Tipping Point (Part 1): Cryptocurrencies Continue 2018 Collapse
It is becoming more and more apparent Cryptocurrencies are no where near poised for the “World Domination” or even the “Revolution” that their proponents continue to forecast. They remain very poorly understood, but are far less complicated than they may appear to be. Beginning December, 2017, we have attempted to simplify this topic. That really nothing has dramatically changed since this was written, speaks volumes: (https://markonomics101.com/2017/12/21/bitcoin-or-bustcoin/). The “fatal flaws” identified, have not changed. Nor has any rival successfully come forward as a real challenger to Bitcoin despite the parabolic leaps in crypto technology. In addition, barriers to entry are still low and new entrants continue to flood the market.
Bitcoin, with all its flaws, today STILL makes up nearly 50% of the total market capitalization of all Cryptocurrencies combined according to https://bitscreener.com/, a website which monitors crypto prices in real time. That, in and of itself, is highly indicative and not promising for this sector. Not all that long ago, in January of 2018, Cryptocurrencies reached an astonishing $825 Billion in Market Capitalization with Bitcoin reaching roughly $300 Billion or about 35% of the market. One would expect that new comers with superior technology would vie for dominance in this sector, but the most likely rivals: Ethereum (ETH), Litecoin (LTC), and Ripple (XRP) have LOST GROUND on a market basis to Bitcoin. By now, one company or another ought to have emerged as the clear runner up, yet not one of the 1800 or so Cryptocurrencies appears to pose any significant threat to Bitcoin’s position. Nor, for that matter, does Bitcoin pose any threat to the banking system, credit cards, or the dollar.
The “opportunity cost” of holding any amount of Cryptocurrencies will go up as interest rates go up. Holding a pricey asset with no cash flow or return gets harder to do when other assets, like Bonds, start paying more. All of the pre-conditions for a substantial upward movement in interest rates are present: https://markonomics101.com/2018/07/15/inflection-point-part-2-financial-assets-give-way-to-hard-assets/.
The Cryptocurrency Sector appears to have entered yet another Waterfall Decline period as it broke below support at $250 Billion on August 7th, 2018 and has accelerated ever since into a 20% decline over the last 7 days. A “Waterfall” Decline being defined as a multi-day or multi-week period of rapid market loss but not as compressed, violent, or sudden as a “Crash”. According to https://coinmarketcap.com/charts/, the total capitalization of the 1800 plus individual cryptocurrencies they follow is now just above $210 Billion, marking a new low for 2018 and suggesting that another severe decline has begun.
Recently, in order to better describe and try to bring some clarity to this market, we compared Cryptocurrencies to Commodities, Collectibles, and even Bus Tokens: ( https://markonomics101.com/2018/07/17/inflection-point-part-3-the-ultimate-cryptocurrency-surprise/) and ( https://markonomics101.com/2018/08/04/inflection-point-part-4-cryptocurrencies-commodities-or-collectibles/). These articles help to define a more accurate description of what a Cryptocurrency is, at its core. Ultimately, cryptocurrency “assets” look more and more destined for nothing but “novelty” status as far as an “investment” goes. That leaves a great deal of money yet to be lost.
Bitcoin is fighting to hold at $6000 but as recently as January, 2017 was trading at a mere $1,000. Concurrently, the Total Market Capitalization of the Cryptocurrency Sector was an insignificant $20 Billion. These much lower levels may be reached again before the Cryptocurrency Collapse of 2018 finally ends.
As far as this particular Waterfall Decline goes, recent history suggests that a fairly rapid decline of 30 days or so will produce a peak to trough loss of between 50% to 75%. If we take the recent peak of $300 Billion on July 25th as our guide, we would expect the next bottom to be in range of $75 Billion (75% Loss of $300 Billion) to $150 Billion (50% Loss of $300 Billion). Historically, these declines have ended quickly, once it become “obvious”, they’re over. Mr. Market NEVER makes it easy.
One thing to keep an eye on is the damage passed on to other sectors of the system. As investors get beaten in one area, they typically act to reduce risk and leverage in other areas. A crisis in one sector can precipitate a crisis in another. As the losses in the cryptocurrency arena continue to mount, we should start to see some “bodies float to the surface”. Currently, with the market having lost 75% of its value from peak to trough this year, it is surprising that there have been no reported bankruptcies or other calamities resulting from some individual’s or some firm’s leveraged play in the wrong direction. This level of market damage normally has many casualties, yet we have heard very little. The collateral damage is out there, but still unreported. To believe that the carnage in the Cryptocurrency sector is isolated is completely unrealistic.