If there is a second act to encrypt, it will not happen at the hands of its evangelists. In order for the asset class to be taken seriously, 2019 must be the year it is discovered by institutional investors and will be very convincing.
Institutional investors, who manage money on behalf of others, have been reluctant to enter the cryptocurrency market due to volatility, lack of regulation and mandates that specify that they can not invest outside of an asset class defined as equity or bonds.
If there is one thing in favor of the crypt in 2019, it is generally not correlated with the movements of the global stock market. In a context of global market volatility due to the unpredictable commercial wars, the Brexit and the United States, bitcoin wants to become a valuable store. The gold bulls are not troubled.
Adrian Przelozny is the managing director and founder of the Independent Reserve, an Australian digital currency exchange that allows members to trade in seven cryptocurrencies, including bitcoins.
"The year 2018 began with a massive boom in retail interests," says Przelozny. "Since then retail interest has declined, prices have declined and the interest of moms and dads is probably not what it was at the start of the year."
However, he said that around 8000 SMSF investors were now active on the Independent Reserve, most of whom had set up their accounts in the last year.
Przelozny believes that the volatility of bitcoins will decrease.
Henrik Andersson, Chief Investment Officer of Apollo Capital, said 2019 should see more institutional investors enter the cryptocurrency space. Apollo Capital is a wholesale fund investing in cryptographic assets, an asset class that uses blockchain and cryptography in a variety of applications.
"I think we will see a gradual adoption by the institutions over the next year," says Andersson. "We have the first US university facilities that invest in funds".
Yale has invested part of its budget in a cryptographic fund called Paradigm, Bloomberg reported in October.
Fidelity Investments, one of the largest wealth managers in the world, entered cryptographic space, launching an activity called Fidelity Digital Assets in the second half of 2018. It has the objective of creating a platform to support and execute operations and archive the bitcoins are safe.
Andersson says that the main advantage for institutional investors is the fact that cryptographic assets are not related to regular markets, making them a good investment in turbulent times.
"It's still very small: the total capitalization of cryptographic assets is about $ 110 billion, bitcoin is about half that." In the next three or five years, if we see another financial crisis, cryptographic resources will probably benefit, "he says.
Every director of the capital, Tom Surman, said that the "men's market" for cryptography has ended and that the institutional phase has begun.
"I am convinced that massive retail offers and institutional investors are probably the only groups that can significantly shift the needle on the cap of the cryptographic market from now on," he says.
"It is likely that the big regulatory decisions that encourage institutional investors will have a rather significant effect, not only for the capital coming directly from those big investors, but also for the trust that will pay off also on retail investors".
Despite this positivity, a JP Morgan research note published in December said the opposite story was playing. "The participation of financial institutions in bitcoin trade seems to fade," analysts said.
For institutional investors, regulation is a key issue that holds bitcoins.
Jun Bei Liu, portfolio manager of Tribeca Investment Partners, says that stricter rules are needed to attract more institutional investments.
While acknowledging that the sector has matured "quite rapidly in the last two years", he says "the clarity of regulation in different markets has yet to come".
"We need regulation, we need transparency to see it as a mature and investable class," says Liu.
It is perhaps ironic that the main factor that keeps the bitcoins behind is the regulation of third parties, considering that the currency was invented to bypass financial institutions.
HOW DOES BITCOIN WORK?
Bitcoin, credited to the anonymous "Satoshi Nakamoto", is a manifestation of a vision of an electronic cash system in which online payments can be sent between the parties without the need for a financial institution.
Institutions such as central banks are an integral part of a nation's financial system because they keep track of how much currency is on the market and guarantee the validity of that currency.
Nakamoto wanted to bypass this, but since any digital currency is essentially a file on a computer, it can be copied and replicated. This makes digital currency particularly vulnerable to spending more than once.
To solve the problem of "double spending", Nakamoto used the blockchain, a cryptographic technology that began to be described in 1991. A blockchain within it is a long list of records.
In the bitcoin context, the blockchain is a public ledger that creates a block every 10 minutes, recording all currency transactions in that period. Each block contains a "hash", like a serial number, of the previous block. Therefore, each block is connected to the previous and next block.
Since the blockchain ledger is available for everyone on the bitcoin network, to be able to verify a block that has just been created must be accepted by a majority. Therefore, to make a block, more than 50% of the network should be controlled to allow approval, which would be extremely difficult.
Bitcoins can be bought on the stock exchange and stored in an online wallet, or the currency can be "extracted" by solving the complex algorithm that adds a block to the chain. The miner is rewarded with an established number of coins, currently 12.5 bitcoins.
However, the premium for the blockade should be halved, at 6.25 coins, around May 2020. This mechanism usually translates into higher prices before the change, as an offer of new bitcoin contracts. The bitcoin number is limited to 21 million, with about 3.5 million still to be extracted.