Investors who have been following the crypto world must be aware of the narrative of crypto market movements in different phases. The last bullish period of the crypto market in 2017 was due to ICOs fundraising and other factors such as Tokenization. Since mid-2020 the development of other assets such as NFTs, DeFi, and CBDC has dominated the overall market sentiment. This narrative has been the highlight of the recent adoption of blockchain technology, but sometimes market participants embrace it too aggressively without thinking about the risks involved. That’s where we can see the short-term market trend and abnormal increase of the latest crypto project, which is always followed by a steep price drop when the market sentiment starts to decline.
In reality, crypto investing is not limited to chasing trends and short-term price movements. There are several valid fundamental narratives to test over time. In this article, we will discuss the existence of three perspectives that determine the intrinsic value of crypto assets from a technological, financial, and political perspective. These three perspectives will prove the value of crypto assets is not limited to market price trend movements alone.
Technological Perspective: Bitcoin as a Technology
Whenever the topic of Bitcoin is discussed, most people immediately associate it with its price volatility. Bitcoin is a decentralized and open peer-to-peer electronic payment system. The BITcoin is both an incentive and a form of security for participants of the network to maintain open transaction records for all users. The main focus of the Bitcoin topic should not be on the BITcoin price itself but the network effect and its potential influence on future financial technology.
Let’s take the internet as an example. It is an industry-changing invention of communication technology that started 20 years ago. It has changed the fundamental principles of industries such as media, gaming, communications, and many others. The internet has also made social media possible, which has changed how people interact with each other. All these things happened because of internet innovation. Interestingly, however, internet technology has not led to innovations in the world’s financial system. To this day, the financial industry still uses infrastructure that hasn’t been updated in 50 years.
Invented in 1973, SWIFT (Society for Worldwide Interbank Financial Telecommunication) technology is a network that allows all banks worldwide to send and receive financial transaction information and is still used today. Transactions between countries usually take several days to be delivered and require a large fee. With Bitcoin technology, we can see the potential to reform this system and make the world’s financial system better in the future.
Blockchain technology demonstrates a digital ledger technology to facilitate peer-to-peer transfers without third-party interference, such as banks or governments. The concept is being tested at the corporate level. J.P. Morgan initiated the experiment in 2017 to start an Interbank Information Network (IIN) involving 400 financial institutions and companies across 78 global markets. The system was recently rebranded as Liink. While this technology is not an open blockchain system like Bitcoin, the project is one approach to updating the SWIFT system.
Financial Perspective: The Influence of Inflation
Inflation has been a source of concern for investors, especially after the financial crisis in 2008 when governments worldwide started stimulating the economy by increasing the amount of money in the market. So, if inflation continues, what should investors do, given the increase in the amount of money in the market? Will they be able to maintain the value of fiat money? When investors do not own assets whose value outperforms the speed at which the amount of money rises, their value will continue to decline over time.
Meanwhile, traditional assets such as real estate or gold do not show any value that can outperform inflationary movements. However, when it comes to Bitcoin, this digital asset continues to outperform every other traditional asset in value. That’s why some asset managers are starting to allocate budgets for Bitcoin and different crypto asset values in their investment portfolios as fiat currency inflation protection asset considerations.
The first use of cryptocurrencies as an inflation hedge was by large corporations as they were the first to notice inflationary movements in value and needed protection from falling fiat currency values. Traditional investors are starting to follow suit and add cryptocurrencies to their investment portfolios in preparation for inflation. It’s only a matter of time before cryptocurrencies become reserve assets for banks and other institutions.
Bitcoin may have been the first cryptocurrency on the market, but it is no longer the most traded asset. The most traded crypto asset is the stablecoin USDT, also known as Tether, and it overtook Bitcoin’s trading volume in April 2019. The trading volume continued to peak, reaching $300 trillion daily in May 2021. Today, the US Dollar continues to dominate nearly 90% of Bitcoin trading activity as the most widely used international asset.
Governments around the world take different approaches to the crypto sector. Let’s take the example of China as one of the countries with the largest economic growth. The country takes a strict policy regarding domestic crypto exchanges and mining activities. Whereas the United States allows the buying and selling of crypto openly to the public and guarantees the future use of Bitcoin that the CFTC has approved. These two examples are among the radical approaches governments have taken in response to the crypto issue. Except for El Salvador has made Bitcoin a legal medium of exchange. Regardless of the regulatory approach, the world’s governments take anyone who stifles crypto innovation and will ultimately miss out on potentially beneficial economic growth.
Investing in crypto is not just about following market trends and profiting from short-term volatility. Deep within the underlying price movements, there are fundamental reasons for crypto’s usefulness as a long-term investment tool. Understanding these principles will help you recognize the intrinsic value of the technological innovations that underlie crypto assets.
It is impossible to predict what will happen tomorrow or next year. Still, suppose we observe changes in technological development, financial trends, market investment preferences, and world political interests. In that case, we can anticipate how to deal with the future of crypto assets for the next few decades. Many signals indicate significant structural changes in the world of finance, finance, and government systems. Knowing the trends that will occur can provide predictions for you in dealing with uncertain price movements in the future. This is the right time for you to consider crypto as one of the investment instruments used in your portfolio as one of long-term value protection.