Outlook for Crypto
April 04, 2019
By Elana Margulies-Snyderman
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks with Jeff Dorman, Chief Investment Officer (CIO), Portfolio Manager, Arca.
What is your outlook for crypto?
Everyone who has dedicated their career to crypto is extremely bullish long-term, and I'm no different. I'm 100% confident that the overall size of the crypto market ($150 billion including equity in blockchain companies) is tiny relative to the future worth of the technology. But I'm completely uncertain where this growth in value will ultimately accrue. Thus far the value has largely been captured by service providers (lawyers, exchanges, OTC dealers, systems), but that's not sustainable. The reality is, it is quite easy to love crypto without loving any individual tokens that exist today. But the good news is that better digital assets are on the way, with tighter governance features, clear cut tokenomics, increased asset protection and better investor/user alignment. This new breed of digital assets will achieve sustainable growth.
While Bitcoin is the leader today, and may continue to be the leader due to having the largest network, I don’t think Bitcoin itself will ever be “money.” I think it is a speculative growth asset with potential to grow wealth, and perhaps safeguard wealth against calamity elsewhere (i.e., fiat currency hyperinflation), but not store value or be used for exchange. Instead, I think a handful of asset-backed tokens that are backed by real, hard, stable assets will become the true medium of exchange and store of value. And this doesn’t exist yet. Until that time, Bitcoin will continue to be a speculative asset that if it continues to grow via speculation, and better alternatives don’t come along fast enough, can one day become a store of value (“SoV”) and medium of exchange (“MoE”). I don’t know if that occurs when Bitcoin is at $100/USD, or Bitcoin at $1,000,000/USD.
What is your outlook for the economy?
It is becoming increasingly likely that we will enter a recession, which normally wouldn't be a bad thing. These are natural economic cycles that need to happen. However, the actions of the Fed in December introduce a new wrinkle. When the Fed announced a complete 180 on their balance sheet unwind policy, moral hazard returned. It either means that asset prices will be propped up even before problems arise or it means they are seeing problems ahead that the rest of us haven't seen yet. Ultimately, consumers are very resilient, and they will find a way to spend and borrow even when budgets become tighter. So under normal scenarios, I think a recession would have been short-lived. But the constant asset price manipulation just sets the stage for an even deeper and faster crash, which can shock consumer resilience.
What keeps you up at night?
The lines between night/day and weekday/weekend are perpetually blurred by the fact that digital assets never sleep. But when I do sleep, my biggest fear is that those of us who see the potential of digital assets end up being too right. Inflation, unsustainable government and private debt levels, fractional banking, and global trade wars are all very good reasons to own digital assets in your portfolio, at a minimum as a hedge to complete fiat collapse. And even though I want to be right, I don't really want to be right at the expense of a complete collapse of the banking system. But this is unfortunately in play, especially now that modern monetary theory (“MMT”) is creeping into the narrative. While digital assets may seem like a toy right now, they may become the only asset of value left.