Crypto Performance 20x Higher Than Traditional Asset Classes

(Photo: AP) (Photo: AP)

Bitcoin and other digital currencies outperformed traditional assets by 20 times in the second quarter, according to a report released Wednesday by CoinDesk.

In the second quarter, Bitcoin returned 150.6% year over year, the report found, and returns for all digital assets were 445%. Global equities returned nearly 15%, followed by U.S. equities at 9.2%, gold at 7.75% and global real estate at 3.2%.

“Blockchain and digital assets are already solving real-world problems in business, government, technology and finance, and its impact on markets has been extraordinary,” Nolan Bauerle, director of research for CoinDesk, said in a statement. “At the end of Q1, the total cryptocurrency market cap was valued at $23 billion USD, and largely due to [initial coin offerings], the total market cap for digital assets hit $109 billion USD by the end of Q2.”

(Related: Bitcoin Exchange Sees Complaints Soar as Users Demand Money)

In a survey of more than 1,300 blockchain investors, 57% reported a positive outlook for Bitcoin, up 8% over last quarter. Although investors were distinctly more optimistic about Ethereum (65% reported a positive outlook), that’s down 29% from Q1.

The report examines the time period before Bitcoin split in August. After the Aug. 1 fork that split the leading cryptocurrency into Bitcoin and Bitcoin Cash, the original token fell to below $2,700 before recovering to over $3,110 by Aug. 5. Bitcoin was trading at over $4,655 on Sept. 7. Bitcoin Cash peaked at $996.92 on Aug. 19, and was trading at over $653 on Sept. 7.

(Related: Bitcoin Fork Sparks Optimism, but New Currency Has Skeptics)

Investors are concerned that mining for Ethereum and, to a greater extent, Bitcoin are too centralized. Over 71% of investors said Bitcoin mining was too centralized, with over half anticipating increased centralization in the future. The report found 46% of investors agreed Ether mining was too centralized; almost the same percentage (44.7%) expect it to become more so.

Furthermore, 58% of investors expressed concern that digital asset valuations are in a bubble. The report found combined valuations for public tokens hit a record $100 billion in the second quarter, far above the previous high of $25 billion.

ICO, Not VC, Main Source of Capital

Initial coin offerings are taking over as the main source of capital for digital currencies, the report found. In the second quarter, blockchain tokens raised $797 million through ICOs, compared with $235 million raised through venture capital.

The report found the use case for a new coin was the most important factor for investors considering participating in an ICO. A lack of information or third-party research was the primary reason for investors who decided not to participate in an ICO.

Three out of five investors believe ICOs should be capped, and that issuers should plan on using multiple rounds of token sales. Most investors favored keeping the bulk of capital raised in an ICO in the cryptocurrency, with only a portion converted to fiat currency.

Their feelings on how governments should treat ICOs was mixed. Over 92% of investors believe regulators will attempt to bring ICOs into some kind of regulatory regime, but less than 43% believe ICOs should be treated as securities.

Investors overwhelmingly believe that banks and governments will eventually issue their own digital assets, the CoinDesk survey found.

The Monetary Authority of Singapore announced in March that it has completed the first phase of a project to digitize the Singapore dollar for interbank settlement. MAS said in a statement that it “is in the early stages of discussions to develop links from Singapore to other countries using [distributed ledger technology] to allow cross-border payments to settle directly using central bank accounts.”

The National Settlement Depository (NSD), Russia’s central securities depository, announced in August that it is working with the Russian firm Waves Platform on a blockchain platform to support digital assets, though Forbes reported on Monday that the Bank of Russia discouraged citizens from using private cryptocurrencies.

“Given the high risks of circulation and use of cryptocurrency, the Bank of Russia considers it premature to admit cryptocurrencies, as well as any financial instruments nominated or associated with cryptocurrencies, to circulation and use at organized trades and in clearing and settlement infrastructure on the territory of the Russian Federation for servicing transactions with cryptocurrencies and derivative financial instruments on them,” the Press Service of the Bank of Russia said in a statement.

Bauerle noted that current challenges in the cryptocurrency market are unsurprising. “There will always be growing pains in an industry that added a billion dollars a day in value across Q2,” he said in the statement. “Solutions are being worked on for blockchain backlogs, transaction capacities and reducing fees. The technology is advancing quickly and we are confident the industry will continue to boom.”  

--- Read International Regulatory Shift Could Tame Cryptocurrency Market on ThinkAdvisor.

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