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Will Blockchain Survive in the future?

If you're anything like me, you've definitely heard some crazy crypto stories in the last several years:

- Teenagers become cryptocurrency billionaires.

- Countries that accept bitcoin as legal tender.

- A JPEG (picture) was purchased for $69 million.

-The internet came close to purchasing the constitution.

- People are losing their entire life savings on cryptocurrency.

To suggest cryptocurrency resembles the American frontier is an understatement...



Will this be just another trend, or will it last for the next decade ????


After all, I don't want to seem like David Letterman, who compared the "internet thing" to radio and tape recorders in his 1995 interview with Bill Gates.

Bottom line: We are still in the early phases of this field, and it is impossible to predict which currencies or crypto projects will succeed and which will be worthless in a few years.

I'm not here to tell you which cryptocurrency will triumph, but rather to explain why cryptocurrency is gradually growing into a genuine asset class.

Many of the examples I'll give will be about bitcoin, the first and most popular cryptocurrency.

Consider the following three suggestions:

Crypto "Use Cases" are expanding, but the details are still unknown.

I felt cryptocurrency was a huge sham two years ago.

As a financial professional who is constantly hearing about the latest fads or other outlandish claims, my interest was piqued when I first heard about it.

There are now over 100 million cryptocurrency users, and the cryptocurrency market is worth more than $2 trillion.

Despite the volatility, crypto use is clearly increasing.

The question remains as to why cryptocurrency has value and what it is used for:

-  Digital Gold?

-  Store?

-  Decentralized banking?

- What about Payment?

I am aware that there are numerous sorts of cryptocurrencies, tokens, and NFTs. However, most consumers are unsure of what actual value and usefulness are.

Crypto will likely stay very speculative for a long time.

If you're willing to take the risk, adding a cryptocurrency like bitcoin to your portfolio could provide some diversification benefits when mixed with traditional assets.

The CFA Institute Research Foundation claims that

"Historically, adding Bitcoin to a portfolio has had a favorable influence on long-term portfolio performance, both in absolute and risk-adjusted terms." The Sharpe ratio increased from 0.54 to 0.75 as a result."

A 60/40 portfolio with a minor investment to bitcoin will have the following returns from January 2014 to September 2020.

"The impact of including several bitcoin allocations into a portfolio with a 60% allocation to the Vanguard Total World Stock ETF (VT) and a 40% allocation to the Vanguard Total Bond Market ETF (BND)—the "conventional portfolio."

This study shows that the influence of bitcoin on a diverse portfolio can provide some of the benefits of diversity, thus it's feasible that more customers will start to reduce their allocation to bitcoin.

Over the next decade, as the crypto economy grows, it may very well welcome wider acceptance. However, this is not a sign of bitcoin's future predictive value.

In comparison to global wealth, it is still peanuts.

It is critical to consider the magnitude of the cryptocurrency market.

Global wealth reached over $418.3 trillion USD by 2020, with people holding $250 trillion in financial assets.

The global cryptocurrency market is currently valued at over $2 trillion. This represents less than 1% of global financial assets.

The boomer generation now controls the majority of traditional financial assets.

And my parents, who are in their sixties, are still getting used to the internet...

I'm not convinced most baby boomers are ready to go into blockchain technology headfirst.

As a result, it is evident that the future of cryptocurrency is dependent on digital natives.

A CNBC survey found that 83% of millennial millionaires own cryptocurrencies. However, while millennials now outnumber boomers, boomers continue to own the majority of financial assets.

So millennials haven't fully matured.

And you can see in the chart below that millennials own only a tiny fraction of total financial assets in the US.
Note: Distribution by generation is determined by year of birth as follows: Quiet and Early=born before 1946, Baby Boomers=born 1946-1964, Gen X=born 1965-1980, and Millennials=born 1981 or later.

Wealth transfers will move in glacial places as people are living longer than ever before.

The wealth shift may take decades.

The cryptocurrency market is not for the faint of heart.


Investing in cryptocurrencies is not for the faint of heart.

Cryptocurrency will almost certainly continue to face enormous drawdowns in our lifetime.

According to analysis, the bitcoin price has experienced six peaks and six dips of more than 70%.

According to CFA Institute study, as seen in Table 2,

“bitcoin has had 15 quarters of negative returns since its inception, along with two negative years, including a 73.71% pullback in 2018.”

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Because this is a new asset class, there will be crashes and bone-chilling volatility.

When investing in cryptocurrency, you should be okay with it being $0.

It has the power to suddenly flip south and does so 24 hours a day, seven days a week.

I'm not sure how cryptocurrency will play out in the coming years, but I don't think the volatility will go away anytime soon.

One thing is certain: the birth of this new asset class has been a fascinating event, and it will be fascinating to see where it leads in a decade.

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Sources:

@DonRFK90






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