While the experiment to create true digital currency is still in its infancy, cryptocurrencies may well be as revolutionary as the Internet itself.
This is the view of Montegray Capital founder and former FNB CEO Michael Jordaan, who is backing the Johannesburg-based cryptocurrency trading platform VALR.
Jordaan said since the crypto bubble burst in 2018, cryptocurrencies are probably undervalued as an asset class and it would be wise to invest a small amount in this asset.
He explained that cryptocurrencies are undervalued compared to traditional, central-bank-made currencies which are overvalued simply because there is no limit to their supply.
“The supply of cryptocurrencies is limited by formula or algorithm whereas the supply of fiat currencies is decided by committee and person, which is error-prone,” said Jordaan.
For example, the current wide-scale printing of money by the largest central banks is a monetary experiment with no historical precedence, and quantitative easing may yet end in tears.
“Consumers in countries with rogue central banks like Zimbabwe and Venezuela are demonstrably better off trusting cryptocurrencies than their inflationary domestic ones,” said Jordaan.
Value is still speculative
Jordaan said the valuations for cryptocurrencies are currently largely speculative. “They are simply worth what we think they are worth,” said Jordaan.
“In time use cases, and with them the demand, for each cryptocurrency will become more decisive in their valuation,” he said.
“The main use case for cryptocurrencies is still the easy, free transfer of value across the world, but in time many other use cases will develop.”
Jordaan is a crypto bull who believes that cryptocurrencies have a bright future in the global financial market.
“At a current market cap of $287 billion, cryptocurrencies are tiny compared to the $80 trillion of broad money that is in supply in the world,” said Jordaan.
“The ratio of cryptocurrency value relative to fiat currency is less than 0.5%. The probability is that this ratio will increase over time.”
He added that cryptocurrencies have a relative advantage over fiat currencies such as having a limited supply, while being decentralised and global at the same time.
What Jordaan supports
While Jordaan believes that cryptocurrencies as a whole are undervalued, it is difficult to pick who the winners will be.
Instead of trying to pick the possible winners, Jordaan supports weighted cryptocurrency indices such as DCX10.
The DCX10 (DCX Capital 10) is an investable digital token that represents the performance of the top 10 cryptocurrencies.