Jeremy Allaire, Co-Founder, Chairman, and CEO of FinTech startup Circle, in an interview on Friday (14 December 2018) on CNBC's morning show "Squawk Box", made some very interesting comments about the future of the cryptocurrency sector. Please note that this inteview took place at a time when Bitcoin (BTC) was trading around $3,264 on crypto exchange Bitstamp.
"The fundamental valuation metrics in this space are really focused on the actual usage of these platforms. Now, obviously, there are hundreds of different cryptoassets. There's flagship crypto networks like the Bitcoin network, the Ethereum network, and if you look at the R-squared correlations between core usage and value, they are actually highly highly correlated, and what we are seeing, actually, both for Bitcoin and for Ethereum, in particular, there is some decoupling there, which is to suggest that both of those assets have been oversold. And so, in the case of Bitcoin, maybe moderately oversold. In the case of Ethereum, potentialy, pretty significantly oversold."
The Cost of Mining Bitcoin vs. Spot Price of Bitcoin
"The way mining works is that there's a difficulty rate. That adjusts every 10 or 14 days, and effectively if it's too expensive for a miner, then they'll drop out. And so, that's when you see hash rates go down. That means, basically, that miner aren't able to do it profitably, but effectively there will always be a sort of marginal cost equals marginal value kind of equation behind the mining side of it. It does mean, though, that there are going to be less companies who are less vertically integrated who can compete in that side of the market."
When Will We Have Regulatory Claity in the Crypto Space?
"Just to be clear, the U.S. actually has more regulatory clarity than almost any other market in the world. The exchange of digital currency with the banking system has been regulated for over five years. Companies like Circle and Coinbase are regulated under Bank Secrecy Act and money transmission laws. That's very significant from a consumer protection and dealing with financial crimes perspective. There are a couple of things [missing]. One is [that] we've got essentially a collection of commodity markets, and then we have a collection of potentially kind of digital securities markets, and there has to be a lot clearer definition between what cryptoassets are, say, currencies or commodities and which cryptoassets are actual securities. That's sort of clarity and guidance. And the second is once you have that guidance, what are the kind of market rules that should be applied, whether it's for secondary trading of these digital securities or do we need national commodity spot market supervision for the crypto space? We are advocating... We've been very active with Congress, with policymakers, with agencies, and everyone involved in this. There's a lot of engagement."
What's Bitcoin Worth in Three Years?
"You know, I don't make significant price predictions, but I think it's certainly going to be worth a great deal more than it is today. I am long in the market. I think the key thing with Bitcoin is that it is unique in its security and its scale and as a non-sovereign store of value that individuals can hold and hold in a protected fashion. That's attractive all around the world."
Is There a 'Winner Take All' Situation With Cryptoassets?
"I do not think it's a 'winner take all'. We have a phrase: 'The Tokenization of Everything', and we think cryptographic tokens are going to represent every form of financial asset in the world. There'll be millions of them in years."
Featured Image Courtesy of Circle