Crypto can be confusing.
And we’re not only talking about technology that almost nobody understands.
We’re talking about the investment opportunity here.
Is crypto a good fit for a diversified portfolio?
Did all the crypto exchange scandals put a dent in its reputation that it will never recover from?
Is it a megatrend?
Crypto Has Crushed Stocks This Year
Bitcoin has beaten the S&P 500 handily so far this year.
The cryptocurrency is up 55%, while the market index is up about 12%.
Bitcoin has also beat NASDAQ, the tech-heavy index, which is up 27% so far in 2023.
What does it mean?
The price itself never means much. Yes, you can build charts and figure out moving averages and trading signals… but the price itself is just the tip of the iceberg.
And fundamentally, crypto remains a “leveraged tech play.”
Its performance against NASDAQ proves this.
What’s important is that you cannot make a prediction about the price of an asset based on its past performance.
And psychology plays a big role. Bitcoin has always been a “trend” play, which means that there’s a big behavioral component here.
When it’s popular, its price goes up. When it isn’t, its price goes down.
Surprisingly for some, high interest rates haven’t prevented bitcoin from rising so far this year.
It’s proven to be a trend play, after all.
So where could this trend go next?
Crypto Scandals Don’t Help. Or Do They?
The fallout of FTX, a crypto exchange, was all over the news just recently.
And now it’s Binance, the world’s largest digital coin exchange.
The United States Securities and Exchange Commission said that it was suing the exchange and its chief executive, Changpeng Zhao, alleging multiple securities violations.
We could be in for another episode of the ongoing crypto drama.
But the gist of the allegations is similar to those that took down FTX and its founder Sam Bankman-Fried.
Commingling customers’ funds, operating an unregistered exchange, and offering its services to US citizens…
There are allegations attacking the way Binance did business, but there’s nothing that attacks crypto as a technology or asset class.
So, What’s Next?
The SEC lawsuit against Binance could be one of the steps the US authorities are taking toward regulating the space.
At the summit of G7, a group of wealthy nations, crypto regulations were also discussed.
Crypto fans look at this as a threat.
After all, crypto was supposed to be an asset class that exists outside the traditional financial system.
And it does, to an extent.
But there’s a problem.
This lack of regulation makes bitcoin look bad in the eyes of institutions and financial advisors.
As a result, they wouldn’t recommend them to their clients.
They simply want to avoid getting into trouble with the SEC and other regulators.
However, if crypto was indeed regulated, it would gain legitimacy.
Yes, it would lose its “edge,” but it would probably be adopted by millions more investors who are staying away from it now.
And as we said in the beginning, crypto so far has been a trend play.
It’s an asset class that thrives on popularity.
If it becomes regulated, trading it would not be frowned upon.
And, who knows, it could become a megatrend.
But so far, it hasn’t.
Despite the stellar performance in 2023, crypto remains an outsider.
When we’re at a point of the world’s leading nations agreeing on how to handle it, then we will be talking about a completely new asset class potentially getting massive traction.
For now, we would focus elsewhere.
Thank you for your loyal readership,
The Financial Star team