Ari Nazir, the managing partner and CIO at $APEX Token Fund provides What investment with his take on the opportunities arising out of cryptocurrencies.
“Last year (2017), we invested early on in the rise of blockchain protocols, including Ethereum, and in the Initial Coin Offerings or Tokens generated atop these protocols, such as various Ethereum-based ICOs.
As governments around the world increase legal and financial regulations surrounding emerging digital asset classes, we expect a shift of early investor capital towards tokens that enable private transactions between businesses and individuals, such as Monero and ZCash.
Cryptocurrencies to watch:
Continued high volatility
The financial markets believe that introducing Futures on Bitcoin, and perhaps other assets, will reduce volatility of the market and individual assets. We reject that hypothesis for the time being. We are witnessing the rise of a new digital asset class that operates 24/7/365 across every single market in the world, while needing increasingly less centralised brokers or service providers.
While there are valid comparisons to be made with other asset classes, such as precious metals, which saw reduced volatility after the introduction of futures and other financial products, this asset class is unique because it is digital first and benefits from the infrastructure built during the rise of the internet.
We expect to see massive increases in the implied market caps of various cryptocurrencies in the short term, particularly those operating on privacy & decentralized exchanges.
However, in late 2018 and early 2019, we expect a flight of capital away from speculative ICO investments with teams who have failed to execute on their roadmap and towards major currencies or assets, including Bitcoin.
Central banks beginning to make use of blockchain technology
Central Banks in politically unstable regions and/or emerging economies will begin to buy Bitcoin directly. We have already begun to see this in Africa and Europe, including Ghana and Bulgaria, and we think this trend will accelerate.
We expect that major central banks, such as the Bank of England, will release public roadmaps for incorporating blockchain technology into their monetary policy management. We do not believe major central banks will invest directly into Bitcoin and other deflationary assets in 2018.
We expect to see the continued launch of cryptocurrencies through regulated ICOs and token generation events. We predict increased institutional investment into the infrastructure surrounding cryptocurrencies, such as wallet and security services.
We think Family Offices will continue to allocate capital to the space through allocations in specialised funds to purchase cryptocurrencies and equity investments. However, major institutions, such as pension funds, will remain reticent to invest directly into Cryptocurrencies.
The velocity of fiat originated capital into cryptocurrency markets is a challenging calculation for a number of reasons. We shall continue to see capital flow through retail investors and venture projects, and in 2018 we will see more capital from institutional investors. One proxy that may be used to understand this velocity is to inspect the average monthly volume of the cryptocurrency exchange ShapeShift.
In March of 2017, when the entire cryptocurrency market place was about $24.1 billion, it was reported that ShapeShift was exchanging roughly $30.26 million per month. The market cap today is $829.6 billion. Suffice to say, much much more capital is being traded than ever before.
We expect there to be increased regulatory action against legally ambiguous Initial Coin Offerings and perhaps even team members. There are a number of projects which raised excessive funding at irresponsible implied market cap prices (not a valuation) on legally questionable grounds.
Frankly, we encourage a regulatory crackdown, in particular increased scrutiny on irresponsible and fraudulent ICOs and greater focus on cases against unregistered persons acting as agents, brokers, and investment professionals in the cryptocurrency space.
Increased regulatory scrutiny against fraudulent actions and behaviours will remove the bad actors and social stigma from the cryptocurrency space, as well as increase the long term health of what we think will be one of the greatest technological innovations of this generation.
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