One note was published on finance. Yahoo, there clearly mentions the crypto market’s present situation and future analysis.
Speaking at Yahoo Finance’s All Markets Summit Plus, Fairlead Strategies founder Katie Stockton said crypto adoption still remains in the “very early stages” with limited institutional money flowing into the space.
“We’re kind of at the very low end of that curve, right? That could accelerate to the upside,” she said. “That goes not just for individuals but institutions as well, especially pension funds is one source of major assets out there. Really which have not largely been deployed to cryptocurrencies now.”
More than half of the world’s largest banks now have exposure to crypto, either through direct or indirect investments in projects related to digital currencies and blockchain, according to Blockdata. But more conservative wealth managers, including state and local pension funds, have largely remained on the sidelines, concerned about the price volatility and regulatory uncertainty clouding the industry.
Earlier this month, two Virginia public pension funds announced they were seeking approval for a $50 million investment in a fund that buys digital tokens and cryptocurrency derivatives, becoming one of a few pension funds to publicly announce they are jumping in.
“I think when we get there, we will see that greater liquidity and sort of tighter spreads, if you will, influence them in a positive way such that there will be less volatility,” said Stockton. “But we found that using the charts and the technical indicators at our disposal that the cryptocurrencies are really minding support resistance levels.
So while there is expected volatility, we have ways to manage risk to navigate those short-term swings by identifying key levels, and combining them with indicators that measure things like momentum and overbought oversold readings.”
Adoption among retail traders have accelerated at a faster rate, especially during the COVID-19 pandemic.
The price of bitcoin alone has increased nearly 500%, from March 2020. The ease with which investors can now buy digital coins, through platforms like Coinbase (COIN), Paypal (PYPL), and Robinhood (HOOD), have also led to increased exposure. A recent study by the University of Chicago found that 13% of Americans traded crypto over the last 12 months, compared to 24% who invested in stocks.
Regardless of adoption rates, Stockton sees a “long-term uptrend in crypto.” Despite a recent sell-off triggered by China’s central bank banning all crypto transactions, and fears around the Chinese property market, Stockton said crypto assets have held on to key resistance levels, signaling support in the market.
“Bitcoin has tended to outperform when they’re collectively going lower and [crypto assets] do tend to remain directionally in step,” she said. “So even though you can always find sources of outperformance and underperformance, you’ll find that most [coins] are all up on the same day and all down on the same day and I think that that is something that we can depend upon.”
Crypto is in the ‘early stages of adoption’: Fairlead Strategies Founder-
KATIE STOCKTON: You know, it does still feel like it’s in the early stages of adoption to me or kind of at the very low end of that curve, right? That could accelerate to the upside. And that goes not just for individuals, but institutions as well, especially pension funds is one source of major, major assets out there really which have not largely been deployed to cryptocurrencies. Now, of course, they probably need to see a lot more regulation put in place before they can go there in earnest.
But even a very, very small fractional percentage of that capital would really be a game changer for the industry in my opinion. So we want to take advantage of these trends. And indeed, I look at the market from a technical perspective, and the up trends are pretty well established already in Bitcoin and most Altcoins.
So we have seen what they’re capable of and I think the only guarantee is that we’ll expect some volatility on a short term basis. But we have ways to analyze them from a technical perspective looking purely at price, which of course, is driven by supply and demand for those cryptocurrencies. And it has been validated really as a very viable investment, and a way to get sort of a lower correlation to the equity market.
– Let’s talk about those correlations because we heard, you know, one of the initial days that Bitcoin for example, it is a safe haven asset, it’s kind of like a digital gold. And when you look at the price action last week, though, the big sell off that we saw in Bitcoin correlated directly with the big sell off that we saw in equities as well. So is there a tighter correlation between those two? How should we be looking at that?
KATIE STOCKTON: I would say at times there are tighter correlations, but it’s not really something that we found that we can rely upon yet because we are seeing people treat cryptocurrencies as a risk assets. So when you have sort of a broad risk off in the equity market, you tend to also have broad risk off in the cryptocurrency market. So that to me is something that we’ve come to terms with and, of course, that changes the perception of it, perhaps, as a safe haven or something that you could liken to gold which of course, has very defensive properties.
