In times like these in the crypto or blockchain ecosystem, the old questions return once more to my desk. Why do we need it? There aren’t any use cases? It’s a ponzi? Surely we need regulation? There are a few critical factors that lay the foundation to answering these questions.
Kenny Hearn, Fund Manager / Head of Research
Firstly, Bitcoin was born out of a financial crisis where individuals developing it thought the act of printing money as a get-out-of-jail free card was ludicrous and would have severe repercussions on the global economy. Thirteen years later, we are only now starting to see those repercussions – they were right.
Secondly, in order for a financial system to work under the auspices of a decentralised technology a multitude of products and services need to, firstly, be developed, secondly, tried and tested, and thirdly, gain adoption. These products and services form the backbone of what humanity has built up over hundreds of years in order to transact and contract with one another. In terms of decentralised applications or products and services we are somewhere between «be developed» and «tried and tested». We are no where near the final product let alone adoption. Therefore, system failure or lack of adoption are not yet arguments that can be made about the ecosystem.
Thirdly, in terms of traditional finance, it is through the «tried and tested» and «mass adoption» phases but yet poses an existential threat to the well-being of society due to a massive experiment that has taken place since the global financial crisis. Before one gets too critical of DeFi we need to establish whether or not traditional finance can recover and restore real economic value and growth without inflation destroying economies and the well-being of society. Until then, we believe that having a real alternative being developed on the sideline is not a bad option to have in the form of the nascent crypto and Blockchain industry.
Fourthly, what we are experiencing now in terms of price action within the crypto ecosystem is largely being driven by systemic failures driven by a lack of confidence in a technology that is yet to prove itself. Fundamentally, the technology works, you can transact with someone across the planet without any intermediaries, you can store value in wallets outside of any centralised control, there are mechanisms in place to lend and borrow value throughout the ecosystem. The latest failures relate to a failed experiment in algo stablecoins and the contagion drop in confidence leading to potentially irrational market pricing based on fears that are yet to be proven real or not. In other words, fundamentally the technology is working but structurally users lack confidence. This, we know, from cycles in traditional finance, is cyclical.
Therefore, in relation to the aforementioned questions, would we rather have a substitute technology being developed on the sideline as we watch those managing the monetary policy of central banks scramble for tools to ensure a smooth transition or not? Should individuals be planning for either outcome? Is there is place for decentralised finance in the future? Is technology and the digitalisation of more aspects of human life likely to advance? Have centralised structures proven less than adequate in navigating our way through a number of crisis over the past 20 years?
If you answer YES to the above questions… Then we would suggest using the bear market over the coming months to get more comfortable with the nascent technology that is crypto and the blockchain. If it indeed has a place in the future then history has shown these are not the times to sell.
We thought it important to note some of the relatively stronger performers in the market since the market has come under pressure. As we have pointed out in the previous weaker markets, exchanges prove to be highly resilient beasts. As we know volatility poses huge opportunity for speculators and traders alike and that translates into increased volumes traded on exchanges albeit at lower values they exchanges are still able to eek out profits. This activity in light of the backdrop of no revenues in sight for many projects in the crypto ecosystem makes exchanges a relatively attractive investment.
Bitcoin Technical Outlook: The recent move by the FED to take an extremely hawkish stance on interest rates blew the technicals out of the water. As expectations for a higher than expected interest increase of 0.75% (versus 0.5% expected) started to play out in the global bond markets last week so growth assets came under a tremendous amount of pressure early this week. For Bitcoin, the support levels of $28k was cut through like butter along with its 200-day moving average around the $22,300 mark. The market currently trades below this level, and while it does, it is likely it goes to $19k before any sustained recovery. The market is currently highly oversold and we would not be surprised by a significant recovery back to above $30k once the bottom is «in» which would translate into a significant 50% relief rally over the coming weeks. (SwissOne Capital/mc)