The Next Phase of the Cryptocurrncy Bull Market Is Beginning

in cryptocurrency •  25 days ago

GGnG Banner Small.png

Bitcoin is back above $7000 as I write this after an enormous bout of volatility surrounding the failure to implement a protocol upgrade known as “Segwit 2x.” Segwit 2x was designed to improve Bitcoin’s functioning in real world applications.

There was a classic pump and dump over the next 48 hours that saw Bitcoin spike to nearly $8000 and then collapse to $5500. But, as things have shaken out, we’re seeing that those who predicted Bitcoin’s death spiral because of a lack of ‘scaling’ solution, were wrong.

In my last article on Seeking Alpha from a couple of weeks ago, I talked about the ‘thinness’ of Bitcoin’s initial move above $5000. But, now it’s different. Coins like Monero {XMR}, DASH and Zcash {ZEC} are at or near all-time highs. Litecoin has moved up from a low near $50 to $63 dollars. Bitcoin Cash {BCH} has quadrupled as the main beneficiary of the Segwit 2x chaos.

On the other hand, the Platform Assets have been a mixed bag. These are the cryptos that issue tokens based on smart-contract platforms that are not necessarily mined into existence.

Ethereum found support near $280 and is trading in the $320’s, still 20% off it’s all-time high. EOS, however, exploded off of a base near $0.51 and continues to rally past $1.50. NEO is still base-building between $25 and $30. STEEM has collapsed below $0.90.

Segmentation and Maturation

What this means is that the market is segmenting. No longer is money rushing willy-nilly into everything just because Bitcoin put on a 10% up move. We’re beginning to see maturation and the beginnings of price discrimination enter into the crypto-space.

This has been happening for the past couple of months, much to the consternation of some looking to get rich too quickly.

The market is looking to define where the best place to park capital. And, in my mind, the first thing that has to be determined is how much of that capital needs to be placed into reserve assets versus circulating cash.

And I define those two things as different market segments.

I discussed this in an earlier blog post that goes into some detail on this and why the push for transaction density for Bitcoin is not all that desirable.

This is not to say that I’m not a fan of Segwit. I am. But, am I a fan of Segwit on Bitcoin? I don’t know. In the world of cryptocurrencies I want a reserve asset that sits at the bottom of Exter’s Monetary Pyramid that can be 1) incorruptible and 2) a standard against which all other monetary-like assets, including utility tokens like Ethereum, can be measured.

In short, I want a to see a true analogue to gold to emerge. And Bitcoin has those qualities. Compared to its competition like Litecoin or Bitcoin Cash, Bitcoin is slow, expensive and, at times, annoying to use.

For simply moving money around there are at least half a dozen solutions out there that are better than Bitcoin as a medium of exchange.

Just like there are at least half a dozen central-bank issued currencies that are far superior than gold is.

But, that’s the point. And for the crypto-space to mature into a functional market it needs one or two assets to become the foundational asset on which the crypto-monetary system can be built.

The Colors of Money

Money has three important properties. They are:

  1. Medium of Exchange
  2. Unit of Account
  3. Store of Wealth

Gold still functions beautifully as the last two. You can use it to compare the value of assets (Unit of Account) and keep your books in it. As well it holds its value versus fiat currencies to give you an accurate assessment of your wealth through time (Store of Wealth).

It is, however, a miserable thing to transact in the moment (Medium of Exchange).

Bitcoin is rapidly beginning to look like gold in usage cases. But, more importantly, Bitcoin looks like gold because it has the oldest and most secure blockchain backing it. In this analogy the age of Bitcoin’s blockchain is similar to the thousands of years of recorded history where gold functioned not only as a store of wealth but also a real medium of exchange.

To build a functional monetary system a new version of John Exter’s pyramid will have to be built. And, if you look at the crypto-space that is exactly what is happening. Litecoin was originally built to be a slightly better Bitcoin.

But, it couldn’t compete. As Bitcoin made new highs and Litecoin languished, Litecoin’s developers pushed for short settlement times with an off-chain payment layer, in this case the Lightning Network. Now, Litecoin is relatively cheap to use and payment confirmation is quick.

But it also now serves only one purpose, a medium of exchange, because it did sacrifice something to gain this functionality.

