Mr. Market is toying with us now. The Dow Jones rose over 500 points in the US session last night.
That’s a nice change from last week when US stocks fell 7% in two days.
This is the kind of choppy movement that can cut a trader to pieces.
But the long-term outlook looks a lot better than a few days ago.
Earnings from JPMorgan Chase, Wells Fargo, Bank of America and now Netflix’s latest numbers show there’s life in this bull market still.
Here’s another nice stat I found to support US stocks going higher.
The US midterm elections are due in November. Since 1946, there have been 18 of these. After every single one, the S&P 500 was up the following year. The average gain is 14.5%.
Trump will do everything he can from breaking this streak.
But the most interesting development this week is the announcement about Fidelity Investments’ latest move.
Fidelity is a massive asset manager in the United States with $2.7 trillion in its care and 27 million customers.
But it’s the market that Fidelity is entering that’s so significant…
Wall Street embraces the Wild West of finance
It’s the crypto market.
On Monday, Fidelity announced a new subsidiary that will cater to hedge funds and institutional investors that want to trade and store cryptocurrencies.
This is the kind of ‘Wall Street’ endorsement the crypto market needs to get moving again.
It’s also part of the regulatory and infrastructure development needed to bring crypto in from the edge to the mainstream.
You might remember that last week, I mentioned the endowment fund of Yale University is also investing in this space.
That’s not all…
Next month, the Intercontinental Exchange (ICE) is launching its Bakkt platform that will allow its customers to trade and store cryptocurrencies.
The ICE owns the New York Stock Exchange and is a big player in the commodity markets.
There are other firms making similar moves.
The conclusion is obvious: The big players are positioning for a long runway of growth in terms of customer demand.
One wonders if the management at Fidelity and other broking players like TD Ameritrade are looking even further out to the potential for securities like bonds and shares to migrate to a blockchain completely.
If they don’t establish a presence now, they might be fully cut out of the action.
The tokenisation of assets still looks odds to me over the long-term. It will make capital markets even more efficient and cut costs. That’s what technological innovation always does.
But you wouldn’t deduce this if you look at price action alone. The crypto market is down in 2018.
It’s not a trader’s market right now. The momentum just isn’t there. But if you take the long-term view, now’s the time to consider scooping up the best projects.
Modest position sizing means you can ride the volatility.
The parallel in market history is the tech bubble of the late 1990’s.
There’s no doubt about it now. Crypto in 2017 went over the top, in the same way tech stocks did in 1999.
But, looking back, the bubble didn’t stop the evolution of the internet into a major economic force that created huge value.
Crypto could be setting up for a similar repeat…
Public markets are becoming less appealing
After all, there are few markets that offer the chance to really smash it out of the park like crypto does in terms of a big return.
And it’s not based on fluff as some suggest.
Bitcoin’s Lightning Network, for example, will soon enable money transfers at essentially no cost and instantaneously.
There’s a huge market for it to capture. And that’s just one use case.
Bitcoin can also easily become a mainstay of investment portfolios the world over.
See above. The easier it is for mainstream investors to access via traditional custodians, the more money that can flow into the market.
Use cases for different tokens will develop alongside the evolution of the market.
This may become more important for investors than anyone realises. The number of stocks listed on the New York Stock Exchange, for example, is shrinking. The number is half what it was in 1996.
Private equity is snapping up many companies before they even get to the public markets now. home improvement sweepstakes
This is choking off the supply of high growth potential for retail investors.
Crypto can help reverse this trend through new ideas and looser regulations around raising money.
That aside, entering the crypto market now offers lower downside risk relative to where we were in 2017.
What’s less clear is the timing for the crypto market to heat up again. We appear to have entered into an accumulation phase. These can run a long time.
That at least gives you time to get acquainted with the market if you haven’t already. Luck follows the prepared mind.