Cryptocurrencies – Too early or too late? | Wells Fargo Investment Institute

Understanding Cryptocurrency

by Global Investment Strategy Team

key takeaways

Reading: Wells fargo bitcoin price prediction

  • Cryptocurrency users are growing globally and rapidly from a low base.
  • Cryptocurrencies appear to be nearing a hyper-adoption phase, similar to that of the internet in the mid and late 1990s. .

what it could mean for investors

  • We believe that cryptocurrencies are viable investments today, although they are in the early stages of their investment evolution. we recommend professionally managed private placements for now, as the investment landscape is still maturing.

“envy and arrogance are the two opposite sides of the same black glass”. — Theodore Roosevelt, 1903 Labor Day speech.

For the past few months, we have been writing about cryptocurrencies and the unique technologies that support them. Today’s post is not about the technology, but about a common point of confusion about the future of cryptocurrencies as investments. That confusion is that some investors think it’s too early to invest, while others think it may be too late. our conviction is that cryptocurrencies are viable investments today, but that it is still early in the evolution of cryptocurrency investing, as we will explain.

the “too late to invest” argument

Cryptocurrencies, which have had some of the best returns of the past decade (compared to other major asset classes), have new investors fearing it’s too late. the price of bitcoin, for example, has compounded at an annual rate of 216% since its first recorded transaction in 2010 (chart 1). By comparison, the S&P 500 Index’s total return over the same period has compounded 16% annually. such cryptocurrency gains have led to increased media attention and enviable stories of newfound wealth. a select few people, who owned from the earliest days, even became billionaires. Twelve of the 2,755 people on the 2021 Forbes World Billionaires List came from the world of cryptocurrencies.

chart 1. bitcoin price history

Chart 1. Bitcoin price history

sources: bloomberg and wells fargo investment institute. daily data: July 19, 2010 – January 6, 2022. Past performance is no guarantee of future results.

We understand the “too late to invest” argument, but we don’t subscribe to it. We believe that focusing too much on past performance, especially with cryptocurrencies, can be misleading for new investors. First, the performance numbers are skewed because most cryptocurrencies evolved from practically nothing. The early years were highly speculative and it was common to see individual cryptocurrencies launch at prices below $1. Using bitcoin as an example again, its first real-world transaction did not occur until May 2010, 16 months after its inception, and it valued 1 bitcoin at roughly $0.004. bitcoin didn’t cross $1 until February 2011.

Secondly, cryptocurrencies are still a relatively young investment space. the vast majority are, in fact, less than five years old. even the oldest cryptocurrencies have a lot of maturing to do. For example, bitcoin is the oldest and possibly one of the least volatile cryptocurrencies, but it is still about four times more volatile than gold (chart 2, orange dashed line) and a basket of global equities (chart 2, purple dashed line). .

chart 2. 90-day volatility: gold, stocks, bitcoin, us. uu. dollar

Chart 2. 90-day volatility: gold, stocks, Bitcoin, U.S. dollar

See also: Top 20+ why isn’t rivian trading best, you should know

sources: bloomberg and wells fargo investment institute. daily data: January 3, 2011 – January 6, 2022. 90-day price volatility equals the annualized standard deviation of the relative price change for the closing price of the most recent 90 trading day, expressed as a percentage . Past performance is no guarantee of future results.

Lastly, cryptocurrencies are a different type of investment, which makes them difficult to understand and invest in. Much of this is due to the complexity of the technology. Another reason is that cryptocurrencies originate outside of the traditional financial system, which has made it difficult to attract investment flows and research coverage. In the traditional financial system, companies spend their first years of development in the hands of private investors, with the ultimate goal of also attracting public investors. If successful, the company often receives extensive research coverage and access to large pools of investors. cryptocurrencies have not followed this path as they are launched from personal computers with limited, if any, management structure.