Other ‘alt-coins’ have stressed privacy (Monero, Zcash) or integrating fiat gateways and the like to add to their USP – Unique Selling Proposition – and gain market share

And this is why I say that those who pushed higher transaction density and lower transaction fees are missing the point of what Bitcoin should be. It doesn’t need to be the biggest cryptocurrency with the most users. It needs to be the best, most secure blockchain with a huge amount of hashing power powering it’s security with the most history. It needs to be this so that it can be the best interface as a unit of account versus the currencies of the real world, the U.S. dollar or the Euro for example.

Without those attributes, there will be a limit of as to how much capital will migrate away from the current security and comfort of today’s government-issued currency system.

Where Losing is Winning

Now that the dust has settled on the failed push to redefine Bitcoin’s future, investors need to be aware of a number of things concerning Bitcoin and its newly-fragmented market.

First, Bitcoin in the long run will likely lose market share as a percentage of the total crypto-asset market cap. As the real world and the crypto-world build more links between each other, the more attributes like short transaction time and low fees will dominate people’s daily behavior. All of the ‘Alt-Coins’ I’ve labeled above have bright futures in terms of market-cap percentage, where today they haven’t increased market-share at all.

Second, money will flow more freely into the crypto-space via Bitcoin before dispersing into various alt-coins and utility tokens as more people get on board. Why? Because the uncertainty of Bitcoin’s future is in the past. Uncertainty retards investment.

Now that Bitcoin has defined itself as the crypto-world’s reserve asset, capital can be deployed in a much more rational manner.

Third, because of these things, Bitcoin may lose market share but gain market cap because this evolution will continue to attract capital. Over time the market will decide how much of a true free-market economy should hold as its reserves a pool of real savings versus at-risk liquid capital.

We don’t have this now in the ‘real world’ because central banks distort risk assessment through the manipulation of interest rates, the cost of money. They do this to minimize the amount of savings to promote money velocity versus wealth creation.

Fourth, a lot of projects will fail. When making decisions into the space, use the pyramid above to figure out where the project you’re looking at fits. The higher up the pyramid the more likely it will fail as the project may be misaligned with the market’s priorities.

So, in the end, what I’m saying is that right now the crypto-space is the opposite of Exter’s pyramid. Most of the wealth is stored in Bitcoin, the reserve asset. And very little, if any, of it is bound up in top-level derivative assets like options, futures, and the like.

Earlier in the year this pyramid would have been mostly black. This is what I mean by the market segmenting and the maturing. It’s just beginning to see the potential for its own growth as a completely different type of monetary system.

I believe that’s what the Bitcoin Core group was fighting against in their opposition to Segwit 2x. Whether they saw it in these terms I don’t know. But, as an Austrian economist I am going to be fascinated to watch how a digital version of the new economy evolves in an environment where property rights and consumer sovereignty are maintained versus sacrificed on the altar of liquidity.

Bitcoin will implement larger block sizes in the future. But it will do so at a much slower rate than many think it should.

For now, Bitcoin looks like it has survived its initial hostile takeover attempt, in my opinion, and the unintended effect is it just may have kicked off the next wave in its own bull market.

For more commentary like this, trade ideas and a model investment portfolio please join my Patreon where you can get all of that for just $12/month.

Authors get paid when people like you upvote their post.
If you enjoyed what you read here, create your account today and start earning FREE STEEM!
Sort Order:  trending

here i'm just waiting that bitcoin going flat.. but seems it wont happen :(

·

Nice post! What will happening, if someone resteem your post?

·
·

You just comment the first post for your visibility?

·
·
·

May be, we need some support!

·
·
·
·

stop spamming!

Really great write up. I've been thinking for the past few days how much Bitcoin Cash seems similar, from a technical perspective, to the original Satoshi vision (increase blocksizes as needed to keep the mempool free, "digital cash" for quick/cheap transactions, security built into each block, not pushed off to some other layer, etc). I try to avoid all the personality drama involved and just focus on the technical realities and what miners are choosing with their hashing power. That said, your write brings another interesting perspective in terms of needing a "world reserve cryptocurrency" of sorts where people can price every other asset against. I wonder, is this just a temporary phase as people figure out the new paradigm of money as language? What if we don't need a pyramid structure but evolve to a free-flowing dynamic system like language? But I guess even in language we need base concepts like nouns, verbs, adjectives and adverbs.

