When The Hype is Gone

Romain/ avril 26, 2020/ Finance/ 0 comments

2019 was clearly a crazy year for financial markets. Despite extreme bearish sentiment by the end of 2018, US stocks soared 30% – with the S&P 500 climbing far above 3000 points – and the CES started with tech companies trading at very high multiples. Party like it’s 1999, again?

Despite this risk-on atmosphere, some stocks have experienced a harder time. Of course, there was the catastrophic IPO failure of WeWork. But we can also mention the case of Canadian cannabis companies whose valuation crashed in 2019, after being previously pushed to record levels due to excessive expectations.

This second example is quite interesting since it is typical of a Gartner hype cycle. And it looks like the weed sector is heading towards a so-called ‘trough of disillusionment’. It might still be a promising investment thematic, but it will take more time and discipline before getting descent returns.

The Gartner hype cycle is a powerful behavioral tool to understand how investors value new technologies or businesses at different stages. While many IT stocks keep breaking all-time highs every day, there is another and more interesting field that is also stuck in a trough of disillusionment: blockchain technology.

2020, the year of stablecoins?

2019 was another tough year for distributed ledger technology, with still extreme volatility on the bitcoin market and governments willing to fight Facebook’s Libra project. But despite all those short-term challenges, I still believe that blockchain is the next big thing.

First, Byzantine fault tolerance means that it is the best technology to process a transaction and register assets, from monetary holdings to real-estate property. Therefore, the question is not ‘will the financial system be disrupted by blockchain technology?’ but ‘when?’.

Then, this technology is also very promising from a decentralized network perspective. Indeed, the protocol enables millions of independent units to communicate with each other and to reach a consensus without any central server. Thus, there might be applications in various fields, from IoT to research in artificial intelligence

That is a longer term story, so the market will not matter that much during the next twelve months. Given geopolitical risk, macro uncertainty and US elections ahead, the new year is poised to be another challenging one for investors. So, good luck everyone and all the best for 2020!

This article was originally published on LinkedIn January 7, 2020.

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