Next “Waterfall Decline” Coming for Cryptocurrencies?
While holding on to a surprising number of “believers” who have forecast prices up to $1 Million per coin within a few years, Bitcoin may be ready to take a turn for the worse. To its credit, it has a smaller loss than the cryptocurrency market by a 30% margin. On the other hand, the claims of “Financial World Domination” have quieted down a bit. Bitcoin continues to serve absolutely NO useful purpose, yet it commands a value north of $100 Billion despite a loss of 70% this year.
According to CoinMarketCap.com (https://coinmarketcap.com/charts/), the entire Cryptocurrency Sector is currently valued at $193 Billion, its low point for the year. Bitcoin (BTC) has sharply outperformed the entire market for months. The vaunted challengers of Ethereum (ETH), Litecoin (LTC), Ripple (XRP), and Bitcoin Cash (BCH) have returned to pre-boom levels of a year ago or less. The contention that they have any value whatsoever is just that, a contention.
(Notes: 1) The chart for Litecoin should say September 17th, 2018, not September 8th. 2) The chart for Total Market Capitalization of Cryptos should say $250 Billion, not $250 Million.)
The Cryptocurrency Sector continues, albeit at a slower rate to consistently bleed value. Bitcoin is now 55% of the entire market and its ability to remain above $6000 is critical. Breaking this level would send the entire Sector significantly lower.
A possible explanation for Bitcoin’s still somewhat “healthy” valuation is that it is being viewed as an “option” on the success of Cryptocurrencies. Think of it this way: Let’s say that BTC’s Value is $20,000, if the concept is “successful”. On the other hand, BTC’s value assuming the sector is a “bust”, is $1,000. For market assessed “odds” of 20% success, BTC would be worth (20% times $20,000 PLUS 80% times $1,000) $4,800. At 50/50, BTC is worth (50% times $20,000 PLUS 50% times $1,000) $10,500.
The market is also telling us that BTC has absolutely NO viable competitor. The Cryptocurrencies once thought to be formidable rivals, Ethereum (ETH), Ripple (XRP), Litecoin (LTC), and Bitcoin Cash (BCH) have lagged BTC badly in performance. According to Bitscreener (https://bitscreener.com/), for the last 6 months, Bitcoin has fallen 29%, Ethereum 64%, Ripple 60%, Bitcoin Cash 60%, and Litecoin 69%.
Bitcoin’s dominance of the value of Cryptocurrencies is BAD NEWS for the sector. If the SECTOR were healthy, we ought to be seeing “niche” players by now that had formed at least some barriers to entry. Nope. We see more and more contestants added, more and more fail, and the entire sector is persistently losing value.
Cryptocurrencies were claimed to be the antidote to paper currency. Their supply is fixed after all. Partly true, but materially false. If new currencies can be created, how can the supply be fixed on a system level? It can’t. BTC by itself is “limited” to 21 million coins but the number of currency issuers is exploding. Inflation in Cryptocurrency land? Of course!
It is unpleasant to have seen the carnage in this sector and the losses that lots of investors now have endured, rather than the huge gains they once had. Cryptocurrencies give the Nasdaq a potential road map, something no investor should ignore.
Our adage can never lead you wrong: “Take Your Money Off The Table, Before The Table Takes Your Money Off of You”.