Best Crypto Research Analyst on Market Outlook, Risk Averse Investing
- Thomas Dunleavy is a senior crypto research analyst at Messari.
- Although difficult macroeconomic conditions have impacted crypto markets, Dunleavy says The Merge could solve this problem.
- New investors can start with ether and bitcoin, according to Dunleavy, until they understand crypto better.
Crypto markets are widely known to insiders and outsiders as being unpredictable.
But prices can reveal little about the health of a blockchain network. For example, altcoin Solana was down 84.6% on Monday from its all-time high, according to Messari, while its network usage remained stable. And for those risk-averse, it can be hard to stomach the headlines from big industry players like hedge fund Three Arrows Capital and centralized lender Celsius filing for bankruptcy. In a sea of FOMO capital allocations and risky betting stories, the stigma remains that crypto is volatile. The narrative prevented many of them from allocating in their portfolios or entering the space at all.
A senior cryptocurrency research analyst at Messari attempted to cut through the noise in an interview with Insider. Thomas Dunleavy explained why the industry may not fully recover for six to nine months, and explained how risk averse investors and new investors can manage their portfolios.
Crypto’s Relationship to Traditional Stocks
For now, a big variable in the recovery of crypto markets will be macro, according to Dunleavy. Over the past few months, traditional stocks have been pairing at token prices. With the Federal Reserve’s attempts to fight inflation, investors are wary of risky assets in general. According to Fed Chairman Jerome Powell, the United States is not in recession despite negative GDP growth for two consecutive quarters.
“If your macro outlook is that we’re going to have trouble, it’s probably not a phenomenal time to start trading risk assets,” Dunleavy said.
Crypto markets could likely fully recover in six to nine months if the Fed scales back rate hikes and the US economy stops feeling the brunt of monetary tightening.
The analyst, however, says that crypto performance could likely decouple from equities due to The Merge. The set of upgrades on Ethereum’s network, which has experienced various delays, aims to address common complaints about performing functions with its blockchain. This could lead to faster transaction speeds, better scalability, and lower gas fees.
If executed successfully, Dunleavy says institutional capital will build up and “drive the market up significantly.”
“People like me and others are excited about potential fundamental catalysts coming to decouple from stocks,” he said. “Merger is the obvious catalyst for Ethereum, because you need to uncouple from stocks with additional streams that don’t exist today.”
Investing for risk showers
It’s important for new investors, says Dunleavy, to first determine what percentage of their larger portfolio they want to allocate to crypto. He added that anywhere between 3% and 5% might be reasonable if it’s an investor with the classic portfolio of 60% stocks and 40% bonds.
“I would always put crypto in the risk asset bucket,” he said.
While taking a “long-term view” of their investment, it is important for new, cautious investors to consider the average dollar cost. are ready to lose.
“If you think this technology will underpin a lot of the things we do in the future, today’s price might not matter as much,” he said. “But it’s painful when you buy ethereum at $1,700 and all of a sudden you look at Sunday, and it’s $1,400. It’s just avoiding that mental challenge.”
Finally, investors should learn the nuances of different cryptocurrencies before jumping into specific altcoins. If they haven’t, Dunleavy says Bitcoin and Ethereum can be good early bets and entry points to enter the space.
“It’s a very valid way to invest rather than speculating on the long tail of assets you don’t understand,” he added.