I have observed, and invested in, financial markets for 30 years, with active participation in five sectors - oilfield equipment and service equities; metals and mining equities (particularly gold and silver), physical bullion, Bitcoin, and altcoins. The reason I separate mining stocks and bullion; and Bitcoin and altcoins; is because while they share common catalysts, investment criteria are vastly different - and of course, risk/reward profiles.
Precious Metal miners were ultimately done in by capital starvation – the direct result of a gold and silver bear market that started in 2008, with a brief respite in 2011. As well, the fact the investors, and miners, quickly realized what nearly every prospector throughout history painfully learned – that mining, especially for gold and silver, is one of the most difficult businesses imaginable.
Eventually, capital starvation yielded valuation desolation, to the point that 95% of miners were destroyed, never to return. Bullion investors survived the carnage due to the support provided by mining costs, but dramatically underperformed nearly all other asset classes.
In cryptocurrency, the situation is far different, but risks are equally large. Bitcoin is the “gold standard” (soon to be renamed the Bitcoin standard), but as we’ve seen the past 48 hours, can be as treacherous as any financial market – if not, more so. The big difference being, that whilst Precious Metals are in a long-term bear market (in large part, because crypto usurped its use case), crypto is in the early stages of a multi-year; potentially, multi-decade; bull market.
Just as 95% of miners were useless from the start – with nothing but “prospects,” inconclusive test results, high cost mine developments, or operationally challenged mines; 95% of miners have no discernible use case; let alone, anything defensible over the long-term.
However, whilst lack of a Precious Metal bull market killed off the miners, many cryptos have survived a lack of coin-specific fundamentals due to positive sentiment from the underlying Bitcoin bull market; inertia; and to this point in the nascent crypto sector’s history, a general lack of investor sophistication.
The same occurred early in the Precious Metal bull market of the early 2000s – as well as bubbles in countless hot investments throughout history, like dotcoms in the late 1990s and condominiums in the mid-2000s. Like those markets, more sophisticated investors will emerge from altcoins’ 2017-18 boom/bust phase – as well as professional analysts and institutional investors, who will relatively quickly separate the wheat from the chaff.
With Bitcoin having successfully re-taken, defended (in the wake of the Binance hack), and left behind the “Hoffman Line” (a $100 billion market cap), it not only proved to be a viable asset class, but ensured a wave of sophisticated capital will imminently arrive.
However, until that transition occurs – which could take a year or more – the shallow, unsustainable premises that have supported “top” altcoins will continue to determine which are highest valued (albeit with diminishing returns, as more sophisticated investors enter the space, and current investors start to question they’re holding). In my view, more than half of the CMC top 50 will no longer be so two years from now – yielding some of the best investment opportunities in generations.
Today, the most important trait an altcoin can have is LIQUIDITY. It doesn’t matter how it came about, or what the coin’s underlying fundamentals are – so long as traders can enter and exit positions quickly. Nor does it matter that, despite such liquidity, it can at times dramatically decline – as was the case the last 24 hours, when the average altcoin fell 15%-20%.
The best way to generate liquidity is to trade on “top exchanges” – a moving target, as the lifespan of a top exchange can be fleeting. Heck, top exchanges often do themselves in – as Bitfinex has attempted to many times before, via hacks and questions about Tether; not to mention, Binance, the latest top exchange du jour, which got hacked last month. To that end, “Binance Coin” is the #7 CMC crypto; Tether is #8; and Bitfinex’ latest Frankenstein creation, UNUS SED LEO, debuted this week at #13.
Moreover, as Bitcoin Rhodium investors have learned, if your market cap ranking is not published by CMC, it matters not what your fundamentals are – as the current crypto community religiously watches the CMC tables, focusing principally on the highest-ranked coins.
The fact that the rules governing what gets ranked were completely subjective until very recently (when CMC’s DATA alliance published strict guidelines, that will shortly be announced publicly) has made it even more frustrating – as XRC is more liquid than many ranked coins, with a market cap that has fluctuated between the 150th and 300th ranked coins of 2,300, for most of 2019. That is, making a best guess at what CMC will calculate its “circulating supply” to be – given that it is itself subjective, with no relationship to GAAP-determined “shares outstanding.”
In XRC’s case, the light at the end of the tunnel is nigh – and given the success it’s had WITHOUT a CMC market cap ranking, the impact of CMC-endorsed exchanges (and thus, a market cap ranking); equally imminent Trezor support; and the thousands of new eyeballs that will accompany these changes; it is highly likely that XRC’s liquidity is on the cusp of a major stair-step higher, in the very near-term.
At which point, investors will start to focus on the fact that Bitcoin Rhodium not only has a viable, defensible use case, but better fundamentals than more than 95% of altcoins. Given these factors, do you think the better investment is XRC at a $10-$15 million market cap, or BCash (to name one useless, massively overvalued crypto) at $7 billion?
Bitcoin Rhodium currently trades on p2pbp2.io, WhiteBit, Trade Satoshi, Fat BTC, Sistemkoin and Bisq. If you have questions about anything XRC-related, including OTC trading, please email me at ahoffman@cryptogoldcentral.com, or DM/PM me on Twitter or Discord.