Over the past twelve months, my cryptocurrency brokerage service, Caleb and Brown, has seen a notable shift in the type of client entering the crypto market.
The stratospheric highs of January 2017 saw a huge influx of speculative investors, including many who were making their first notable investment. These investors were reacting to hype driven by friends and family, as well as the media, which enthusiastically reported about the rise of cryptocurrencies as a financial force that could not be ignored.
Reporting in recent times has turned. The last six months has seen repeated public tolling of the death knell for cryptocurrencies, and the market has not put up any credible resistance either, with a slow (by crypto standards at least) decline across the last nine months.
There have been spikes of short lived volatility, but that has only served as a distraction while the general trend has continued.
The decline of the ICO wave, which likely artificially inflated the Crypto market in early 2018, has seen Bitcoin’s market dominance rise from as low as 32%, back to above 50%.
With this backdrop though, it has been curious to see a new, more risk averse investor start to appear.
Superannuation and pension funds, investments via trust structures and Limited Liability Companies (LLCs) have taken over from individual accounts as the majority of new clients of our brokerage in the last six months.
A snapshot of our investing population suggests that these new investors are investing in Bitcoin as a long term hold rather than seeking rapid turn-around gains like their speculative counterparts did.
This is exactly what we saw in 2014 – euphoria led to new investors which developed into
fundamental believers as the price corrected.
Follow the money
Financial markets are not isolated systems, and a look at the greater financial markets reveals some interesting current trends.
Both the S&P 500 and Dow Jones Industrial Average are down 7% for the year, and the NASDAQ Composite Index is down 18% in the last 3 months. The UK’s FTSE 100 is facing a 12% loss for the year, its worst in a decade. Back in Australia, the ASX 200 fell almost 7% this year, losing investors $120 Billion.
Meanwhile in crypto land, markets experienced a late Christmas rally with BTC bouncing back from a December low of US$3200 to rise to more than US$4200 in the last week before settling to about US$3800. Whether this will be sustained is too early to tell but it does raise some interesting hypotheses, not all new.
Crypto as a hedge
It has long been proposed that cryptocurrencies, as a non-correlated asset class, could prove a useful hedge against traditional financial market risk in the way Gold or Fine Art have acted in the past.
A late price rally could indicate a shift of value from traditional financial markets, bringing
some credibility to this idea. While this idea requires a significant financial downturn to be really tested, there are some changes in the demography of new investors to our brokerage which could also hint at change.
The last three months have seen an unprecedented increase in what we may generously term as savvy investors. Financial advisors, stockbrokers and venture capitalists investing into their personal portfolios now make up more than five per cent of Caleb & Brown’s client base, up from two per cent during our last audit in September. Equally their average initial capital investment is more than three times our client average.
Higher disposable incomes in this demographic could account for this increase, but that shouldn’t take away from the fact that the financial incumbents, traditionally thought to be shy of this emerging asset class, are seeing it as a viable investment alternative.
Baron Rothschild famously said, “Buy when there’s blood on the streets, even if it’s your own blood”. If it is this blood that the money-people are sniffing and hunting down leading them to enter the crypto market, then it bodes well for this trend to continue.
2019 looks to be an altogether different proposition for Crypto markets than 2018, with a very different outlook, market position and general sentiment.
While that sentiment globally remains cautious, the gradual shift we are noticing in investor trends fills me with confidence that the market is moving in the right direction, albeit gradually. M
This article was contributed by Dr Prash P, CEO and Founder of Caleb and Brown.
What is Caleb and Brown?
Caleb and Brown was founded in 2016 to allow traders and investors to purchase large amounts of digital assets via a trusted entity.
It employs nine people and allows investors to speak directly to their own broker, who can help them with buying, storing and managing their cryptocurrencies.
Another key service offering is its in-house tax consultancy, which has been particularly useful for investors throughout the bear market.
“It’s a good time to capitalise on registering a capital loss for tax purposes, and then buy right back in with a more tax efficient structure,” Mr Prash said.
“We have an in-house tax team that sets people up with different structures so that when you do choose to liquidate, you’re already holding it in a manner that you minimise your taxable gains.”
For Micky readers who click this link, Caleb and Brown will offer the following benefits:
A drink with your breakfast, lunch or dinner can make your meal more enjoyable. But…
On Monday, Victorian health authorities released figures showing they’d received 389 reports of “gastro” outbreaks…
Head of World Health Organization Tedros Adhanom Ghebreyesus shared concerns over the "alarming rate" of…