Don’t be fooled by the crypto bear market, he insists, as it disguises some positive news. “From increased institutional interest to more regulatory certainty in the market, the infrastructure that traditional markets rely on has been under construction throughout the year. By many metrics the cryptoasset space has seen incredible growth.”
2019 will be the year of tokenization
Understanding the value of cryptoassets has always proved a problem for investors, particularly as 2018 saw a slow and steady decline punctuated by bouts of volatility. This is why the latter half of 2018 was iconosised by the introduction of many new stablecoins.
Stablecoins peg the price of a digital token to a real-world currency so investors can be sure of the value of they’re holding, as well as having access to a currency that is tradeable freely and instantaneously. In doing so, the market naturally takes a step closer to a fully tokenized world.
The best way to think about stable coins is “tokenized fiat”, as they have all the advantages of a cryptocurrency but without as much volatility. As we move into 2019, we’re likely to see many more types of financial assets being tokenized. Most likely starting with stocks and ETFs, but just about anything that has a value can essentially be represented as a digital token on a blockchain, making it easier to transfer ownership directly from person to person instantly across the internet.
More institutional interest
We can expect even greater institutional interest in the crypto market in 2019. In 2018 we saw plenty of statements of intent from financial services incumbents, who are keen to provide crypto-related services for their clients. This was largely driven by demand from clients, and we finish 2018 with the news that the new crypto holding service known as Bakkt has raised $182 million from institutional investors.
In 2019, the priorities for financial heavyweights include exchanges, ETFs and cryptoasset custody, more futures markets, and additional crypto related trading vehicles. As they enter the market, institutions will bring with them clients who want to access cryptoassets on their own terms, through a medium they are familiar with.
Maturing regulation
Finally, we come to the ongoing debate around regulation. The bull run of 2017 attracted the attention of regulators across the world as governments sought to protect investors from the volatile market.
It’s fair to say that so far regulators have struggled to grapple with defining cryptoassets, and therefore how they should be regulated. What we’re speaking about here is programmable money and new practical applications of this are being invented on a daily basis. So the challenge for various countries is how to be part of that innovation and still protect their citizens at the same time. If regulators act quickly, greater clarity for investors around cryptoassets will do wonders for the development of the market.
Traditional assets
2019 is set to be an interesting year for traditional markets too. As investors come to terms with a possible shift in monetary policy from the central banks, political upheaval through the likes of Brexit and greater scrutiny of traditionally well performing tech companies.
Monetary policy
2018 saw central banks across the globe maintain their large balance sheets. An entire decade of quantitative easing won’t go away in a month, so even though some countries will look to offload some of their newly acquired holdings, we can expect that the central banks will remain the largest players in the financial markets. This means that investors would be wise to pay close attention to the decisions regarding monetary policy made by central banks, as whatever decisions they make will move the markets.
For most of 2018, the Fed was on a path to tightening up its monetary policy. The market’s reaction to their last announcement seems to have spooked investors who were anticipating a softer course of action given the current market rout. If the Fed do decide to press on with a tighter monetary policy in 2019, investors should beware. The Fed has been buying financial assets from 2009 until 2014, so now that they’re beginning to offload those assets it could mean negative pressure on financial markets.
Stocks
Stocks face a volatile start to 2019. In America and China, the threat of a trade war will continue to loom large at least through the first quarter of the year, and the picture isn’t any rosier in Europe either. European markets will have to deal with the inevitable fallout from Brexit, as well as the ongoing Italian budget crisis, a slowing Spanish economy and civil unrest in France.
However, these issues are largely (and indeed hopefully) short term. We hope they should be mostly resolved by the middle of the year, which should leave a clear run for markets to grow in the later half in the year. That being said, this time last year no one would have predicted a trade war between the US and China, so 2019 could equally be full of surprises.
One thing we are likely to see however is more investors more rigorously interrogating tech stocks in particular. 2018 marked the beginning of a realignment of the value of tech stocks. The value of the stock had become based on momentum rather than underlying value. 2019 should complete this process of realignment.
Conclusion
Overall, the beginning of the year marks a good time for investors to take stock of their positions, and consider re-allocating their assets across markets and assets. Doing so will leave you well placed to deal with whatever surprises 2019 throws at you.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.