Though crypto’s total market capitalization surpassed US$3.63 trillion earlier this year – the U.S. stock market, for comparison, comes in at a little more than US$50 trillion – it can be difficult to understand how it’s managed to carve out a small but meaningful allocation in more than half a billion investment portfolios and counting.
We can break down the impetus behind crypto enthusiasm into two factions:
- Speculators, who allocate into crypto projects because of their exponential returns, as highlighted by Bitcoin’s more than 22,000 per cent return since 2015, in the hopes of benefitting from similar momentum.
- Active investors, who perform due diligence on crypto projects and the many uses of blockchain technology – including decentralized finance and software development – and make educated forecasts about the best investments in terms of undervaluation and future performance.
These dueling factions, one driven by price, the other by value, have grown the global crypto market cap by 58.5 per cent year-to-date, up from US$2.29 trillion on Jan. 1, thanks to numerous catalysts and despite ongoing setbacks that reveal actionable insights any crypto investor should know.
The triumph of spot Bitcoin ETFs
Since the U.S. Security and Exchange Commission (SEC) approved spot Bitcoin ETFs for trading in January, 11 issuers have amassed a combined Bitcoin holdings in excess of US$61 billion marked by consistent inflows, with products by BlackRock, Grayscale and Fidelity leading in assets under management.
This influx has added to the hundreds of millions across the world that held Bitcoin directly or through exchanges prior to the release of the ETFs, bolstering the cryptocurrency’s C$1.9 trillion market cap and its value proposition as a decentralized currency and investment vehicle.
Bitcoin has added 67.67 per cent year-to-date, and more than 720 per cent since 2019. It traded at C$98,092.05 per coin as of the time of this writing, but with numerous updates to the platform on the horizon, including yield and smart contracts, ample upward price pressure appears ready to be exploited.
Actionable insight: Peruse these top Bitcoin-related stocks to maximize your operational leverage to the cryptocurrency’s performance.
The tangible appeal of spot Ethereum ETFs
Eight spot Ethereum ETFs are awaiting final SEC trading approval – including Fidelity, BlackRock, Grayscale, Bitwise, VanEck, ARK 21Shares, Invesco Galaxy and Franklin – after the organization’s surprise approval of requests by the Nasdaq, NYSE and CBOE to offer trading in Ethereum-based products back in May.
As the second-largest cryptocurrency after Bitcoin, commanding a market cap of more than C$627 billion, Ethereum represents a significant opportunity to unlock value in the U.S. market, where investors can currently acquire the asset only on dedicated crypto exchanges, which have a spotty security and fiduciary track record at best.
Ethereum is a decentralized blockchain network that operates through smart contracts, which are agreements that self-execute once certain pre-determined requirements are met. This contract functionality, coupled with an in-house token issuance system called ERC-20, has allowed Ethereum to bloom into one of the most important digital economies trading today, hosting thousands of applications across finance, games, digital real estate, cloud computing, NFTs and more.
After reaching a record for active users in Q1 2024 and besting crypto’s top generators of network fees, Ethereum has its sights set on growing network activity and fee revenue through a new modular architecture adopted in March 2024, backed by an abundance of use-cases beyond Bitcoin’s payments facilitation, setting up investors with tangible prospects for outsized returns.
The Ethereum network’s native cryptocurrency, ETH, last traded at C$5,278.69 per coin. The asset has added 116.80 per cent year-over-year, 1,357.47 per cent over the past five years, and 33,514.72 per cent since 2016.
Actionable insight: You can already purchase Ethereum through Canadian ETFs such as ETHX, ETHH and FETH, granting you a potentially more attractive entry point compared with U.S. investors.
Continued regulatory pressure
The SEC’s multi-billion-dollar fraud lawsuit against Binance, the world’s largest crypto exchange, continues to develop, as do its quarrelsome relationships with Robinhood (NDAQ:HOOD) and leading exchange Coinbase (NDAQ:COIN), with the latter recently accusing it of plotting to destroy the crypto industry.
These high-profile cases, in addition to the successful conviction and sentencing of Sam Bankman-Fried, the former CEO of fallen crypto exchange FTX, overshadow a number of smaller ones – such as a doozy in Salt Lake City from earlier this week – that typify the government agency’s ruthless attitude towards this emerging asset class, representing an unignorable threat to crypto’s long-term viability.
Earlier this month, in an interview on CNBC, SEC chairman Gary Gensler described crypto as “an outsized piece of the scams and frauds and problems in our markets,” where “much of the field is noncompliant with the protections of our securities laws.”
Meanwhile, in Canada, crypto companies have benefitted from specific legislative interpretations, which have helped them stay on the right side of the law and allowed the broader industry to thrive, with 10 per cent of Canadians owning crypto in 2023, according to the Ontario Securities Commission, up from 3.2 per cent in 2016.
Actionable insight: Seeing as crypto regulations are likely headed for a tumultuous near-term future in the United States, which accounts for about half of global equity market capitalization, it’s important to remember that cryptocurrencies are immune to government intervention by the very nature of blockchain technology. Investors should then attempt to capitalize on this discrepancy by building their own conviction in the asset class, independent of regulatory worries, allowing them to buy sentiment-induced dips and boost the potential for long-term returns.
Crypto’s enduring use case
Regardless of near-term headwinds, crypto’s market cap is evidence of the long-term appeal of its chief use case, which is allowing people to use their money and do business with one another while cutting out fee-taking middlemen. This financial and entrepreneurial freedom has led to:
- The first country, El Salvador, to adopt Bitcoin as a national currency. The president behind the country’s adoption was elected to a second term in February.
- Long overdue efficiencies across innumerable industries plagued by archaic operational processes from real estate to health care to cybersecurity.
- Hundreds of blockchain-based businesses creating value for stakeholders through innovation.
As more middlemen exit the picture, or adapt and adopt blockchain technology, it is no stretch to say that the crypto industry has outlived its Wild West reputation, though how exactly it will operate in a decade’s time is anyone’s guess.
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(Top image, generated by AI: Adobe Stock)