In a letter to his investors on June 24, 2020, Dan Morehead, a former Goldman Sachs and Deutsche Bank alumni, explains the reasons why the Bitcoin option is still valid, but also why some altcoins will perform better.
A liquidity tsunami
Economists debate the economic impacts of the health crisis. Is it worse than 2008? What about World War II? What the great depression of 1929?
"It's the worst, period," according to Pantera Capital.
Indeed, the loss of 19.2% of GDP for the United States is greater than that observed during the Great Depression and the Second World War - a drop of 16.2% of GDP.
Central banks are extending the idyll and continuing to do what they can do best: the digital billboard.
Monetary creation is not a “precision instrument” according to Dan Morehead. It acts on the whole of the assets and succeeded in keeping afloat the major indices DOW, NASDAQ, CAC40, in an environment where the drastic fall in the profits of the companies would be evaluated at 70%, resulting in a wave of bankruptcies.
What about Bitcoin?
If the monetary tsunami has an impact on traditional assets, it seems inevitable that limited assets will also be the big winners from this phenomenon. If you inject the equivalent of 3 trillion dollars into the economy, the mechanical effect of supply and demand implies more fiat currency for the same amount of cryptocurrencies.
Bitcoin was created in response to the same monetary phenomenon ten years ago. “We are facing the repetition of this episode, with an unmatched magnitude this time.” It is indeed 50% of the monetary base of the United States which was emitted in response to the crisis of Coronavirus.
Bitcoin remains on a singular increase of 34% since the beginning of 2020, and the signs of vitality, despite the downward pressure exerted by miners in the pre-halving period, remain exceptional.
Altcoins doomed to a meteoric ascent
During a potential bull market, “it is very likely to see the phenomenon of 2017 happen again” according to Dan Morehead. The altcoins then surpass the performance of Bitcoin.
The phenomenon could be explained by “the behavior of investors”, who after investing in Bitcoin, diversify their portfolio via exposure to alternative currencies. The phenomenon is similar to traditional assets, where speculators set their sights on Amazon and Google-type stocks, then turn to assets of a more risky nature.
Historically, the dominance of altcoins has never surpassed that of Bitcoin during the start of a bull market. From January 2016 to December 2016, Bitcoin's market share increased from 91% to 87%. At the end of 2017, it represented only 38%.
In the current state of the market, Bitcoin is in a situation of dominance at 65%. If the phases of the cycle are respected, it is a safe bet that the gap between altcoins and Bitcoin will be exerted during 2021, and that the market share linked to Bitcoin will be much lower, giving way to a meteoric appreciation of altcoins.
Unlike the major cycle of 2017, the fury of ICOs seems to have started and secondary cryptocurrencies have disappointed a large number of investors. A new breath is necessary to reproduce this cycle: the DeFi movement seems to position itself as a major contender for this new attraction.
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