In today’s Money Morning…then central banks start churning out the cash…a battle between the fearful and the confident…underlying technology explains ETH/BTC divergence…and more…
Bitcoin has the brand name, but the second biggest crypto in the world is rocketing ahead.
Ryan Dinse and I actually recommended Ethereum to our subscribers back in September 2019.
Crypto was definitely not in vogue back then.
There were even real concerns that the alternative to fiat would burn out entirely.
Then central banks started churning out the cash.
And believe it or not, in the last 12 months, Ethereum is actually ‘mooning’ much more than BTC as you can see below:
Source: Federal Reserve
This chart also has a correlation coefficient on the bottom there.
This is telling us that the usually very strong correlation is breaking down, something that it’s only done twice in the last year.
BTC tacked on 520% in this period while ETH returned more than 1,400%.
Now BTC is retracing a bit, while ETH continues to power ahead.
Part of this phenomenon could be down to a bit of social psychology.
As in, regulatory fear, uncertainty, and doubt (FUD) shook out a number of retail investors who wonder if governments will try and shut it down.
A battle between the fearful and the confident
Take, for instance, the mini-crash set off by events in Korea.
‘The head of South Korea’s financial regulatory agency has created controversy by saying all the country’s cryptocurrency exchanges could be shut down in September.
‘During a meeting of the National Assembly’s policy committee on April 22, Eun Sung-soo, chair of the Financial Services Commission (FSC), said the agency has yet to receive any any Virtual Asset Service Provider (VASP) applications required under a recently amended law going into effect later this year.
‘“There are an estimated 200 cryptocurrency exchanges in the country,” he added. “But if the current situation continues then all of them could be shut down.’
BTC shed 8% on the day and as much as 15% in Korea.
After news broke of India’s move to ban crypto, a similar thing played out.
Crypto investors use these sell-offs to soak up more.
It’s the weak hands/strong hands dichotomy or maybe more precisely, a battle between the fearful and the confident.
I’d definitely side with the confident on this one after the Korean regulatory developments.
And the reasoning behind this is very simple.
Ie: you can’t turn off the Internet (at least in the ‘free’ world)! P2P (peer-to-peer) systems will survive regardless of what governments do.
Going back to the start though, to really wrap your head around the BTC/ETH difference you need to know a bit about the underlying technological differences between the two cryptos.
I think these differences provide a big insight into the future of money.
Underlying technology explains ETH/BTC divergence
If you are an old hand of crypto this might be a bit of rehash, but many investors still don’t know what sets the two apart.
Think of it like this.
BTC is more a store of value, safe haven asset.
Whereas ETH is sort of the infrastructure of the altcoin universe, of which there are thousands.
As in, you can actually do a lot more with ETH.
ETH also has a swathe of updates to its protocol in the pipeline which you can learn all about right here.
The hype around these improvements is likely playing a big role in ETH pulling away from BTC now.
Here’s what this shift is pointing to though.
Namely, that crypto isn’t just about squirreling away money from the fiat system — it’s also very much about doing things.
This is the realm of the increasingly less niche altcoin-verse.
There’s a staggering array of coins, but what I’m most excited about is the Decentralised Finance (DeFi) movement.
Have a quick read of this article if you have the time.
The headline is ‘DeFi 2.0 — First Real World Loan is Financed on Maker.’
That might sound really confusing if you’re not in the know, but this article sparked an exciting conversation amongst our editors.
Ryan Dinse said:
‘The first real world loan using DeFi as the funding mechanism.
‘Remember Dai is synthetic dollar produced by having overcollateralised assets held as security.
‘I’ll need to think through the broader implications of this but for a start it’s big trouble for the banks (the bank unbundling, remember that!). We’re not just talking crypto based loans now, we’re talking the banks’ bread and butter.
‘Then there’s the Euro dollar market. Will DeFi grease the wheels to make the US dollar the true global currency. Ironically by taking it out of the hands of the Fed!?!?
‘I dunno exactly, but it feels big…’
Whatever happens from here on out will have implications across politics, society, and investments.
We have something in the works to guide you through the monumental shift we think is just beyond the horizon.
You’ll hear more about that soon.
For Money Morning
PS: Promising Small-Cap Stocks: Market expert Ryan Clarkson-Ledward reveals why these four undervalued stocks could potentially soar in 2021. Click here to learn more.