The comparison you make to litecoin is a good one. Just as some may argue Bitcoin Cash is closer to the original digital cash vision, the same might be said for litecoin. I've always thought of litecoin as a silly copycat, but maybe that was short-sighted.

Again, great write up. Thank you.

·

Luke,

Thanks for the comment.. and FWIW I agree with you that we may not need an Exter's Pyramid in Cryptos in the future... but, for now, we've been trained to view money this way and the infrastructure and inertia of perspective will likely create one in this cycle.

Now, the next cycle? who knows? Unfortunately, I don't think I'll be around to see that....

I think Bitcoin Gold has a real chance to become a complement to Bitcoin if the devs are honest about their intentions because it is a real fork of the original mempool. It's my dark horse because of all the things this article uncovered while writing it.

·
·

Interesting. Maybe I'll have to look into that more, but from what little I saw, Bitcoin Gold seemed like a not-well-organized initiative.

·
·
·

I'm only speaking in terms of its similarity of attributes to Bitcoin itself. As for those behind it... well, that's something, as you say, to keep an eye on.

Love your write up @GoldGoatsnGuns! Coming from a PM background I also think Bitcoin is quickly becoming the Gold of Crypto. The momentum will continue for a while in my opinion until the rise tapers off and then the altcoins will enjoy a period of profits. Resteemed

Yeah my friend you really explain it very well the moment of Bitcoin and the market and it seems like that till now Bitcoin hack gain a much more attention from the investors but still there are the other phase where other Crypto currency such as ether riple and many others which have a great concept and reason I still not gain their potential. And yes I also do believe that it now Bitcoin is seems to be very expensive and their maybe chances of the Other coins to rise from their level and going to a new high. My friend your post is really helpful to understand the market moment and the variations that Hurt occurred in it.

·

I'm happy to help. * bow *

·
·

Your welcome sir for your great response

THANKS for this wise write-up.
It clarified a few things for me; explanation of the importance of #BITCOIN as a Unit of account was helpful, indeed.

Gave a better awareness to me.


It's Cool that You're a goat farmer ! My brother-inlaw is a farmer, too, so I am exposed to some of the 'goings ons' ♦♦ I always ENJOY going to the farm - it's relaxing to go out in the country !

·

In fact, I'm dealing with a very randy buck right now who just realized he can leap a 4' fence. Half Nubian/Half Myotonic... looks like a Spanish Meat Buck... thankfully he's also tame as a dog.

Interesting view, well written also. Could you elaborate on this Patreon thing? Looks like a cool future Steem app :-)

·

Patreon is how I'm building my exclusive content for subscribers... I love Steem and all that it implies but it's not ready to pay my bills .... yet. I think the two things complement each other nicely. If you have questions about the service you can email me directly tom.luongo at outlook dot com.

·
·

I clicked on follow as you sound wise and i love Austrians :-) I would love to see 1 other crypto tip post on Steemit, might join on Patreon but not based on 1 post, much love.

·
·
·

I have posted a lot of crypto articles on Steemit. I cross-post all my blog posts here... you can read them at https://tomluongo.me/category/crypto/

thank you for the interest.

Rivetting topic, well considered.
Have you seen PraxGirl on youtube? Brilliant Praxeology primer presented by a lovely brunette :)

·

No I haven't... I better not, lovely brunettes are my weakness and lovely brunettes spouting praxeology are NSFW material. :)

Great article, a sigh of relief and clarity in these tumultuous times.

True, fees are too high right now to be a good medium of exchange, anyways, if you think that in order to send 100 bucks in china you need to pay way more and takes several days it is still ahead of the banking system...LN network, atomic swaps with LTC e VTC (which are amazing mediums of exchange) will come and we will soon deal with satoshis instead of bitcoins, but for now it is considered as the digital gold.

You have received an upvote from STAX. Thanks for being a member of the #steemsilvergold community and opting in (if you wish to be removed please follow the link). Please continue to support each other in this great community. To learn more about the #steemsilvergold community and STAX, check this out.

10 years down the line !!! Cryto holders will be billionaires !!!

Yup, very well said in this post!! This is on fire!!