It is a fact that from 2018, institutional money has started to flow into the crypto sector at an increasing pace. I wrote about it here and this was recently confirmed by Coinbase CEO. To remain bullish on the sector though, it is vital to understand whether this money inflow will continue in the short to medium term and what are the main reasons driving the inflow.
There are different reasons. I have analyzed in this article why bitcoin is by all means a digital version of gold and the reasons why the whole crypto sector is worth investing into. But the fact that an asset class is a good investment opportunity for any number of reasons, does not necessarily mean that that investors will buy it. There must be a catalyst to drive money into that assets class. Then we must understand why the big money, which is on the verge of what Ray Dalio defines a paradigm shift in investing, will be inevitably driven into precious metals and - my take - into the crypto sector as well.
Libra - Facebook´s digital currency project - has been a very popular talk lately. Even US President Trump tweeted about it. But few have looked at what may be the hidden implications of Facebook´s project.
Libra´s whitepaper is far from exhaustive. It is the first published version and what in the end may be left after the regulators have looked into it may be very different indeed.
All in all the whitepaper is well written and has been put together by a competent team of people, the Libra protocol describes a distributed blockchain which components are open source and can be
permissionless built. It is a very "politically correct" whitepaper with mandatory and comforting statements about "banking the unbanked" ...
Ray Dalio´s recent post on economic cycles and the coming paradigm shift is very well written. His usual capability of putting into simple terms complex concepts (if you are interested in understanding how the economic machine works have a look at his video here), coupled with his knowledge of economic and monetary history are very rare even among the most accomplished and successful macro investors. Even rarer - unfortunately - among policy makers, central bankers and politicians. Personally, when Dalio speaks, I always listen carefully and - more often than not - I agree.
But not this time, at least not entirely. Even Dalio´s flawless macro-analysis misses something. And it is something big, something very important. Possibly the biggest paradigm shift since the early ´90s and the internet.
The FATF (Financial Action Task Force) has recently issued a new set of guidelines which are applicable to the crypto sector, mainly with regard to Virtual Assets (VA) and Virtual Assets Service Providers (VASPs). But let´s bring some order into something that might otherwise be slightly confusing and which implications have generated some degree of alarm in the crypto community.
What is FATF
This financial task force was created back in 1989 by the then G7 ministries to set standards and promote the implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is not a legislative body...
The latest news are that Block.one, the developer behind crypto-token EOS, will use some of the record US$4 billion it raised in the 2018 ICO to buyback - in a private deal - at least 10% of Block.one´s shares from early investors. According to Bloomberg, which released the news, this will value the company at a record US$2,3 billion from the US$40 million evaluation of its seed round in 2017.
More details about who are the fortunate shareholders who will benefit from a stellar 6,657% return in 1 year are not known, nor are the modalities of the buyback.
After a long winter the optimism is back in the crypto world. Sure enough I also share this widespread feeling... though for mostly different reasons.
So which are the real reasons behind the recent crypto run up?
Investors have pointed to the Chinese fearing capital controls and to a general flight to safety because of the global geo-political tensions. Although both motives may well be (temporary) concurring reasons - which incidentally also increases the risk for short term speculative spikes and painful wash-outs - my optimism never faded in this long winter and it is much more long term based because it lies with fundamental factors.
Simply, it is the institutional money - increasingly attracted to the sector - which drives the growth and will continue to do so.
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