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Why I am investing in crypto right now

29 June 2022 Jonty Sacks, Partner at Jaltech

If you have been in the cryptocurrency market for some time, you will start to notice that majority of the conversations around cryptocurrency are centred around its volatility, with little to no appreciation or understanding as to what is really happening behind the scenes within the cryptocurrency ecosystem.

And I can assure you it’s not all good, but the good part is why I have been investing multiples more than the 1% to 5% which I suggest investors should be investing into this asset class.

Let me start with the bad. In the world of cryptocurrency, there are currently 19 000 cryptocurrencies in the market. Basically, anyone with a pen, paper and some technical knowledge can start their own cryptocurrency.

Frightening right? Well not really, anyone with a few Rands can start their own business, why should it be different in the cryptocurrency market. The problem is when uneducated and greedy investors pile their money into cryptocurrencies which have no “business case” in the hope that they will make millions overnight. Sadly, they don’t, they end up investing in scams or in a project which had no investment fundamentals.

One thing I can assure you, a bear market like the one we are experiencing at the moment, will clean up this market quicker than the price of Luna’s crash a few weeks ago.

Now onto why I have invested a significant portion of my portfolio into cryptocurrencies and will certainly be increasing this percentage over the next week or so. I’ll narrow my argument down to two reasons: namely adoption and regulations.

Adoption

Adoption or the rate at which customers/users are making use of a particular item is a fundamental investment consideration.

Take the invention of the washing machine, I would be comfortable making the statement that every FAnews community member has a washing machine, but yet it took more than 35 years for washing machines to form part of 60% of households. Cellphones and the internet took close to 15 years to reach a significant scale. The below chart demonstrates adoption across household items.

Cryptocurrency? Well, its adoption is off the chart (excuse the pun). Crypto.com released a report, illustrating that during the first quarter of 2021 alone, the total number of cryptocurrency users doubled, to over 200 million. These figures demonstrate that cryptocurrency adoption rose by over 880% in 2021, according to an analysis performed by Chainalysis.

What’s causing adoption? Well, the answer is geographically different. Take geopolitical events in Ukraine and Russia, cryptocurrency adoption soared due to political sanctions. In emerging markets such as Turkey, El Salvador and many others, cryptocurrencies (particularly stable coins) are a means of storing value given hyperinflation in those countries.

Chainalysis’ research indicates that countries such as Kenya, Nigeria, Vietnam, and Venezuela have seen significant adoption due to the ability to execute peer-to-peer transactions over the blockchain, cheaper and faster than traditional banks.

My personal view is that we are at the bottom of the J-curve of adoption and as regulations are introduced globally, we will see adoption skyrocket.

Regulations

As bold as the following statement is, I believe it. The fact that cryptocurrencies are unregulated is one of the biggest opportunities in the market for investors. I say this because, once regulations are introduced, large financial institutions will not only be able to invest in this asset class, thereby driving up the price but they will also be able to offer cryptocurrency/blockchain-related services to hundreds of millions of people.

A great example is Paypal, one of the reasons for the surge in adoption during 2021 was the added feature by Paypal which allowed its users to access the cryptocurrency market. If we fast forward 18 months, we will likely see the banking sector offering customers access to cryptocurrencies through their existing platforms.

This sudden event will likely result in billions of people having access to this market.

Well, where are we with regulations? I sat on a panel discussion last month with a representative of the FSCA who explicitly stated that the FSCA is aiming to introduce regulations before the end of the year. The introduction of regulations will allow financial institutions to advise on cryptocurrency investing as well as to offer clients depository/custody services.

But South Africa is the tip of the iceberg, first world countries like America, Canada, the UK and others are showing clear signs of embracing cryptocurrency. Just last week, the US released its cryptocurrency bill which appears to be very favourable to the adoption of cryptocurrencies.

The next question is timing, well, if you have been following the market you would be completely fearful to invest as all cryptocurrencies have seen a huge drop in prices. But they are not alone, the S&P on Monday (13th of July) saw every single stock in the red. Global markets are similarly experiencing a significant sell-off.

It is obvious that no one makes money buying at the top and I’m of the view that the cryptocurrency market may not yet have reached the bottom, but I’m willing to buy in now as I’m confident that the long-term gains are going to be significant.

The content above is my personal opinion and should not be interpreted as financial advice. For advice on investing, consult your financial advisor.

Jaltech offers investors exposure to a basket of cryptocurrencies which is selected and managed by a team of cryptocurrency experts.

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