What to Look for in Bitcoin and Digital Currencies in 2018

Steve Kanaval  |

When we were trading exchange-listed stocks, my team would compile the names that were the biggest movers over the course of the year on the upside and downside. Once we had these numbers, we would identify the sectors and begin our work to pick stocks we thought were mispriced going into the new year.

This is part of any portfolio manager's year-end analysis and contributes to the macro sector picture which gives an idea of what moved and why. These end results of previous years reveal that a band of sectors (say, technology and energy, for example) would tell the story, and pedigreed companies rose to the top while others lagged. Keeping score in stocks is easy because you get a year end mark, and it sticks with you as you navigate the following year.

If we take the same approach to digital currencies, the picture is more precarious because these have gone straight up as a group, and the investing public is just learning new terms and jargon about Bitcoin, blockchain, smart contracts and Alt-Coins. But essentially digital currencies are an enigma to the populace, and something they hear about in the news or hear at a cocktail party or the dry cleaner. The investors know so little about these assets, and most have not invested in them but have them on the radar screen for 2018. The global adoption rate for Bitcoin is less than 1%, and price appreciation for the top 10 digital currencies is unequaled in any previous investment cycle. So this year, instead of looking at listed stocks, i will break down the top 10 winners in digital currencies and look at what other coins are making noise as we cross into 2018.

The first thing to know is where to look, and I use this site (coinmarketcap) because it has all I need to track the movements. The most important things to note about digital currencies revolve around the current macro valuation (marketcap) and how much it has moved relative to the benchmark Bitcoin. Any attempt to understand the fundamentals of a digital currency is a waste of time. Rather, the best thing to do in this explosive cycle is to watch the price - and the world has been doing this intently since July 2017 when the price of Bitcoin exploded form $2000 per coin to $10,000....the coin now trades $19,000, and is the most important asset in the world. Everything that happens in the investment world in 2018 will pivot around the price of Bitcoin.

The problem with investing in Bitcoin is the risk-reward is perfectly balanced. By this I mean if you buy $500 worth of a Bitcoin you can lose as quickly as you can win. The price can easily fall from $19,000 back to $10,000 in the blink of an eye. It could also trade $50,000 in 2018 without a problem. This has not occurred on this scale since 1996 when internet stocks exploded into investors' consciousness and portfolios.

We look for Alt-Coins (anything other than Bitcoin) to rally and close the gap relative to the Bitcoin mothership. We see it already as Ethereum has traded from $300 to $800+ since July, Litecoin moved from $30 to $350 and IOTA moved from 20 cents to $4.00. Everyone has been captivated by the move in Bitcoin as the price moved from $3000 to $19,000, but, in our eyes, the real opportunity lies in the evolution of Alt-Coins, and we expect coins like Ethereum Classic (trading $40), NXT (92 cents) and Dodgecoin (trading .005) to explode and close the gap. It seems insane that I am reviewing these odd assets that have no fundamentals, but these coins are part of a paradigm shift that will change the way we buy goods and services forever, and the moves they are making are because the paper dollar in your pocket will no longer be the unit of measure.

While many of these 1,300 digital currencies will be relegated to the dustbin of history, the cream of the crop will end up in your digital wallet (your cell phone) as a way for you to pay for everything you purchase. Bitcoin was certainly the first and most famous, but consider the history of industry first movers. Does anyone remember the Duryea Motor Wagon Company? Micro Instrumentation and Telemetry Systems? I urge you to consider strongly the universe of Alt-Coins, as I know the move in some of these will make Bitcoin's move so far look modest in comparison.

Happy Holidays and Thank You for reading :)

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