So it’s really tough to rely on any of these correlations because they have not really been established on both the short and long term basis. We’re working with limited price history for one. But I think rather than relying on those correlations as a reason to invest, perhaps, that we can trust that it is a different asset class, and it’s giving us different exposure. And at the end of the day, that’s something that really a lot of certainly institutions are very interested in because we don’t want to be too heavily exposed to something just like the US equity market, which as you know, is really very largely driven by 5 stocks or so.
– To what extent has the institutional money moved into this space? I know you mentioned it early on here, but, you know, we’ve heard for so many years that institutional adoption will lead to more price stability if you look at something like Bitcoin or Ether, and yet it’s still very volatile right now. We got those comments from SkyBridge’s Anthony Scaramucci who said, look, anybody who’s saying there’s widespread institutional adoption is just not being honest. What are you seeing?
KATIE STOCKTON: I don’t think we’re there yet either. But I think when we get there, we will see that greater sort of liquidity and sort of tighter spreads, if you will, influence them in a positive way such that there will be less volatility. But we found that using the charts and the technical indicators at our disposal, that the cryptocurrencies are really minding support and resistance levels.
So while there is expected volatility, we have ways to manage risk to navigate those short term swings by identifying key levels and combining them with indicators that measure things like momentum and overbought oversold readings. And that helps us then know how to position, perhaps, even if just for the next two weeks. And then, of course, we want to have that context, that longer term context.
For us, that long term context is still very much bullish. But we’ve been short term bearish through this corrective phase, with sort of risk off, evident among the Altcoins. So what we like to try to follow these trends, being very clear about which time frame we’re focused on at that time.
– So what are those technicals telling you right now about the amount of exposure investors should be taking in the space? And you mentioned Bitcoin and Ether already, but what about the other stable coins, for example? I mean, how should people be looking at dipping their toes in how they allocate?
KATIE STOCKTON: Yeah. You know, we’ve started to do some relative strength analysis on that Altcoins relative to Bitcoin, and we normalize that. You can really see some neat trends in terms of market leadership. Right now, the leaders happen to be Cardano, Chainlink, and Polkadot. That, of course, will shift at some point in the future, but that’s where we’re seeing some relative performance.
But it doesn’t mean you don’t also want to have exposure to the more defensive play in this space, which is Bitcoin. Bitcoin has tended to outperform when they’re collectively going lower. And they do tend to remain directionally in step. So even though you can always find sources of outperformance and underperformance, you’ll find that most of them are all up on the same day and all down on the same day.
And I think that that’s just something that we can depend upon. And it’s a matter of how much risk are you willing to take going down sort of the market cap spectrum to gain exposure where there may be leadership. But, with that leadership, you may also be taking a bigger risk in terms of how far something is stretched from a support level.
– And I realize this, you know– this all depends on the risk profile somebody is willing to take on. But, if you think about those who are saying, look, I want some exposure but I don’t want to get caught up in all of the volatility, what’s your rule of thumb? Or is there a rule of thumb in terms of how much of your money should be allocated to crypto. Is it, you know, 5%, is it 10%?
KATIE STOCKTON: I wish there was an easy answer. Yeah, there’s no easy answer to that. It’s really not a question that I can answer on behalf of anyone else because it’s about their risk tolerance. But I would say that you just want to make sure that percentage is something that you would be comfortable losing. Really, like with any other asset class, you have to know that there is always inherent risk. And this one is a newer asset class, and therein carries more of that.
So I would say keep it as a small percentage, whatever you’re comfortable with in terms of that risk profile. And realize that in some cases, you probably have a bit of a call option here, something that you’re getting in somewhat early and you’re taking on more risk because of that. But the upside is potentially far greater. And with the base breakouts that we saw in the cryptocurrency space over the past year or so, I think there’s a lot of promise that we’re in just the early stages of what could be a long term uptrend. But with that, a lot of swings to navigate.