A significant shift in crypto supply and demand dynamics will occur in the next decade which will have a significantly positive effect on the price of cryptocurrencies.

Quick summary

  • The crypto market continued with a downtrend in December and recorded a minor loss in 2019.
  • Bitcoin strongly outperformed altcoins in the last year and is perceived as a separate asset.
  • Investors are starting to differentiate between crypto projects, and several altcoins generated massive returns in 2019.

Market overview

In December, the market continued with the downtrend as it lost 14.5% in the first 17 days of the month. The price soon stabilized and didn’t change much until the end of the month. The crypto market recorded a negative performance of -10.9% in December.

Monthly Commentary Chart MVIS (Dec 2019)

After three months of outperformance, many altcoins lost ground in December. The majority of the top 25 altcoins by market cap lost between 10% and 25% of their value. There were only three with a positive performance: Ethereum Classic (14%), Cosmos (7%) and Tezos (2%). As a result, Bitcoin dominance increased to 68.3% at the end of the year.

Top 25 assets by market cap performance (Dec 2019)

The year 2019 has shown us two faces: a strong rally in the first half of the year and a decline in the second half as the market lost what it gained in the first six months. Overall, the market, measured by the MVIS CryptoCompare Digital Assets 25 Index, lost -1.3% in 2019. We use this index for performance calculations since we think it best represents the development of the overall crypto market.

Crypto market performance 2019

Bitcoin vs. altcoins

2019 revealed that Bitcoin is considered to be one asset in the investment community while altcoins are another. It is especially true for the institutional investors, as Bitcoin is the only asset on their radar – at least for now. Additionally, all the institutional crypto infrastructure is being built exclusively around Bitcoin. Consequently, Bitcoin strongly outperformed altcoins in 2019.

We use Bitwise indices for comparing different segments of the crypto market. Bitcoin gained 92% in 2019, and, as can be seen in the chart below, Bitwise 20 Crypto Mid Cap Index lost 25% while Bitwise 70 Crypto Index lost 28%.

Bitcoin vs. Bitwise 20 and Bitwise 70 Crypto Index 2019

However, several altcoins strongly outperformed Bitcoin. The top three performers in 2019 were Chainlink (512%), Tezos (192%) and Binance Coin (123%). As the market matures, investors are starting to differentiate projects with real substance and traction from the ones that mainly focus on marketing or are starting to lose direction.

Top 25 assets by market cap performance

The steady rise in demand for crypto in the 2020s

Charles Schwab, one of the largest US brokers, has published a report which shows that Grayscale Bitcoin Trust is one of the top 5 equity holdings of US millennials. In fact, Bitcoin is more popular than Microsoft, Netflix or Berkshire Hathaway in this age group (24 to 39 years old). Millennials are still in the early stages of their business careers and will earn substantially more money in the coming decade compared to today. It also means they will have much more investable capital, and as their awareness of crypto grows, so will their investments into cryptocurrencies.

The crypto infrastructure for institutional investors is also expanding at a rapid pace with the expectation that this trend will continue in the coming years. As large investors are getting more familiar with Bitcoin and other cryptocurrencies, more will start investing in this asset class. State Street, one of US largest banks, surveyed over 100 asset managers, and 38% stated that they plan to invest more into cryptocurrencies in 2020.

On the other side, there will be three Bitcoin halvings in the 2020s, which will gradually reduce its supply. In the next decade, we can expect a significant shift in Bitcoin supply and demand dynamics, and I believe this will have a considerable positive effect on the price of Bitcoin and other cryptocurrencies.

Our Crypto Strategies

Conclusion

Despite the weak performance in 2019, altcoins still present an interesting investment opportunity. As already mentioned, investors are starting to differentiate between crypto projects, and we can expect more legitimate crypto startups to be rewarded with a better performance of their coins. It will become crucial to thoroughly analyze individual projects to be able to “separate the wheat from the chaff.”

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DISCLAIMER: This article is for informational and discussion purposes only and does not constitute a marketing message, an investment survey, an investment recommendation, or investment advice. The article was prepared exclusively for a better understanding of market dynamics.

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