Our Chief Market Strategist Stephen Dover believes cryptocurrency (crypto) is evolving into its next cycle of innovation. As an integral foundation for an alternative financial and internet ecosystem, crypto’s disruptions, opportunities, risks, and long-term implications are worth watching.

Cryptocurrency (crypto) is one of the most fascinating financial trends in recent history as its technological breakthroughs facilitate the digitalization of value. Recently, Anthony Hardy, CFA, an analyst for the Franklin Equity Group, and I discussed the crypto ecosystem, its smashing the US$1 trillion market capitalization threshold in just over a decade,1 its boom-and-bust cycles, and how it may transform the internet and some of the largest money and financial markets in the world.

  • With the largest crypto market cap, bitcoin’s key “store of value” characteristics include scarcity, fungibility, divisibility, and portability. Bitcoin could potentially serve as a hedge against inflation and currency devaluation, earning its moniker as “digital gold.” Unlike physical gold, bitcoin is natively digital.
  • There is a fixed supply to bitcoin, in contrast to fiat currencies where supply can be influenced by central bank actions. Relative to fiat currencies though, crypto currently has limited use as a means of exchange. That is quickly starting to change.
  • As crypto infrastructure advances to its next cycle of innovation, fintech apps, asset managers, exchanges, payment systems, and institutional investors will likely continue to support and launch crypto tools and investments, adding macro, technology, and ecosystem drivers that may increase the use of cryptos.
  • Companies involved in the crypto industry (currently most are private), may create significant value for investors willing to invest long term in the emerging crypto ecosystem.
  • The bullish crypto view is that we are likely witnessing the birth of a new financial and internet ecosystem. The bearish view is that it may be a massive bubble fraught with risks. The range of potential long-term outcomes for cryptos are extremely wide, but whatever the outcome, the foundation for an alternative financial and internet ecosystem is being set.
  • At current prices, bitcoin is trading at about US$48,000 per coin, up from about US$10,000 one year ago. Hypothetically, if we were to see a similar percentage increase again this year, and if each bitcoin was worth US$200,000, then likely over half of the world’s billionaires would likely be from crypto.2

As our fascination continues, we will delve into insights involving crypto’s disruptions, opportunities, risks, and long-term implications.