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Is Narrative Pushed by Bitcoin, Cryptocurrency Supporters Legitimate?
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The future of Bitcoin and other cryptocurrencies
Most investors have knowledge of the soaring value of Bitcoin and other cryptocurrencies, as news reports of rapid gains that have changed the life of people holding cryptocurrencies, has been a major catalyst in driving interest in the sector.
Even with the rise in value cryptocurrencies - with Bitcoin being the most well-known of them all because of its enormous value per coin - the question is rising concerning the sustainability of the market because of the lack of significant outlets to use the coins.
With the historical records showing new markets start with early adopters, flow to managed money, and finally is embraced by the masses, we'll look at where Bitcoin and the cryptocurrency market is at right now, and if the narrative being pushed by adherents is honest and based in reality.
What the supporters of cryptocurrencies want is for smart money - primarily hedge funds - to quickly embrace and invest heavily in the sector so it moves into the final stage of what will eventually become a bubble, when the masses will pour money into the cryptocurrency market because they think they'll make a fortune after the media starts flooding their outlets with reports on the type of money people have made in the recent past.
This is why every time you hear any business of significance embracing some part of the blockchain, the news is rapidly spread via social media and other alternative media outlets, which is then picked up by mainstream media, resulting in a large number of people hearing about it.
The most recent example of that is Square, which said its "payments app Cash is testing support for the digital currency." What it will do is empower customers to trade Bitcoin with the app. It's not for the purpose of consumers being able to buy producers or services using Bitcoin, or businesses accepting them from consumers or other businesses.
Another recent discovery that was touted in the media was that Amazon had listed some domain names that reflected an interest in cryptocurrencies. Supporters were all over that, building up scenarios of Amazon being on the verge of allowing Bitcoin or other cryptocurrencies as methods of payment.
Near the latter part of September, Overstock (OSTK), RenGen and Argon group announced they were entering an exclusive joint venture to "launch an Alternative Trading System (ATS) that will transform the trading of security tokens issued in Initial Coin Offerings (ICO) in compliance with SEC and FINRA regulations." That actually has a lot of potential, as does the future of Overstock.
What investors should understand is all of these things are important, and many parts will eventually lead to a big whole. But there are two things the cryptocurrency market lack, and until they emerge, the overall market won't soar close to its full potential.
The missing elements
The early adopter stage of cryptocurrencies and Bitcoin are over. What's coming next is smart money or hedge fund investment. The early stage of that is already in play, and will grow for some time.
My overall view for the increased investment of managed money in cryptocurrencies is they'll focus mostly on the financial side of the market. I mean by that the trading side, such as Overstock is building out, and the banking side, where companies are developing infrastructure using the blockchain to lower transaction costs and increase security.
One of the market leaders with banking is SBI Holdings (SBHGF), which is working hard on building out blockchain infrastructure in Asia. It uses the cryptocurrency 'Ripple' to work toward that goal.
The hedge funds, in my view, are going to increase their interest in investment in cryptocurrencies primarily based upon the financial sector; at least until the masses start to show interest.
At this time a growing number of people are aware of Bitcoin and a few other cryptocurrencies, but they don't understand them. They also don't understand the financial side of the market. A confused person isn't going to invest. There is one thing that needs to happen before they go all in. After all, if a soaring asset like Bitcoin doesn't attract their money, nothing is going to under the current market conditions.
What has to happen to take this to the next level will be for a major retailer to start accepting some cryptocurrencies as a form of money to buy their products. Not only that, but it can't just be any retailer, it has to be one of the major retailers.
Few will care if a smaller, specialty retailer announces people can use Bitcoin to acquire products they sale. It'll have to be a retailer they use and trust. It also has to be a retailer that has the potential to compete over the long term. There are only two that fit that description in the U.S., and they are Wal-Mart and Amazon.
Some may throw out Target as a potential catalyst, but there is increasing uncertainty with Target in light of its recent performance. Also, Target has always been considered a secondary retailer when compared against Wal-Mart, let alone Amazon. I don't see Target announcing the acceptance of cryptocurrencies as a form of payment a major catalyst.
That said, if Target were to make that decision, what would be more important is it would probably trigger Wal-Mart and Amazon, in some way, to do the same.
If Wal-Mart were to decide to accept Bitcoin as a form of payment, there is no doubt Amazon would quickly follow suit.
To reinforce my thesis, Overstock has been accepting Bitcoin as a form of payment for some of its products for awhile, and it hasn't been the type of catalyst the company thought it would be, specifically in regard to Amazon, which it competes against in the e-commerce space.
I see the masses starting to drive the price of cryptocurrencies up when major retailers accept them as a form of payment. The reason behind my thinking is people understand retail. If something can be used as money to buy stuff, it's not confusing. Confusion is what must be removed from the blockchain sector before the masses join in. That day is coming. When it does come, the growth will be extraordinary.
Where things are at now
The cryptocurrency market is now at the early stage of investment from hedge funds. This is going to continue to grow, and I'm looking for a lot of advancement in the financial industry.
This will further legitimize the sector, and will push up the value of the overall market and the legitimate individual coins that have emerged. Much of the value of and longevity of the coins will be determined by what problem they're solving. That's a key to determining the legitimacy of any new cryptocurreny, now and in the future.
Other important things being developed are those like the platform being built by Overstock, and other forms of infrastructure that make investment easier and safer. I see this being an important part of the investment from hedge funds. It's not all they'll focus on, but that has to be in place before things really take off.
I know some people believe Bitcoin and the cryptocurrency market in general are in a bubble stage, and that may be true in the short term, but things are only just getting going, and we're not even in the mature stage of smart money involvement, let alone when the masses start investing heavily in the sector.
As a whole, the cryptocurrency or blockchain market is going to remain volatile, and investors should expect some big swings in their holdings.
What also should be understood is there is an underlying narrative being driven by blockchain supporters. It's not something dark or nefarious, only exuberance over the potential the asset class represents. Yet when the media grab hold of every bit of information that is shared on various social media platforms for the purpose of driving it to the general population, it needs to be taken with a grain of salt for the short term.
Probably the biggest push is anything that is associated with Amazon. The obvious reason being if Amazon does embrace some form of cryptocurrency payment for their products or services, it could lead to not only smart money investment, but the masses joining in at the same time. It would be an extraordinary set of catalysts that could drive the sector up rapidly.
What I mean by that is before the hedge funds are into their mature spending stage, the masses may join in, which would accelerate the time frame of the upward move in value of the blockchain.
Another reason Amazon is considered to be important is because it's primarily a tech company, it presumably understands the blockchain and its implications better than Wal-Mart does, and is more likely to embrace it quicker. That may not be how it plays out, but it's the working assumption at this time.
The blockchain, Bitcoin, and cryptocurrencies in general are here to stay. The narrative at times may be too optimistic in the short term, but over the long haul, this is going to be an asset class that builds a lot of wealth and produces some terrific returns for investors.