What's Happening Meow: Crypto Bubble Bursts
Today on What's Happening Meow we are going to discuss the bursting of the recent cryptocurrency bubble. This may not be a popular topic for some people who just started investing in Bitcoin, Ethereum, Ripple and other popular blockchains because they have probably lost money. Let's get this straight, no one who is down 50 percent or more on their investment should be happy, especially if they invested more than they can afford.
The total coin market capitalization today is 266 billion according to https://coinmarketcap.com this is about a third of what it was in early January. Most cryptocurrencies are down about two-thirds from their recent highs. This is a crash by any definition. The bubble of late November to early January has evaporated. We are now we're we were over 4 months ago.
In the land of cryptocurrencies and unregulated markets this is not uncommon. It has happened before with Bitcoin as it often happens with highly speculative assets. Recently @dpl brought a conspiracy theory article by super.crypto to my attention and asked me what I thought of it. The article is quite long and basically says hidden powers have taken over cryptocurrencies and are manipulating them to steal our money. I disagree and think the market just got ahead of itself, but who doesn't like a good story? Tales of cartels, powerful secret societies and the supernatural make some investors feel better about poor decisions they made because they have a scapegoat for their problems. "I didn't make an uninformed investment decision, a cartel was manipulating the price."
So what actually happened? A year ago I had the chance to talk to someone who knows more about Ethereum and cryptocurrencies than most people, we could call him an insider or a whale. He though 40 dollars was a pretty good price at the time for Ethereum and when it hit the 300s, he thought it had gotten ahead of itself. Bitcoin above 4000 in 2017 was also ridiculous in his opinion. The point is, the coins weren't ready for mass adoption, real world applications were limited and at the time cryptocurrencies were rarely mentioned in the mainstream media. This doesn't mean that he thought they would never go to those levels, just that it was too soon and brought negative attention to a developing technology.
I think that many cryptocurrencies are now back around healthy levels, given the progression of the technology. I think some of the coins will go above and beyond their recent highs, but it will likely take a couple years for them to do so. Way too many new coins were created and some were worth billions without a working product-an eerie reminiscence of the Dotcom Bubble of 2001.
The coins went up drastically because people got excited. Bitcoin was all over the media and ERC20 coins were promising great things. Ripple was signing partnerships with well known firms and Binance made buying altcoins easy. People wanted to get rich and there were plenty of coins available to buy. I was reading silly stories predicting trillion dollar coins by June, people blindly buying into obvious scams and the end of fiat currency. The truth is, most people I knew had no idea what cryptocurrencies actually we're, had no idea how to buy them and wouldn't buy them even if they could. Only a few people wanted to beat everyone else to adopt the technology and get rich, some may invested more than they should have.
Now here's the problem. Coins are only worth what the next person is willing to pay for them. The blockchains are never worth what www.coinmarketcap.com says, that just multiplies the last price of a coin by the total amount outstanding. No one in their right mind would buy an entire blockchain for that amount, nor could they as some coins are lost or forever HODLed (held). The blockchains aren't earning anything yet and some of them don't even have a working product, there are no sales, revenues or anything that could make a decent case for using fundamental analysis. Many don't have patents, or even much of a case for growing demand, basically the prices don't make sense. Some people try to guess prices with technical analysis but that's complete nonsense. (I promise to elaborate in a blog soon about why I think technical analysis on blockchain is about as useful as praying for price movements) right now the prices are pure speculation on future utility and demand. We have seen this with many stocks on the NASDAQ before. Amazon is going for about 200 times earnings, Tesla is also highly valued while losing millions everyday. People assign asinine values to all sorts of companies and blockchains alike ignoring the fundamentals basically because they hope. Apple has more cash on hand than the value of every single cryptocurrency combined!
The bubble burst because of a few reasons:
Some sense came into the market. Early adapters and traders realized the price is no longer going up quickly so they should sell, lock in gains and purchase more later.
Taxes. People are facing huge tax bills from 2017 gains and have to liquidate to pay up.
Fear. Most people aren't really losing money because they aren't selling. But some have been scared. They are afraid of losing more, or they bought terrible coins and are finally realizing it and panicking. Refer to https://www.reddit.com/r/CryptoCurrency/ for examples.
Eitherway no one should have bought an asset like a cryptocurrency with a time horizon of less than 5 years. So the only rational sellers are paying taxes, have owned cryptos for years, or have scammed people and are making a break for it.
The future:
Criminals will get punished and regulation will come. The technology will develop, use cases and adoption will grow. Bad coins will disappear, blockchain technology will be adopted by many large companies, and good coins will rise in value. I have hope as blockchains and decentralization ledgers are the future.
The recent Facebook scandals prove Steemit is a better platform for sharing things. You own your info, not some billionaire. Financial institutions are adopting the technology to move money, governments are legalizing exchanges and looking at adopting national cryptocurrencies. Blockchains will be used to store information providing fair, fast and secure access to it. There are many use cases for the technology and a few blockchains will be immensely valuable in the future. I look forward to discussing more of the better coins in my Ninelives series going forward.
Thank you for taking the time to read my opinion on the recent cryptocurrency bubble. If you think I am wrong or wish to comment, please do, dialogue and comments are appreciated.
This is not intended to be financial advice. I do not recommend buying, selling or using cryptocurrencies. You can lose 100% of your investment. Please do your own research.
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