Exciting developments in Bitcoin, progress in the Lightning Network, increased SegWit adoption, and batch transactions have made transactions faster and cheaper. While skeptics point to lower transaction amounts, outputs, which are a more valid real-world measure of usage, are near their highs and trending upwards.
These bullish turn of events for Bitcoin are bearish for the altcoins whose entire reason for being is to be faster and cheaper. They are now unlikely to have any such advantage (at scale), and they still have the problem of achieving critical mass. Good luck with that.
Two things are thus supportive of Bitcoin, fundamental improvements that should aid in new investment, and rotations out of alt coins into Bitcoin. We expect consolidation into the most significant coins by usage to continue in the short term. Inflows, however, will remain limited until institutional money embraces the space more enthusiastically.
Further, we are unconvinced new tokens and innovations have much of a chance in the long-term because any real innovations (and there are few legitimate ones) can be relatively easily incorporated into the coins that have the most substantial network effects and resources.
Market Outlook and Positioning
We are long BTC relative to everything else, but new money is needed to get back to all-time highs, and we do not see enough of it to get there yet. Keep your eye on institutional money coming into the space to really get bullish. Also, keep your eye on the broader macro environment. If inflation and a weak dollar continue to play out as concerns, it could be the impetus for institutional money to be attracted to the ecosystem as it makes the ‘digital gold’ argument for Bitcoin more compelling as an investment. Aside from that, time is the most crucial ingredient for the space to mature and prove itself out to remaining skeptics.
Leonidas Crypto Fund: Investment Process
Our approach to crypto is to apply traditional hedge fund strategies to the new asset class. Things like long-short, algorithmic trading and fundamental analysis that treats these coins as if they’re commodities can benefit from the combination of extreme volatility and lower competitiveness. We find it ideal that we have access to such transparent, near real-time information on both supply and demand with very few market participants taking advantage of it.
While we try to refrain from taking religious views on where the space is going or which coins will ‘win’, we estimate that Bitcoin has an underappreciated advantage, along with, to a lesser extent, Ethereum. Network effects are not to be underestimated, in other words.
George Michalopoulos is founder of Leonidas Crypto Fund, a Los Angeles-based crypto Asset manager. Follow him on Twitter @Leonidas_Cap
This post is not financial advice and reflects the personal views of the author. The author invests in digital assets and has positions in the aforementioned cryptocurrencies.
Disclaimer: This article should not be used as investment or financial trading advice. Please conduct careful due diligence before investing in any digital asset.