why we think it’s early, but not too early

We see cryptocurrencies in the “early, but not too early” investment stage, which is why we have emphasized investor education. The impetus for our opinion comes from global cryptocurrency adoption rates, which have rapidly accelerated from a low base. cryptocurrencies have followed a pattern of adoption similar to that of other new advanced technologies, such as the internet. In the rest of this article, we’ll look at how advanced technologies have typically been adopted and why we believe cryptocurrencies may be close to an adoption tipping point, similar to that of the internet in the mid-to-late 1990s.

early adoption of technology

It often takes many years for consumers to widely adopt new advanced technologies. figure 3 highlights the paths of adoption of selected technologies, new for their time, by the us. uu. households rising lines indicate a growing percentage of u.s. households using these technologies. adoption typically started slowly, reached a tipping point, and then abruptly accelerated. it’s important to note that, in some cases, decades elapsed between actual inventions and rising adoption rates. As an example, the Internet was invented in 1983, but in 1995, only 14% of Americans (and less than 1% of the world) used it. interestingly, these adoption percentages are similar to what we are seeing today with cryptocurrencies. Thirteen percent of Americans bought or traded cryptocurrencies in the past 12 months (Chart 3, Blue Star), according to a recent University of Chicago survey. and about 3% of the world uses cryptocurrencies, according to (chart 4).

In the early years of adoption, user experiences with new technologies tended to be clunky and frustrating as the ecosystem and infrastructure slowly matured. In the case of the Internet, many readers may remember the days before the first web browser in 1993, when accessing the Internet required typing in a message on a green screen. talk clumsy.

It’s also common in the early years of adoption that when the first use cases emerged, consumers still needed time to figure out what the technology is, what it can do, and how it can benefit them. Conversations throughout 2021 revealed to us that many investors and consumers, new to the space, believe that cryptocurrencies remain at this early stage of adoption as they find the technology daunting and the use cases unclear. /p>

graph 3. technology curves

Chart 3. Technology S curves

Sources: Our World in Data (, National Opinion Research Center (NORC), and Wells Fargo Investment Institute. annual data: 1900-2020. * crypto participation figure based on the results of the survey conducted by norc from June 24 to 28, 2021 at the university of chicago.

our opinion: cryptocurrency adoption today is similar to the internet in the 1990s

While the technology behind cryptocurrencies is complex and the use cases can be difficult for those new to the space to visualize, the data shows that the world is starting to embrace the technology, and fast. according to, the number of cryptocurrency users globally reached 221 million in June 2021, or just under 3% of the world’s population. most impressively, it took just four months to double the world’s cryptocurrency population from 100 million to 200 million.

Cryptocurrency adoption rates appear to be following the path of other earlier advanced technologies, particularly the internet. If this trend continues, cryptocurrencies could soon exit the early adoption phase and enter a hyper-adoption tipping point, similar to other technologies seen in chart 3. Notice in chart 3 that there is a point where adoption rates start to rise and don’t. to look behind. For the Internet, that point was in the mid to late 1990s. After a slow start in the early 1990s, Internet use rose from 77 million in 1996 to 412 million in 2000. By 2010, Internet use worldwide internet use had increased to 1.98 billion and today stands at 4.9 billion.

Another important consideration is that internet adoption, once it reached its tipping point in the mid-to-late 1990s, increased at a faster rate than the other advanced technologies seen in Figure 3. we have noticed similar accelerating trends in recent years. digital inventions, such as smartphones and Wi-Fi. The reason is that every new digital invention builds on the already built digital infrastructure. we expect cryptocurrencies to eventually follow an accelerated adoption path similar to recent digital inventions.

Chart 4 helps to visualize why we believe cryptocurrencies may have reached a tipping point of adoption similar to the internet in the mid-to-late 1990s. Chart 4 compares global user growth between the internet, as of 1993 (chart 4, solid red line) and cryptocurrency users, as of 2014 (chart 4, dashed purple line). Based on this comparison alone, it appears that cryptocurrency usage today may even be a bit ahead of the internet of the mid to late 1990s. Precise numbers aside, there is no doubt that global adoption of cryptocurrencies is increasing and could soon reach a hypertipping point.

