In Focus: Cryptos are Ready to Takeoff Again
Updated: Aug 16, 2021
In mid June I wrote a piece advising investors to look to the crypto markets for their next big win. At the time of that writing Bitcoin was down more than 40% from its all time high of about $64,800. Today, Bitcoin is only down 28% from its all time high, and it looks like the crypto currency is getting ready to trade up to and past its old high.
Recently the news out of the crypto space has been very encouraging and leads me to believe that the crypto markets are ready to take off once again. Here are six things I've noticed recently regarding the crypto markets.
2. Ethereum's London Hard Fork, which went into effect on August 5, 2021 brought some big changes to the Ethereum network, but none more noticeable to me than the lower gas fees. Gas fees are the toll one pays to conduct transactions on the Ethereum Network, and pre London Hard Fork, gas fees were very high. Gas fees moved up or down depending on the traffic on the network, and with more happening on the Ethereum network than ever before there always seemed to be a lot of traffic. For instance, in late May to purchase $10.00 of the meme coin SHIB, the gas fee was around $17. Due to the sophistication of the network, a user could set the gas fees at the price they are willing to pay for the transaction, but if it was below the current market rate, the transaction would be put in a very long queue, and the transaction wouldn't be completed until the median gas fee dropped.
Things like Decentralized Finance (DeFi) and even NFTs utilize the Ethereum network, and the high gas fees kept many people on the sidelines or waiting forever for times of less traffic to conduct a transaction. The London Hard Fork essentially added lanes to the network, which creates less traffic jams and lower gas fees Now, with the lower fees I expect more people to explore all of the great things happening on the Ethereum network like DeFi, which takes me to something else I've taken notice of.
3. According to DeFi Pulse, the total value of USD locked in DeFi is currently over $80 billions, which is a 57% increase from where it was in late May. I think DeFi is an unknown aspect of cryptocurrencies. It doesn't get the same attention as a meme stock like GameStop does, or the attention that Bitcoin does on it's own, but I'm a believer that DeFi is going to
be a game changer in the financial markets.
4. Cardano (ADA-USD) realized an increase in it's value recently jumping to over $2.00 on the news of its upgrade that will bring smart-contract functionality to the platform.
5. Then we have Coinbase (COIN), whose second quarter earnings trumped analyst expectations by a good clip. Coinbase reported $2.23 billion in revenue versus analyst estimates of $1.75 billion. Diluted earnings per share came in at $6.42 or $3.45 when excluding stock based compensation. In both cases Coinbase's EPS beat analyst estimates of $2.24. Revenue in Q2 2021 increased 1,098% year-over-year. Wow!
6. In Q2 we might have also witnessed an awakening by people who don't closely follow cryptocurrencies. Bitcoin spent most of Q2 2021 trending down. For a short while in April BTC-USD traded upwards hitting its all time high during the quarter, but after April 17 it was all downhill for Bitcoin. Ethereum on the other hand was rising while Bitcoin was falling and didn't start declining in price until early May. Was that rise from April to May people moving money from Bitcoin into Ethereum? I'm on the side of people that believe Ethereum will surpass Bitcoin in the long run. For now, Bitcoin definitely benefits from the first mover advantage, especially for those people that think all cryptocurrencies are the same once you get past the price.
Now that Bitcoin is on the rise again, we're hearing chatter of Bitcoin eventually hitting $100,000. It seems like a pie-in-the-sky idea right now because it's only trading at around $40,000, but I can remember when Bitcoin getting to $1,000 was a pie-in-the-sky idea, and the same for $5,000, $20,000, and $50,000.
All the news coming out of the crypto market leads me to believe that the crypto markets are set for another major run. This may not be the run that takes Bitcoin to $100,000, but we could see Bitcoin take out its old high of $64,800. My advice remains the same when it comes to crypto, buy on the pull backs and think long-term, but take advantage of the short-term surprises.