Billionaire investor Paul Tudor Jones is now buying Bitcoin. Cardano, on the other hand, is up nearly 50% this year and is keeping up with the lead altcon’s performance. Crypto expert Dominic Basulto is considering whether it makes sense to invest in these two cryptocurrencies.
The ‘tail’ story of the leading cryptocurrency Bitcoin
The starting point is to view crypto as a unique asset class. Once you’ve done that, you can compare Bitcoin with other asset classes to see which ones you should keep in your portfolio and how much you should devote to each. Each asset has a unique risk-reward profile. This is where Bitcoin really stands out. Yes, there is a significant risk in investing in Bitcoin. But there is also significant upside potential.
Paul Tudor Jones refers to Bitcoin as a “big tail”. This has a very special meaning in the investment world. It expresses the possible distribution of events. Statistically, this tail is an event with 3 standard deviations. So the probability of it happening is only 0.3%. For example, if you think of a standard bell curve distribution, there will always be a giant bump in the middle and very straight tails on either side. Most beings are part of this giant mound in the middle.
But Bitcoin is different. It seems that it is always the “tail”. Sometimes it is the tail of negative distributions (as in 2022). But more often it is the tail of positive distributions. As a result, from 2011-2021, Bitcoin was the world’s best-performing asset, and it wasn’t even close. While these historical returns are no guarantee of future performance, they reveal Bitcoin’s upside potential.
Bitcoin’s correlations
It is also interesting in terms of Bitcoin correlations. Over the past few months, Bitcoin has started to correlate more and more with gold. The high level of economic uncertainty right now is causing people to seek so-called safe-haven assets, and many see Bitcoin in this class. This is not because Bitcoin is inherently secure, but because Bitcoin is outside of the traditional banking system. So, if more banks get into trouble, Bitcoin will theoretically not be affected as much as other financial assets.
Paul Tudor Jones currently sees Bitcoin as a potential inflation hedge, similar to gold. This makes Bitcoin valuable because it is a potential way to hedge against inflation risk. Therefore, the expectation is that over time, Bitcoin will maintain its correlation with gold. However, he warns that once the Fed stops raising interest rates, Bitcoin’s role as an inflation hedge may begin to wane.
Economic scenarios for leading cryptocurrency
Paul Tudor Jones also uses economic modeling to predict the future trajectory of asset prices. After all, this is what allowed him to predict the 1987 stock market crash and make enormous profits in the process. He modeled the stock market crash of 1929, compared it to what had happened in the 1980s, and concluded that stock prices would fall. Now he’s doing the same for the current situation, trying to see what might happen next by comparing it to what happened during the 2008 financial crisis.
You don’t need a degree in economics to do this type of modeling. All you have to do is think in terms of potential economic scenarios. In short, consider a few economic scenarios that could happen. Then predict how Bitcoin will react in each scenario. What happens in an environment where interest rates rise? What if the economy goes into recession next quarter?
How much Bitcoin is too much Bitcoin?
With all this in mind, Paul Tudor Jones clearly likes what he sees in Bitcoin. “I’ve never sat on a horse this long,” he says. He started investing in Bitcoin in 2020 when it was trading at around $9,000. cryptocoin.comAs you follow, BTC hit an all-time high at $68,790. However, it then dropped as low as $15,000 before rising to $30,000 once again. Almost three years later he still holds it.
Of course, you don’t want to overdo it when it comes to Bitcoin. We don’t know exactly how much Paul Tudor Jones is currently dedicating to Bitcoin. In 2021, he suggested that he might be willing to hold up to 5% in Bitcoin. However, more recently, he stated that he only dedicates 1% to 2% of his portfolio to Bitcoin. Even if you disagree with Paul Tudor Jones, one thing is clear: you can become a better crypto investor by changing the way you analyze Bitcoin.
What makes Cardano (ADA) attractive
First reason: Blockchain upgrades
While all the attention is on Ethereum’s latest technological upgrades, Cardano is also upgrading its Blockchain network. Cardano completed the Vasil upgrade in the fall of 2022. Also, this upgrade brought more functionality to Blockchain in terms of being able to handle smart contracts. These smart contracts are small self-executing bits of computer code that make it possible to create sophisticated decentralized finance (DeFi) offerings.
At the same time, Cardano is moving forward with other initiatives designed to make Blockchain run even more smoothly and quickly. For example, Cardano recently introduced Hydra, a new Tier 2 scaling solution that can handle up to 1 million transactions per second. This transaction processing speed has become a kind of legendary goal in the crypto world. Ethereum has promised 1 million transactions per second for years, but it has never been able to deliver.
All these new upgrades are of course great. But it’s easy to see how some investors might view these as just incremental improvements. After all, doesn’t every Blockchain get periodic upgrades? Yes, but when it comes to Cardano, we’re starting to see core metrics improve significantly as a result of these upgrades. For example, Cardano trading volume has already increased by 205% year-on-year. Also, the latest Blockchain data reveals that Cardano has shown strong growth in many different areas.
Second reason: DeFi growth
Where things get really interesting for Cardano is decentralized finance (DeFi). As mentioned above, recent Cardano updates have focused on smart contract functionality. This is the key to success in the DeFi world. Cardano promised to make significant improvements to DeFi at the beginning of 2023. Now we are just beginning to see the fruits of these efforts.
For example, in January 2023 Cardano launched a new stablecoin that will make it much easier for traditional finance players to get started with DeFi on the Cardano Blockchain. Cardano has also witnessed the sprouting of new decentralized exchanges for trading digital assets. As a result, Cardano has seen a dramatic increase in the total locked value (TVL) metric, which is an important indicator of how much ADA is “locked” on the Blockchain in the form of DeFi protocols. Until this year, Cardano was not a player in DeFi. But now Cardano seems to be starting to turn things around. Cardano’s TVL is currently at a 10-month high.
This newly discovered power of DeFi is leading to new partnerships, new innovations and new potential avenues for growth. For example, Cardano recently partnered with Acredius, a Zurich-based fundraising platform, on new lending initiatives for Swiss companies. This would not have been possible a year ago. Cardano is pushing the boundaries with innovations such as the leading cryptocurrency Bitcoin, a new token that makes it possible to use Bitcoin on the Cardano Blockchain.
So does it make sense to buy this cryptocurrency?
Considering all these promising signs of growth, it’s possible for ADA to reach $1. Based on Cardano’s current price of $0.37, this represents about a 3-fold move to the upside. This sounds a bit aggressive for ADA, which has disappointed investors several times in the past. However, I am encouraged by Cardano’s growth, especially in decentralized finance. I will be bullish on Cardano’s long-term prospects as key DeFi metrics continue to move up.
The opinions and recommendations in the article belong to the experts and are definitely not investment advice. We recommend that you do your own research before investing.
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