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History as a guide

Sometimes, it is important to look at historical comparisons to get perspective. This is especially true in trying to assess the disappointments and frustration with cryptocurrencies and blockchain that has emerged over the course of Crypto Winter1 and to put what may happen next into perspective. In many ways, the current period can be seen as equivalent to the pessimism that emerged about dot-com businesses and the internet in the wake of the 2000–2001 market crash.

Yet, in 2001, there were still those that believed in the opportunity presented by the internet. “Though dot-com executives might seem irrelevant these days, the technologies they sold, by and large, are not, pointed out Paul Saffo, an analyst at the Institute for the Future in Menlo Park, CA: “People haven’t stopped using the Internet,’’ he said. “The fact is that it is changing the world, and it has changed the world. People now expect to be able to buy a book or make an airline reservation in the middle of the night, and it’s washed into the rest of their lives.”2

Similarly, there are those today that still see the potential of crypto.

This paper covers:

  • Re-visiting the crypto value proposition Six factors we believe are likely to spur continued, and perhaps accelerated growth in crypto.
  • Why invest in crypto now? Three factors indicate that we are moving into an important window of time for the crypto markets and if those indicators prove accurate and patterns noted in previous cycles continue to exert the same influence, we may expect to see the markets exit Crypto Winter and begin a new phase.
  • Conclusion Though many investors have dismissed the growth potential offered by crypto in the wake of the 2021–2022 sell off and in response to high-profile failures and actions against leading crypto firms, the space has continued to develop. 

Endnote

  1. Source: FinTech magazine. "Crypto winter" refers to a prolonged bear market in the cryptocurrency industry, characterised by a significant decrease in the prices of cryptocurrencies and a reduction in market capitalization. January 30, 2023.
  2. Source: Schwartz, John. “The dot com is gone and the dream with it.” NY Times. November 25, 2001.

 

WHAT ARE THE RISKS?

All investments involve risk, including the loss of principal.

Blockchain and cryptocurrency investments are subject to various risks, including inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk; an investor can lose the entire amount of their investment. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.

Digital assets are subject to risks relating to immature and rapidly developing technology, security vulnerabilities of this technology, (such as theft, loss, or destruction of cryptographic keys), conflicting intellectual property claims, credit risk of digital asset exchanges, regulatory uncertainty, high volatility in their value/price, unclear acceptance by users and global marketplaces, and manipulation or fraud. Portfolio managers, service providers to the portfolios and other market participants increasingly depend on complex information technology and communications systems to conduct business functions. These systems are subject to a number of different threats or risks that could adversely affect the portfolio and their investors, despite the efforts of the portfolio managers and service providers to adopt technologies, processes and practices intended to mitigate these risks and protect the security of their computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the portfolios and their investors.

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