Expert opinion

Interview with Thomas Kralow: A look at the crypto market and the future of finance

Inflation has always been a concern for investors seeking to preserve and grow their wealth. As traditional investment options face uncertainties, the emergence of cryptocurrency has brought about new possibilities. One such avenue is through crypto hedge funds, which have gained popularity as a means of protecting investors against the threat of inflation. 

Crypto hedge funds offer a unique opportunity for investors to diversify their portfolios and hedge against inflation. Unlike traditional assets that are susceptible to the erosive effects of inflation, cryptocurrencies, led by Bitcoin, have shown resilience in maintaining or even increasing their value over time.

We had a chat with Thomas Kralow, a crypto hedge fund manager and founder of Kralow Capital and Kralow Ventures, who gave his expert opinion on crypto hedge funds, inflations, and the digital currency market at large.

1. The increase in federal debt has implications for the crypto market. How do you see Bitcoin's role as a potential hedge against inflation amid this rapid increase in debt?

Bitcoin has proven to be one of the best hedges against inflation compared to all other assets, including fiat currencies and global reserve currencies. Over a two-year horizon, its performance may not be evident, but looking at four years or more, its incredible ability to hedge against inflation becomes clear. The confirmation of its store of value narrative was evident when the banking sector collapsed and money flowed into Bitcoin. There is no doubt about Bitcoin's potential as a reliable hedge against inflation anymore.

2. The drop in CPI may indicate a more controlled inflationary environment. How does this impact investor sentiment and the perception of cryptocurrencies as a store of value?

When the Consumer Price Index (CPI) drops, people are likely to feel better about spending money. This can be both good and bad for the market. While it boosts current spending, it might also trigger inflation down the line, which the Fed wants to avoid during its rate hike cycle. Currently, there's a slight positive shift.

However, the decline in CPI doesn't significantly impact the store of value concept for cryptocurrencies. It simply makes investing in them more attractive due to reduced inflation. The true test of cryptocurrency's value storage ability arises during economic downturns, where Bitcoin's resilience shines. This proves the store of value narrative, as demonstrated during past banking system collapses.

3. As the former SEC chair acknowledges the difficulty in resisting Bitcoin ETF approval, what factors have contributed to this shift in attitude towards cryptocurrencies within the traditional financial system?

Gary Gensler and the SEC have long held a negative stance on cryptocurrencies. The recent Ripple versus SEC lawsuit ruling on XRP may have influenced their perspective. Notably, with an impressive success rate in ETF applications, BlackRock is now involved in recent Bitcoin ETF applications. Given their track record, we'll likely see a crypto spot ETF. 

While this might come across as a conspiracy theory, it raises questions about BlackRock's influence on the crypto market and how it may have contributed to regulation changes, as it basically controls Wall Street and has been lobbying quite hard for their interest in every sense of the word. 

4. Institutional investors are entering the crypto space, potentially leading to significant growth. How do you foresee this trend shaping the market dynamics and Bitcoin's future?

This could make the upcoming cycle the most liquid and largest one ever. Some argue that the explosive growth we saw in the previous cycles, like Bitcoin's rise from $4,000 to $69,000, might not be possible again. However, with the introduction of ETFs and trillions of dollars entering the cryptocurrency market, we're looking at a monumental shift in the financial world. Bitcoin and blockchain are on the verge of major changes, and they will likely attract significant institutional capital. 

While there have been reports of a slight reduction in institutional interest due to regulatory concerns, the new cycle, especially with the availability of spot Bitcoin ETFs, is expected to bring substantial capital inflows. This could potentially lead to the biggest bull market ever for Bitcoin, with the price possibly reaching as high as $300,000 per Bitcoin, marking a tenfold increase from current prices.

5. Technical analysis suggests a consolidation phase and the possibility of a breakout to the upside for Bitcoin. Could you elaborate on the key indicators that support this analysis?

Beyond technical indicators, we consider on-chain metrics, market sentiment, and blockchain data such as hash rate, long-term holders, addresses, and user activity. These metrics demonstrate that Bitcoin is more robust and undervalued compared to its previous high. 

Technically, we're currently below a crucial level at $31,500, where selling pressure has been observed, possibly due to factors like US government Bitcoin sales and ETF-related fluctuations. Once we breach and hold above $31,500 with volume and resilience, we'll transition back to a bullish stance, marking an official return to a bull market based on technical analysis.

6. The support level of around $29,830 is crucial for Bitcoin's short-term prospects. How sensitive is the market to such support levels, and what potential risks could trigger a breach?