See also: Why is Bitcoin Up This Week? – Small Business Trends

Graph 4. History of internet use compared to cryptocurrency users

Chart 4. Internet usage history versus crypto users

sources: international telecommunications union, our world in data,, statista, bloomberg and wells fargo investment institute.

Another support for accelerating cryptocurrency adoption is recent regulatory progress. As we have discussed in earlier posts, cryptocurrencies have matured to the point where legal and supervisory frameworks are being developed to solidify cryptocurrencies as investable assets. the lack of a regulatory structure is a major hurdle that needs to be removed, as it was cited as the number one reason in a 2020 bloomberg survey why high net worth investors were unwilling to invest in cryptocurrencies.

what to do now

be patient. there is no need to rush, as most of the opportunity is in front of us, not behind us. The chart on the next page highlights that the total market capitalization of cryptocurrencies remains lower than that of the technology company Apple Inc.

Be cautious. Adoption rates are rising, but investment options are a bit behind the times and still maturing. As a refresher, there are generally three ways to get exposure today; 1) buy crypto directly from an exchange, 2) mutual funds, exchange-traded funds (ETFs), and grantor trusts, and 3) private placements. option 1, buying directly from an exchange, we do not recommend. the technology is complex and the risks of speculative investment are high. Option 2 is also not recommended, as the current u.s. Mutual funds and ETF options are backed by futures, not the digital assets themselves, and grantor trusts are often plagued by high fees and volatile net asset values. We’re hopeful that regulators will be able to approve digital asset-backed mutual funds and ETFs soon, perhaps as soon as 2022. However, until that day comes, we’d rather qualified investors turn to option 3, management professional through a private placement.

be careful . Some investors have expressed frustration with such limited investment options. we identify with and would rather have more high-quality options to offer. this, unfortunately, is not the state of the investment product that we see today. For those unwilling to wait for better investment products and feel compelled to try option 1, we say beware and keep the 1990s in perspective.

Early-stage investing is often plagued by violent boom-and-bust cycles, as many dot-com companies and investors from 20 years ago can attest. There are over 16,000 cryptocurrencies in existence today, and if history is any guide, many will fail (or at least fail to scale). Cryptocurrencies already succumbed to a shakeup event in 2017, when more than 1,700, roughly 40% of all cryptocurrencies at the time, went bankrupt. we believe that there is a high probability that cryptocurrencies will see reorganization events in the future.

Finally, picking long-term tech winners is no easy feat. Investors must routinely assess current winners and losers against the ever-increasing pool of companies yet to be created. we will again use 1996-1997 as an example. The most visited websites of that time, regardless of their line of business, didn’t stay relevant much beyond the year 2000. Anyone want to guess what the most trafficked website was in 1996? hint: “you have mail”. However, an interesting twist to the story is that the largest company in the S&P 500 (by market capitalization) today was a battered hardware company that was on the verge of bankruptcy in 1997.

Special Report: Cryptocurrencies - Too early or too late?

sources: bloomberg, sifma, bank for international settlements,, warren and pearson prices, usa. uu. geological survey, metals focus data and wells fargo investment institute. cryptocurrencies, stock market, and largest market company in s&p 500 index size as of jan 11, 2022 bond market size as of december 31, 2020 gold market size calculated by multiplying estimated amount troy ounces of gold ever mined as of December 31, 2020 data for the price of gold as of January 11, 2022.


For today’s investor trying to figure out if we’re early or early in cryptocurrency investing, looking at technology investing in the mid to late 1990s seems reasonable. at that time, the internet reached a phase of hyper-adoption and never looked back. cryptocurrencies seem to be in a similar stage today. Cryptocurrency investment options today, however, are still maturing and we recommend patience. for now, we suggest consideration of only professionally managed private placements. We do not recommend any of the other current investment options such as mutual funds, ETFs, grantor trusts, and speculation on individual cryptocurrencies. we are hopeful that greater regulatory clarity in 2022 will provide higher quality investment options.

download a pdf version of this report

See also: Best 8 Bitcoin Indicators for Cryptocurrency Trading – Mycryptopedia


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