Mansfield: Don’t Worry, Bitcoin is Here to Stay – Act Accordingly

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Bitcoin’s meteoric rise in price (and popularity) was the premier story in 2017. That’s no small deal considering how well the markets performed. 

Don’t worry about the volatile swings, particularly this week’s downturn. The cryptocurrency will rebound. Like all investments, you need to be in for the long haul. 

Although Bitcoin has been around since 2008, it really became a worldwide phenomena last year.

In order to understand the full magnitude of what occurred in 2017, let’s examine a brief recap of the market.

Bitcoin started the year in relative anonymity – the majority of investors had never even heard of bitcoin. On January 1, 2017, the price of a single bitcoin was ~$950, and the total market cap of all cryptocurrencies sat around $17.7 billion dollars ($17,700,000,000).

SOURCE: bitinofcharts.com

At the time, the second-largest digital asset was Ethereum, with a market cap of ~$750 million, and a price of just under $9.00.  Coming in third was Ripple, a global payment network, with a market cap just under <$250 million. Last January, Ripple was trading at just 6/10 of 1 cent!

Snapshot of the top 5 cryptocurrencies, by market capitalization as of January 1, 2017

SOURCE: coinmarketcap.com

Although these new technologies were revolutionary, few investors had the foresight and guts to invest their hard-earned dollars in these projects. For those who did, however, their vision certainly paid off!

By December 31, 2017, the market cap of all cryptocurrencies had risen to over $610 billion dollars, a gain of 3,300% in 12 months!

Bitcoin reached an all time high of ~$20,000, and finished the year up a jaw-dropping 1,300%.

Most investors would be satisfied with even a tiny fraction of those returns. But consider this, Bitcoin did not even make the top 10 list of best performing cryptocurrencies in 2017!

Ripple finished the year as the top gainer, rising over 30,000% in 2017!

To put all this in perspective, consider that 2017 was also a historic year for traditional equity markets.

The S&P 500 boasted positive gains every month of 2017 – a first in the 90 year history of the index. That’s not too shabby.

         SOURCE: marketwatch.com/investing/index/spx

(The S&P 500 returned +18.74% in 2017, or +21.14% when including dividend reinvestment).

What was a historic year for the stock market (20% returns), is almost laughable in comparison to the returns of the top cryptocurrencies in 2017. 

             SOURCE: cointelegraph.com

After such insane growth in a short period of time, many investors are hesitant to invest. That’s understandable. They’re concerned that the whole crypto market is a speculative bubble waiting to burst.

So, are we in a bubble?

In short, nope. And the reason is simple supply and demand. That’s basic economics.

Coinbase, one of the leading exchanges to trade digital currencies, has struggled to keep pace with demand. In 2017, the number of Coinbase users rose to over 13 million, an average of over 22,450 new accounts every day!

If 2017 is to be considered “Chapter 1,” as many people were introduced to bitcoin and other digital currencies for the first time, imagine what 2018, or “Chapter 2” has in store.

As awareness and education increase, and barriers to entry continue to decrease, the price and liquidity for these digital assets should continue to rise exponentially.

  SOURCE: coinbase.com

Although Coinbase is one of the leading exchanges, they currently only support three (Bitcoin, Ethereum, Litecoin) of the 1,300+ digital tokens in existence. In 2018, expect both the number of exchanges to increase, as well as the number of supported digital currencies.

Additionally, 2017 was a historic year, as the bitcoin futures and option trading gained support of major OTC (over the counter) exchanges.

On December 11, 2017, CBOE Global Markets (CBOE) launched the first bitcoin futures market. One week later, on December 18, CME Group (CME) also opened for the trading of bitcoin futures contracts.

And this year, the NASDAQ is expected to launch their own platform for bitcoin options contracts.

2018 Outlook

Even though crypto-assets can be challenging to evaluate, due to their lack of traditional fundamentals (profits, revenue, cash flow, etc), the arrival of this new asset class deserves more than a flippant dismissal for anyone claiming to be a serious investor.

Digital assets and cryptocurrencies are here to stay. And the aforementioned regulations are a sign of increasing validity and institutional acceptance in the sight of financial regulators.

In 2018, look for the first Bitcoin ETF to be approved, as billions of dollars of institutional money to enter the market.

Trends to Watch

Here are some interesting trends I believe we should be keeping an eye on as we move forward. Look for Bitcoin to continue to lose its dominance, (percentage share of total market capitalization) as “alt” coins (crypto-assets excluding bitcoin) continue to build momentum.

This is a sign that the overall market is maturing. That will foster the growth of early-stage projects.

Another development to monitor in 2018 is the value accrual to quality projects. 2017 witnessed concepts, often without a working product, attract valuations of millions of dollars.

As regulators played catch-up all year, these projects continued to gain popularity among investors. However, these “pump-and-dump,” “get rich quick” schemes are toxic to the entire market. That’s what causes downward movements like we saw this week. 

In 2018, expect regulators to implement laws to curb some of these early flaws. This will allow greater transparency among investors, and allow those projects that do have value, to develop in a healthier, more transparent market.

Areas of Growth/ Sectors to Monitor:

Here are some of the sectors I am most bullish on in 2018.

They include payment and international value transfer markets, including monetary services for the unbankable and underbanked. I also believe in other so-called “privacy coins”, like “monero” and “Zcash”. I expect more decentralized exchanges to become profitable opportunities. 

2018 – Bold Prediction + Insider Picks

I expect a Bitcoin exchange traded fund (ETF) to be approved, which will make it much easier to trade. Don’t be surprised to see the price surge to $50,000 when that happens. I also believe there a chance for Bitcoins Total Market Cap in 2018 to reach stratospheric heights this year. Watch out. And act accordingly. 

**The views, thoughts, and opinions expressed in the text belong solely to the author, and are for information purposes only.  They are not intended to be investment advice.**

**Past performance is not indicative of future results. Crypto-markets are highly volatile, a reminder to invest only what you can afford to lose**

(But no, seriously. Listen to this man.)

Gerard Mansfield, a San Francisco native, is a senior economics major at Providence College. His knowledge of the crytocurrency markets is unparalleled. Send him email at gmansfie@friars.providence.edu.

Gerard Mansfield, a San Francisco native, is an economics major at Providence College. He has studied the cryptocurrency markets extensively and his expertise is unparalleled.
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