Currently, the crucial level we're closely monitoring is $30,000, which serves as both a support and a potential resistance. It's significant for the ongoing market dynamics. However, if we continue to remain below $30,000, there's a growing concern about a potential prolonged correction, seeking lower levels for liquidity and potentially triggering a long squeeze. 

The next significant support levels are around $28,000 and $27,000, followed by $25,000 if those aren't sustained. These technical levels play a pivotal role in guiding market movements. While technical analysis is essential, major news events like the confirmation of a spot Bitcoin ETF can overshadow these levels, as market dynamics can shift based on broader fundamentals and significant news. In quieter periods, technical levels tend to have a more pronounced impact on the market.

7. The breakout target for Bitcoin is projected to be around $33,000. What fundamental or macroeconomic factors might catalyze such a price movement, and how sustainable would this growth be?

If we observe a breakout above the $30,150 mark, it could lead to significant gains. The targets for such a breakout would be around $33,000, followed by $36,000 to $37,000, and potentially even reaching $42,000. This would mark a substantial shift, transitioning from the current bearish tendencies towards a more bullish market sentiment. 

Several factors could trigger this shift, with the approval or rejection of a Bitcoin spot ETF being a major driver. Additionally, monetary policy decisions by the Federal Reserve and the overall state of the economy, influencing larger players' actions, play a pivotal role. Legislation, both locally and globally, including developments in China and other regions, could act as significant catalysts. The timing for these changes is likely to unfold towards the end of this year and the beginning of the next, converging to propel the market to higher levels.

8. Some critics argue that Bitcoin's energy consumption is unsustainable and detrimental to the environment. How do you view this issue, and what are the implications for Bitcoin's adoption and growth?

I find this quite ridiculous. The energy consumption of Bitcoin is actually minimal. If you compare it to all the banks worldwide, the people commuting to work, the vehicles transporting money, and the pollution from diesel trucks, it far outweighs Bitcoin's energy use. In terms of energy efficiency, Bitcoin's consumption relative to its benefits is much smaller than our current financial system. 

Additionally, much more wasteful things consume far more energy, like the massive LED screen recently built in Las Vegas that costs two billion dollars and uses twice the electricity of the entire Bitcoin network. This puts Bitcoin's energy consumption into perspective, showing it's not as significant as some might think.

9. Central Bank Digital Currencies (CBDCs) 's growing popularity poses opportunities and challenges for cryptocurrencies. How do you see the coexistence and competition between CBDCs and Bitcoin in the global financial landscape?

The only potential challenge might arise if governments attempt to ban cryptocurrencies and introduce their own CBDCs. Yet, as we've seen, people tend to resist such efforts, as seen in the case of Nigeria, where CBDC adoption remained low after a crypto ban. This ban led to higher prices for Bitcoin and other cryptos on the gray market, revealing the limits of such measures.

Similar resistance could happen in the US, where the attempt to enforce CBDCs, as observed with the recent actions of the Federal Reserve, may not be well-received. People are becoming more aware of avoiding manipulation and dystopian technologies.

Even if global coordination to ban Bitcoin were attempted, it would likely lead to short-term volatility rather than a significant threat. The inherent value of Bitcoin and its decentralized, deflationary nature set it apart. CBDCs represent a digital form of existing fiat currency, lacking the transformative features of Bitcoin.

In essence, CBDCs don't pose genuine competition to Bitcoin. They are fundamentally different concepts, with CBDCs being centralized and controlled, while Bitcoin remains decentralized, resistant to inflation, and a store of value. People are more likely to continue choosing Bitcoin over CBDCs, as the latter maintain characteristics of the current flawed fiat system. Thus, there's no substantial competition for Bitcoin's unique attributes.

10. Ethereum and other altcoins have gained prominence alongside Bitcoin. How do you see the dynamics between Bitcoin and other cryptocurrencies evolving, and which altcoins do you believe hold significant potential?

I believe Ethereum holds the greatest potential, and in theory, it could even surpass Bitcoin in market cap. It's my second-largest portfolio holding due to its eco-friendliness and regulatory alignment. Being more centralized, governments might favor Ethereum over uncontrollable Bitcoin. Ethereum is faster, more efficient, and has unique advantages, though it falls short as a store of value compared to Bitcoin's decentralization.

Other top 10 coins like Stellar, Polkadot, Solana, Dogecoin, and XRP have valid reasons for their status. These projects offer strong outlooks for the next bull market, promising significant returns. However, they come with more risk due to their smaller size and lesser decentralization compared to Bitcoin.