The Coming Cryptocurrency Boom

It’s happening…

Excuse me while I gloat just a little bit in an ‘I told you so,’ moment.

But this is what I wrote back in August. A lifetime ago in the world of cryptocurrencies. And at a time when bitcoin was a full 24% cheaper than it is today.

There are numerous plans to make it easier for investors to buy into the crypto asset class without the technical hassles you currently have to endure. At last count, there were 20 funds and ETF products looking to launch later this year.

When the big banks start offering cryptocurrencies in their portfolios, you can be sure we are in the fourth or fifth stage.

My contention in this article was that we are about to go through a third wave of cryptocurrency buying in the next 6–12 months.

This would be in part driven by the big banks starting to offer products that made it easier for retail investors to invest in the, sometimes confusing, cryptocurrency sector.

According to reports last week, this is starting to play out.

Predicably, it’s the big names that are moving first…

Investment banks move in

According to Bloomberg the investment banks are gearing up to get into the sector.

Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein tweeted on Tuesday that his firm is examining cryptocurrency assets.

Other global investment banks are looking into facilitating trades of bitcoin and other cryptocurrencies, according to industry consultants.

Morgan Stanley chief, James Gorman, stated that it was ‘more than just a fad’.

OK, he’s not screaming it from the rooftops like I am maybe. But for a conservative captain of finance, it’s a big statement about the legitimacy of cryptos.

And it directly contradicts JP Morgan head, Jamie Dimon’s ‘it’s a fraud’ claims from a few weeks ago.

So, why the recent bullishness?

The first reason is mundane self-interest.

The simple fact is hedge funds and wealthy clients are demanding access. And these are not the kind of customers you want to suggest go somewhere else.

It therefore makes sense for investment banks to have products that cater to these desires. Lest the competition lures clients over with theirs.

The second reason is more interesting. 

Some cryptocurrencies are actually starting to create blockchains Wall Street can get behind.

It’s due to an exciting breakthrough in mathematics called ‘zero-knowledge proofs.’ As reported by Bloomberg:

Zero-knowledge proofs are one of the biggest inventions in the last two decades in cryptography,” said Emin Gun Sirer, an associate professor of computer science at Cornell University. It “will allow a slew of applications we can’t even imagine right now.’

An industry group called the Enterprise Ethereum Alliance — whose members include JPMorgan Chase & Co., Credit Suisse Group AG and BP Plc — is trying to leverage zero-knowledge proofs for the financial industry with its distributed ledger, known as Quorum.

In a nutshell, they combine the benefits of blockchain systems with crucial privacy protocols.

Essential features for a secretive investment bank.

In addition to these bank brand names, 55+ crypto focussed hedge funds have sprung up in the last few months.

Another source of funds for an impending crypto boom?

We will see…

Stage three boom in cryptocurrencies soon

I don’t expect you’ll see the NAB [ASX:NAB] or ANZ [ASX:ANZ] opening a crypto fund anytime soon.

And in my opinion that’s good for you, if you invest right now.

Because by the time these retail banks recognise the new asset class that is cryptocurrencies, the big gains will be long gone.

I think the next 12 months will see what I call a ‘stage three boom’.

This is what comes before more normal returns usually happen — or a big crash!

I could be wrong, of course.

The big banks will fight back. They’ll attempt to separate the power of blockchains from the need for an accompanying cryptocurrency. A way to maintain their middleman advantage.

I predict such efforts will fail.

Just as the internet beat the intranet back in the 90s.

Open sourced, decentralised and free systems are win in 99% of technology battles.

And whether you invest in cryptos or not, the future they are helping to create is going to affect you in some way regardless.

Good investing,

Ryan Dinse,
Editor, Money Morning

PS: Cryptocurrencies represent the most exciting and potentially lucrative investment you will ever see. A genuine attempt to change the underlying nature of finance, investment and commerce. It’s something you need to start learning about now. Click here to find out more.

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

Money Morning Australia