In the recent past Bitcoin and Ether have been trading in a highly correlated fashion, aside from the short term impacts of Elon Musk tweets. Now I’m more concerned with the long term growth potential of these assets as opposed to the diversification benefits of owning them in conjunction. BUT…..I can’t help but wonder – What is going to happen to the volatility and correlation of these assets as the cryptocurrencies evolve and begin to trade on their own merits and individual value / use cases?

Hedge Fund Billionaire Paul Tudor Jones II stated last year that he thought Crytpo Currencies may eventually differentiate among precious and industrial use cases, just like metals :

(Jones) thinks the future of Bitcoin is “going to be a lot like the metals complex,” where you have ‘precious’ digital coin. Bitcoin is “the first crypto, first-mover in a world that’s so compressed. It has that historical integrity within digital currencies that it will always have …And again, because of its finite supply, that might be the precious crypto,” he added.

What’s more, the future might lend to more transactional cryptocurrencies along with the sovereigns’ digital currencies. And they may be more like the industrial metals, so where you have gold as a precious metal, and then you’ve got copper and platinum, palladium, et cetera that are industrial — lead, aluminum, industrial metals. You may have precious crypto, and you may have industrial crypto,” he said.

Its an interesting premise, and one that is likely playing out under our noses. Bitcoin’s dramatic rise seems to be in relation to its ‘store of value’ premise, as opposed to a transactional or other use case (Although undoubtedly there are many applications, some of which may be revolutionary). The Ethereum network exists as a programable blockchain upon or within which applications can be constructed and utilized. Very different – More industrial seeming – than Bitcoin’s protocol.

Compared to PTJ, I’m a layman. But I know enough to see that it is such early days in the evolution of the entire crypto ecosystem that massive development and evolution are forthcoming. And with it a development of valuations that are more independent from each other than dependant. Think Copper, Silver and Gold. Similar, but different utility and valuation.

As assets (or companies, or a technology, or ideas) gain acceptance, traction, identity, utility and liquidity, volatility generally lowers. The (my) big question is what will this look like? Will we have a range of precious and industrial digital currencies, as well as fiat linked sovereigns? Lets assume for a minute that state sponsored fiat digitals will absolutely succeed; Currencies which power or are a product of an ‘industrial’ ecosystem will be interchangeable with fiat, because of their use cases and token like utility within their industrial ecosystem. How will ‘precious’ Crytpos exist? As it stands, the on and off ramps for crytpos of all types – Even Dogecoin – into and out of our banking system are growing each day. So interchangeability is here. That aspect of risk has been almost eliminated, and we are seeing the price and adoption impact daily. How does one form up a reasonable ‘guesstimate’ on use cases?

I’ve been looking at various network effect models and adoption curves (specifically of financial technology) and I think some principals may be valid. Im particular, the speed of technological adoption is accelerating. Check this out:

I know this compresesses a long timeframe into a narrow chart. But I think the idea is clear. When a technology (or novel way of doing things) gains acceptance, its adoption rate is parabolic. For a shorter duration of the adoption of ‘mobile money accounts’ globally, check this out:

Interesting huh? The common cell phone was not really used before 2006 to perform money transfers. And as of 2018, the number was approaching 1 billion people annually.

So what does this have to do with Crypto currency valuation? I don’t know! But…..I do know its early in the game. I do know utilization will continue to grow, likely expoentially. I do know there are many uses cases for different cryptos. And I know its so darn early in this whole thing the future is anyones guess! But its safe to say, 20 years ago no one thought they’d be using their mobile phone to do banking. 🙂