A crypto market preoccupied with short term returns will be an unlikely place for a bull run, believes a former Managing Director at Morgan Stanley. Speculators will have to leave the space first for prices to increase.
Patrick Springer, who worked at Morgan Stanley for twenty years, eventually becoming the MD for the bank’s global equity sales and advisory side, said a bull market would return when buy and sell actions were no longer motivated by quick returns.
This would be further helped by consolidating the number of cryptocurrencies, with weaker and ineffective assets being left by the wayside.
“A bull market for crypto will come again when all the speculators have exited, i.e. when investors who believe in the greater fool theory of selling the same asset to someone but at a higher price, all leave,” writes Springer in an email. “It will also come again when there is a great shakeout in the number of cryptocurrencies and utility tokens – there is no value to having an unlimited number of digital currencies sprouting from numerous forks.”
Crypto is in a bear cycle. Most cryptocurrencies have seen significant drops in value in the past six months, as Crypto Briefing reported last week.
This has had multiple effects. Hashrate on the Bitcoin (BTC) blockchain dropped by a third between November and December; miners turned off their rigs because it was no longer economically viable. Some companies have either gone out of business – like ETCDev – or cut down significantly on staff and operational capacity, like Consensys.
Springer left Morgan Stanley last summer. He joined Polybird Exchange – a global exchange for tokenized assets – as an advisory board member. Its platform beta launches on Wednesday.
But whereas ICOs and frantic speculation fulled the 2017 bull run, Springer sees a returning market relying more on security tokens and tokenized assets. He sees them representing a new and “enormous” opportunity for investors.
They can make the existing financial system more efficient and transparent, while also developing new channels for investors. “[O]ur current capital markets do not address the needs of large swaths of the economy. Digitizing assets can bring benefits to asset markets that are currently private in nature and have a lot of cost frictions”, wrote Springer.
This will be no cakewalk. A lack of regulatory clarity, uncertain levels of demand and the sheer complexities surrounding tokenization, of real assets and equity, makes the path to global adoption filled with dead-ends and footfalls.
It’s also unlikely that the big institutional players, like Springer’s former employer, will lend much of a helping hand, especially at the beginning. They already have a stake in an existing, “reasonably efficient” system, meaning “there is not a lot of incentive to be an aggressive first-mover”.
Many will only develop a serious and genuine interest in cryptocurrency and blockchain once other projects have built out the technology and market, creating financial instruments that investors and their own client-base begin to demand.
The end of speculation
Speculation sometimes drowns out substantive debate on technological progress.
Example: media outlets had to publish explainers, clarifying the Constantinople hard fork, earlier this month, because people erroneously thought they would receive new Ether (ETH) tokens.
But it may be slowly fading – the growth in stablecoins, which began last year, highlights a change of priorities. Springer thinks they could become useful for cross-currency payments, one with low transaction fees.
Still it’s unlikely that the next bull run will allow the average retail investors to sit in the driving seat like they did in 2017. Most tokenized assets and security tokens will be limited to accredited investors, who in the US are either worth more than a $1m or earn more than $200,000 a year.
The author is invested in digital assets, including BTC which is mentioned in this article.