back to their CUV.
It’s important to note this is yet another wane and wax cycle on the road to technology integration. Improvements in the underlying tech will motivate CUV improvement, leading to a DEUV investment lag.
Final Thoughts:
Blockchain technology has established itself in the eyes of a dismissive society. As with the nature of any revolutionary technology the road to integration is long. We can expect to see multiple boom-bust periods driven by speculation in the years to come. Keeping a close eye on new developments is important — after all, thats the only way to spot the next great development.
Thanks for reading! If you enjoyed this post please show your appreciation by leaving a like (or 50!)
Disclaimer: This is not intended investment advice. Please do your own research before investing. The nature of cryptocurrency is inherently speculative so only invest what you are prepared to lose.
Before moving on, make sure to press follow, leave a clap or 46, share today’s highlight and if you missed the last article, click here.
Read about the Altcoin Magazine Mastermind Event here.
Follow us on Twitter, InvestFeed, Facebook, Instagram, LinkedIn, and join our Discord and Telegram.
The purpose of ALTCOIN MAGAZINE is to educate the world on crypto and to bring it to the hands and the minds of the masses.
