Smart Crypto Money: Where To Invest Next

The crypto market has evolved from a niche investment sector to a complex industry, with crypto and blockchain sectors maturing and offering investors new inroads. Crypto investing has become more accessible to the public, with anyone now able to buy crypto using a Robinhood account. The crypto market has also become more appealing to investors, with its total value hovering near $1.5 trillion in late July.

Crypto-conscious investors are now looking at new trends, such as the rise of non-fungible tokens (NFTs) and decentralised finance (DeFi), as well as crypto exchange-traded funds (ETFs), as potential new frontiers for investment opportunities.

Non-fungible tokens (NFTs)

NFTs are tokens that are individually unique. Each NFT has different properties and is provably scarce. This is different from tokens like USDC, where every token is identical and has the same properties. NFTs are giving more power to content creators than ever before. Creators can sell their work anywhere and can access a global market. They can also retain ownership rights over their work and program royalties directly into the NFT contract.

The uniqueness of each NFT enables the tokenization of things like art, collectibles, or even real estate, where one specific unique NFT represents some specific unique real-world or digital item. Ownership of an asset is publicly verifiable on the blockchain.

NFTs can be traded and exchanged for money, cryptocurrencies, or other NFTs—it all depends on the value the market and owners have placed on them. The recent craze in NFTs involves digital art and creation. In March 2021, an NFT representing an image, "Everydays: The First 5,000 Days," by artist Beeple was auctioned by Christie's for $69 million.

For investors, NFTs represent a highly speculative class of investment that should probably be avoided. NFTs don't gain in value because of their utility but are based on the value of the media they represent. Sticking a value on something like art is incredibly difficult and subjective.

However, NFTs could be an important technological development. In a new digital era that blurs the lines between the physical and virtual worlds, a new way to track digital asset ownership and distribution online will be increasingly important. These blockchain-based tokens could also disrupt financial intermediaries and lower the cost of buying and selling big-ticket items such as autos and real estate.

Decentralized finance (DeFi)

DeFi is a collective term for financial products and services that are accessible to anyone who can use Ethereum. It is an open and global financial system built for the internet age, providing an alternative to a system that is opaque, tightly controlled, and held together by aging infrastructure and processes. DeFi gives users control and visibility over their money, as well as exposure to global markets and alternatives to their local currency or banking options.

DeFi applications are designed to communicate with a blockchain, allowing people to use their money for purchases, loans, gifts, trading, or any other way they want without a third party. These applications automate transactions between users by giving them financial options to choose from. For example, a user can select the option to make a loan to someone and charge them interest, entering terms like interest or collateral.

DeFi also includes decentralized exchanges (DEXs), which are a hot type of exchange that connects users directly so they can trade cryptocurrencies with one another without trusting an intermediary with their money. Another form of DeFi is the stablecoin, which peg cryptocurrencies to non-cryptocurrencies to keep the price under control.

DeFi is still in its infancy and is subject to hacks and thefts due to sloppy programming and a lack of security testing. It is unregulated, and its ecosystem is vulnerable to faulty programming, hacks, and scams. However, despite these risks, many believe that DeFi is the future of finance and that investing in this disruptive technology early could lead to massive gains.

Crypto exchange-traded funds (ETFs)

The first cryptocurrency ETF, the ProShares Bitcoin Strategy ETF, started trading in October 2021. This is an ETF that tracks bitcoin futures prices. The SEC approved the first 11 spot cryptocurrency ETFs for the U.S. market in January 2024.

There are two main types of crypto ETFs: spot ETFs and futures ETFs. Spot ETFs directly hold the cryptocurrency, building a portfolio that replicates the performance of the digital assets it contains. Futures ETFs, on the other hand, invest in futures contracts, which are agreements to buy or sell crypto at a preset date and price.

Crypto ETFs have several advantages, including:

• Exposure without ownership: Crypto ETFs provide exposure to crypto without the additional expenses and risks of owning and holding the digital assets in a wallet.
• Lowering the learning curve: Cryptocurrency jargon and technology can be complex, but investing in a crypto ETF is a simpler way to gain exposure to the market.
• More security for investors: Cryptocurrency exchanges and wallets have been hacked, so a crypto ETF can offer greater security for investors.
• Lower costs: With thousands of cryptocurrencies available worldwide, buying and selling them can be costly and complex. Crypto ETFs allow investors to diversify their holdings at a lower cost.

