What the Crypto? A Cryptic Roller Coaster

Dear Clients & Friends,

Over the past few years, a new technology has garnered much attention across the globe. This emerging asset class goes by many names: digital money, virtual currency, digital gold, peer-to-peer money - the list goes on and on. Whether it’s from the news or conversations with your friends and family, we have to ask: have you ever heard of cryptocurrencies?

Although incredibly difficult to track, some sources estimate that there are between 9,000 to 24,000 types of cryptocurrencies in circulation as of July. Tangem has an even crazier estimate: a total of 37 million cryptos have been created! The major coins, Bitcoin and Ethereum, continue to steal the show, with market caps of ~$2.2 trillion and ~$442 billion respectively. To put this into context, Bitcoin is now larger than Meta (Facebook), Tesla, and Berkshire Hathaway.

Whether it’s a few thousand types of coins or a million, the crypto universe isn’t going away any time soon. On the contrary - the rise of crypto will likely continue. The Trump administration is taking a vastly different approach to crypto versus the Biden administration, with the establishment of the strategic bitcoin reserve and a digital asset stockpile other than Bitcoin. Congress recently passed the GENIUS act, and will likely pass the CLARITY act sometime in the fall, which will provide the rules of the game and simplify the many definitions of cryptocurrencies. It will also clarify the tax ramifications of crypto.

Given the sheer size of the crypto universe, I’m going to highlight some of the main categories of cryptocurrencies and their use cases:

Payment Cryptocurrencies – These cryptocurrencies attempt to remove financial intermediaries (banks) when facilitating payments. Using crypto for payments attempts to process transactions in a more efficient, secure, and cheaper manner by utilizing a decentralized framework. This system also expands access to communities that don’t have access to any financial intermediary. Examples include Bitcoin (aka digital gold) and Litecoin.

Stablecoins – As the name suggests, stablecoins were created to help maintain a stable store of value to help facilitate cross-border payments in a faster and lower-cost manner. They’re typically pegged or collateralized to a widely held reserve asset like the U.S. Dollar on a 1:1 basis. (The U.S. Dollar is the most popular and the most stable.) In addition, cryptocurrencies can also be pegged against a commodity, another crypto, or even algorithmically. Examples include Ripple (XRP) and Circle (USDC).

Infrastructure / Smart Contracts – These digital tokens are self-executing and automated programs between two parties on a blockchain, which is a decentralized distributed ledger that records transactions. In order for these contracts to operate, they need infrastructure such as platforms and networks) to function. Smart contracts are already revolutionizing various industries of the world, including the application development, financial services, gaming, media/entertainment, escrow services, and virtual reality (metaverse) industries. Examples include Ethereum, Solana, Chainlink and Avalanche.

Memecoins – Typically inspired by internet memes, humor, trends, or even animals (you heard that right), memecoins are associated with entertainment instead of feasibility or usability. Despite their enhanced volatility, they have grown in popularity and visibility due to potential higher returns. It’s hard to believe, but there are guides out there to help create your own meme coin. If anyone wants in, I’ll be announcing the soft launch of my RainOney coin - any takers? Joking aside, examples include Dogecoin and Shiba Inu.

As you can see, the crypto landscape is evolutionary and continues to grow every day with new coins coming to the marketplace. Major financial institutions got the green light from the SEC last year to make investments in Bitcoin and Ethereum easier than ever. It is likely that new products will continue to come to the marketplace. President Trump recently signed an executive order that will allow alternative investments, including cryptocurrencies, to be included in 401K plans.

Although the idea of the futuristic currency is intriguing, it doesn’t come without its risks. Make no mistake - some of these coins are volatile and speculative investments. Thousands have gone bust, and others have been involved in illicit and illegal activities. But the question remains - should you take a chance and invest?

With the growth of the usage, popularity, and practicality of the “main” cryptos, we at MORWM believe that crypto investments may deserve a place in client portfolios. That’s why we’ve decided that, over the coming weeks, we will begin to carve out a small portion of some portfolios to invest in this ever-growing and rapidly advancing technology. Where applicable, we will be sticking to ONLY the most widely used and easily trackable cryptos- the bellwethers, so to speak. If anyone has any objections or questions beforehand, get in touch with us soon before we start to make the transition.

Upwards and always evolving,

Devin