It’s been a rough five days for crypto markets. As I write this, bitcoin is trading just below $5,000.
Of course, moves like these aren’t uncommon in cryptocurrency, but that doesn’t exactly take the sting out of a sell-off like this…
If you own cryptocurrency for the long run like I do, the only thing you can do is hunker down and wait. Even if you’re not sure how long you want to hold crypto, that’s the best thing to do. Wait for the cycle to bottom and another uptrend and adoption cycle to begin. That’s the way investing in crypto works – boom cycles followed by corrections followed by more boom cycles.
Timing the bottom of the market is extremely difficult, but I don’t expect bitcoin to go significantly lower than where it is today. A few technical pros I respect believe we could dip below $4,400 for a period of time. I don’t dismiss that possibility. But I wouldn’t expect it to stay at that level for long.
In the altcoin world, all eyes are focused on the regulators. In the last week the SEC has stepped up its enforcement actions in crypto markets, and this has investors spooked.
However, the SEC actions we’ve seen so far haven’t been overly harsh. SEC officials have fined a number of projects and imposed reporting requirements. But they haven’t done anything ridiculous. I believe the threat is overstated and that markets are overreacting.
I also believe that bitcoin and the best altcoin projects will come out of this downturn stronger than ever. Downturns have a way of sharpening focus and separating serious projects from the rest.
However, there are still a lot of overvalued coins out there (specifically some utility coins with questionable projects). Coins without strong communities will falter eventually. We don’t know how the process will play out, but it may mean more short-term pain in the altcoin market.
Focus On the Big Picture
As usual, I remain focused on longer-term trends and upcoming catalysts. And from that perspective, the future of cryptocurrency remains bright. An infrastructure buildout is underway that will be capable of taking crypto to the next level.
Enterprise-grade, regulated crypto custody solutions are only now becoming available. I believe they will attract a lot of capital from institutional investors over the next year and beyond.
Let’s keep in mind that Bakkt goes online next month, and Fidelity’s institutional offering will be widely available early next year. Fidelity is already onboarding its first crypto clients, and I believe the market is not factoring in how much capital it and others targeting institutional investors could bring to crypto.
As you know, I believe bitcoin will be the primary beneficiary of this first wave of institutional capital. How quickly large new investors move from bitcoin into the altcoin market is something we are watching closely.
Meanwhile, the fiat/debt system continues to spiral out of control. And awareness about the unsustainability of all this debt is growing.
As I’ve mentioned previously, the U.S. will issue more than $1 trillion in debt this year alone. Who’s going to buy all of it? Just last week, The Wall Street Journal reported that foreign buyers are not buying nearly as many U.S. Treasurys as they used to, which is “unsettling” financial markets.
So despite the price action and negativity, I remain very bullish on high-quality cryptos going forward. I will continue to evaluate our portfolio, but I believe we’re well-positioned for now.
Times like these test crypto owners. To pass, all you need to do is wait and hold.
Good investing,
Adam Sharp
Co-Founder, First Stage Investor
P.S. Thanksgiving is a time for friends and family. We will be celebrating Thanksgiving with friends and family – and we hope you will be as well. As a result of the holiday, you won’t receive your regular First Stage Investor newsletter on Thursday. But the Early Investing Team will be monitoring the markets. And we’ll update you on what’s happening next week. Happy Thanksgiving!