As Bitcoin hits highs not seen thus far in 2020, BeInCrypto joined MMCrypto’s Chris for a chat about the current state of the cryptocurrency market and where it’s headed. Over the course of the interview, Chris touched upon the positive feedback loop created by global financial mismanagement, the barriers Bitcoin must overcome to achieve widespread adoption, how he looks at investing in the DeFi sector, plus a lot more.
A technical and on-chain analyst, as well as host of the popular MMCrypto YouTube channel, Chris started his cryptocurrency journey in 2016. By his own admission, he was relatively late to the industry. However, he claims that in what will be a multi-decade story of digital assets, anyone currently working in the space will be held as an ‘OG’ when prices reach levels unthinkable today.
Inflation and Bitcoin’s Positive Feedback Loop
Like many others, Chris believes that it’s Bitcoin’s absolute scarcity that gives it investor appeal. In a world in which central banks routinely deal with crises by merely printing more cash, it stands to reason that a genuinely finite asset is going to see an uptick in interest.
A common theme throughout the interview, Chris dives right into the issue of inflation and its impact on Bitcoin. He describes the current policies of those at the top of the global financial system as creating a ‘positive feedback loop.’
As BeInCrypto has reported previously, the creation of new money has stepped up a notch in the wake of the COVID-19 pandemic. Chris mentions that as many as 84 different central banks around the world have increased the production of fiat currency, as well as dropped inflation rates to try to keep the global economy afloat.
For the MMCrypto host, this amounts to an attack on the lower and middle classes. While those on top of the financial system can pick and choose where the newly created funds end up — often to the benefit of interests they are closely tied to — the cost must be born by each and every holder of the depreciating fiat currency.
The Adoption Issue
Given its unique properties, Chris believes that Bitcoin holds natural appeal to investors. However, not everyone who could benefit from the digital currency has taken the necessary steps to do so.
Chris states that this can be explained by the relative technical complexity of using Bitcoin and other decentralized currencies. We’re not yet in the stage where the average person’s grandparents would feel comfortable using Bitcoin.
Like others, he compares Bitcoin adoption to internet adoption. Over the last few decades, various advances have decreased the technical expertise a user needs to possess to find value from the internet.
Whereas technical considerations are very much handled behind-the-scenes when most of us use the internet today, the same is not yet the case with cryptocurrencies. Just like with the development of the internet, Chris expects the cryptocurrency user experience to improve, and eventually, this will usher in widespread adoption:
Bitcoin will be that easy to use that you don’t even know that there is a blockchain behind it. That’ll be the moment when we have the grandmas and grandpas using Bitcoin.
Bitcoin as a Unit of Account?
When asked how long it will take for prices to be measured in Bitcoin rather than fiat currencies, Chris replies that it’s certainly coming. However, he raises issues with the very notion of using non-finite assets (like dollars) to put a value on something.
For now, he says, it makes far more sense to consider prices relative to gold. To illustrate this, he gives the example of buying a designer suit in the past compared with today.
If you were to buy a suit around 50 or 60 years ago, the garment would likely trade for a single ounce of gold. Today, the same holds true.
He reasons that the fact that an ounce of gold used to cost about $50, and today costs about $2,000, is a clear indication of fiat’s inferiority for measuring prices. By contrast, the purchasing power of gold has remained relatively constant when compared to that of fiat currencies.
He believes that Bitcoin’s harder monetary policy will eventually make it an even more useful asset in which to measure prices. However, for that to happen, the Bitcoin market cap would need to be much more significant.
He says that at the point when Bitcoin reaches market capitalization parity with gold, it will be more useful as a unit of account. At this point, a single Bitcoin would be worth around $450,000, based on the current purchasing power of the dollar.
With the third Bitcoin halving recently behind us, the conversation shifted to Bitcoin’s cyclical performance surrounding these supply-constricting events. When asked if he thinks this current cycle will mirror those before it. He states that there were factors that could influence it in either direction.
Firstly, he draws attention to the popular stock-to-flow model for valuing Bitcoin. Chris says that such a model is useful, but there is evidence to suggest that each market cycle is lengthening too.
Based on this, the analyst reasons that the cycle we’re now in could last for around 700 days, rather than the 500 of the last period. However, he makes sure to point out that global fiscal policy, particularly the trillions printed in the wake of COVID-19, could accelerate the cycle considerably.
In terms of a top for this cycle, he makes a case that the end of 2021 or potentially summer 2022 seems like a reasonable estimate. He adds that it’s likely that we see a new all-time high towards the end of this year and speculates that the eventual top will dwarf that of 2017.
What to Watch in DeFi
Unreservedly bullish on the emerging decentralized finance sector of the cryptocurrency industry, Chris states that he’d rather invest in the underlying ecosystem rather than attempting to single out opportunities from those early leaders in DeFi:
When you’re bullish on DeFI, you might as well invest into Ethereum. If you are bullish on the use case of money on the blockchain in a decentralised manner, you just invest in Bitcoin. If you are bullish on decentralised finance you can invest into Ethereum.
He admits that there are certainly higher potential profits in picking a winner from assets like Compound or Maker. However, this invites a much higher risk than investing in the platform supporting them. His rationale is that when the sector inevitably increases in value, so too will Ethereum’s native coin, ether.
Chris says that he hasn’t entirely written off investing in DeFi projects in the coming years. His own appetite for risk just means that he’s prepared to wait for a more evident winner to emerge than to gamble on those currently leading the decentralized finance boom.
Choosing Great Cryptocurrency Investments?
When asked about his own rationale for choosing how to invest in the cryptocurrency industry, Chris says that he has learned from experience to be careful when it comes to publicly mentioning specific projects by name.
He recounts a micro-cap coin pumping hard following his channel mentioning it and is keen to avoid being tarred with the ‘shill’ brush. He does, however, admit to holding Bitcoin, Ethereum, and Monero.
When it comes to judging a project, he states that only those that are based on public blockchains, were not mined extensively in private before launch, and are entirely permissionless are worth his attention. He adds that proof-of-work blockchains are also preferable to him, acknowledging that Ethereum’s pending shift to proof-of-stake does stand at odds with this reasoning.
You can catch the rest of MMCrypto’s Chris’s musings in our full interview. Be sure to check it out for more on Bitcoin’s future, how Bitcoin pumps help Ethereum adoption, and Chris’ post-Coronavirus plans.