However, there are also some disadvantages to crypto ETFs, including:

• The risk of tracking error: Crypto ETFs may not always duplicate the price moves of the underlying digital token, especially for ETFs that depend on futures contracts.
• Elevated fees and expenses: Crypto ETFs often have higher expense ratios than other ETFs due to active management.
• Lack of direct ownership: Investors in crypto ETFs do not have control or access to the underlying cryptocurrency, and the decentralisation and anonymity of crypto do not apply to ETF shareholders.
• Regulatory uncertainty: The regulatory landscape for crypto ETFs is still evolving, which may impact the market in the future.

Some popular crypto ETFs include:

• IShares Bitcoin Trust (IBIT)
• Bitwise Bitcoin ETF (BITB)
• Grayscale Bitcoin Trust ETF (GBTC)
• VanEck Ethereum Strategy ETF (EFUT)
• Amplify Transformational Data Sharing ETF (BLOK)
• ProShares Ultra Bitcoin ETF (BITU)

Whale activity

In March 2023, Bitcoin whales became active once again as the US banking crisis intensified. Bitcoin recorded the highest daily average whale activity in 15 weeks, with over 10,000 transactions. This surge in whale activity indicated a rise in interest in Bitcoin, with investors expecting a further increase in price. Whale activity can also lead to elevated volatility in the price of the asset.

In April 2023, Cardano (ADA), Render (RNDR), Chiliz (CHZ), and Litecoin (LTC) attracted considerable investment from large institutional investors. On-chain data revealed that crypto whales were buying the dip to position for another Cardano bull rally in May. The whales' previous buy/sell patterns have been closely correlated to Cardano price actions. Chiliz (CHZ) also attracted the attention of whales, with a large influx of capital into the CHZ ecosystem.

In September 2024, Bitcoin whale activity reached its highest levels of the year. The 30-day moving average of the whale transaction count metric hit the highest level in 16 weeks, indicating that Bitcoin whales were making more than 10,000 transactions per day. This activity suggests that Bitcoin whales have been quite active on the blockchain recently, and the price of Bitcoin can become more volatile when whales are active.

Crypto whales significantly influence the cryptocurrency markets due to the large amounts of capital they control. Their accumulation can signal to other investors that the asset is undervalued, potentially driving up the price. Therefore, strategic investors need to keep an eye on whales' buy/sell patterns and their influence on the market.

Smart money index

The "smart money" in crypto refers to the capital that institutional investors, central banks, and other professionals or financial institutions control. It is managed by expert investors who can foresee market trends and make the most of the profits.

The smart money index is used to understand the performance of smart money in the stock market relative to "dumb money", which refers to the money invested by retail investors. Institutional investors spend the trading day evaluating the price action of the market; hence, smart money is traded throughout every hour of every trading day.

The smart money index is used by traders in two ways:

• Confirmation of asset trend: The smart money index does not indicate when to trade in the specific assets; rather, it indicates what an investor can expect from the assets in the short term. For example, if there has been an upward trend of an asset, the smart money index may warn when the trend will change.
• Variations in the smart money index and the market trends: Investors look for variations in the market trends with respect to the trends indicated by the smart money index. In the case where an asset price goes down while the smart money index moves upwards, it usually indicates that the price can move higher.

In crypto, tools that track "whale activity" can provide real-time insight into how capital is moving in digital assets such as bitcoin and liquid staked ether and can inform investing decisions. Whale activity refers to unique wallet addresses with 1,000 or more coins.

In the context of crypto, smart money is going towards:

• Non-fungible tokens (NFTs): Crypto investors view the NFT trend as an opportunity to be early movers in a business that could have an enormous reach, like the fine-art market but more democratic and potentially far larger.
• Decentralized finance (DeFi): Venture investors are pouring assets into DeFi, a term that covers an ever-expanding market of blockchain-enabled lending, borrowing, investing, and insurance options.
• Crypto exchange-traded funds (ETFs): Crypto trading in its current form usually involves using specialized exchanges, where investors are often dogged by technical hassles and high transaction fees. Crypto ETF backers want to make Bitcoin and, eventually, other tokens available through low-cost funds that trade on stock markets.

Frequently asked questions