Cryptocurrency News & Market Summary
Investors finally saw some light at the end of the tunnel last week, with cryptos soaring across the board. No one quite knows what kicked off the rally—as it could have been any of the stories we discuss below—but the net result was positive.
Of course, prices won’t stay on this rocket ride forever. I expect to see a resurgence of volatility in short order, because the market is moving as a single unit. Everything is rising in tandem.
This tells me that investors are simply “buying the dip” rather than identifying which cryptos have enough real-world value to outlive the crash.
So if you want to know when cryptos will get their “moonshot” ride, I suggest watching for divergences between practical tokens and ideological ones.
The latter say they are valuable because modern finance (which you should read as a stand-in for fiat money and central banks) will inevitably collapse into dust.
This would, in turn, hyperinflate the U.S. dollar, not to mention every other national currency, thereby leaving us with “no choice” but to adopt a fixed-monetary base cryptocurrency.
Ha! What a pipe dream.
If there’s anything we learned from the 2008 financial crisis, it’s that central banks are like sandpaper for the economy. They smooth over rough patches in a business cycle. And since those rough patches are unavoidable—because they’re part of the glorious adventure we call capitalism—it’s important to have tight credit channels from the Fed to the real economy.
I’m guessing some readers will disagree with me, and that’s fine.
My main point is that waiting for Armageddon is a silly investing strategy, because currencies won’t be all that useful in an apocalyptic future. (Water and food will probably matter more.)
My main point is that waiting for Armageddon is a silly investing strategy, because currencies won’t be all that useful in an apocalyptic future. (Water and food will probably matter more.)
In any case, you should watch out for the other type of tokens. The practical tokens. The ones—like XRP, BAT, and GNT—that are built to allow speedy international transfers, better news delivery, or more efficient computer-sharing.
My thesis: Over time, the market will deliver value to cryptos with a real impact on the world.
It’s a simple theory. But we’ve seen it bear fruit whenever the market is sane enough to differentiate between cryptos. We believe this strategy could generate further gains as well, so keep an eye out for market rotations from bad assets to good ones.
XRP Validators Should End Decentralization Debate
One of the biggest constraints on XRP is the question over its decentralization. Some people allege that it’s vulnerable to top-down control. Others say it only looks that way because XRP is built differently from Bitcoin. I agree with the latter.
Unlike Bitcoin, XRP isn’t manufactured by mining. It has a finite amount of tokens that were created in one fell swoop. And yes, the company that created XRP, known as Ripple, does own a tremendous amount of XRP tokens. But that doesn’t mean it is centralized.
For one thing, Ripple locked away its 55 billion XRP tokens in an escrow account. It cannot access the full amount for another few years. (Source: “Ripple Escrows 55 Billion XRP for Supply Predictability,” Ripple Insights, December 7, 2017.)
More importantly, Ripple does not control all the XRP validator nodes! In other words, it cannot tweak the blockchain, unilaterally enforce changes, or do anything without approval from the third-party nodes.
If you doubt what I’m saying, visit XRPCharts.com and see the validator registry yourself. XRP is more decentralized than critics are willing to admit. (Source: “Validator Registry,” XRPCharts.com, last accessed July 5, 2018.)
So what, you ask?
Well, this perception weighs pretty heavily on XRP prices. I could see the token returning to $2.00 or $3.00 once the bull market returns, but a “moonshot” to $10.00 depends on putting this centralization myth to rest.
Big Countries & Small Countries Split on Crypto
Size matters—even in cryptoland. Except in this case, smaller might be better. What do I mean? Well, I’ve noticed that smaller countries are more crypto-friendly than bigger ones.
At first, I thought it was a coincidence, but now I think there’s a reason. Namely, that bite-sized countries have fewer options when it comes to their economy. So when they see the potential of blockchain, they move quickly.
A recent example is Malta, the island nation south of Italy, which, according to Morgan Stanley(NYSE:MS) is now the No. 1 spot for crypto trading in the world. (Source: “Most Cryptocurrency Trading Is Moving to Malta, at Least Legally,” Bloomberg, April 25, 2018.)
That didn’t happen by accident. Maltese officials deliberately kept loose rules for trading. They also signaled support for the industry by drafting legal definitions for “decentralized autonomous organizations,” and welcoming high-profile blockchain startups like Binance and Neufund.
By comparison, China and India have banned cryptocurrency trading. I used to believe these powerful governments could band together to shut down the crypto market, but it seems like smaller governments will choose to consolidate their strength in an industry that requires comparatively little infrastructure.
This is an interesting twist that could preserve crypto assets even in the face of broader crackdowns.
Analyst Take
While the recent uptick in cryptocurrency prices does not signal a full-fledged rally, it’s better than nothing.
The real surge will come when markets are okay dismissing some cryptos and rewarding others.
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