Has the Cryptocurrency Storm Blown Over?
Since late 2017, this publication, not known for holding punches, has taken a very negative view of the Cryptocurrency Sector. Some of our missives and our consistency can be accessed here: (https://markonomics101.com/category/crypto-corner/). More recently, we’ve compared Cryptocurrencies to Bus Tokens and even Beanie Babies (https://markonomics101.com/2018/08/04/inflection-point-part-4-cryptocurrencies-commodities-or-collectibles/).
The year 2018 is one that just about anyone involved in Cryptocurrencies would prefer to forget. Most currencies peaked between December 19, 2017 and January 6th, 2018. Website Coin Market Cap https://coinmarketcap.com/, which tracks nearly 2000 currency issuers in real time, places the current Total Market Capitalization for the entire Sector at slightly less than $250 Billion. The peak to trough loss has been greater than 75%! This summer, Cryptocurrencies have traded generally close to their lows, albeit with substantially less volatility.
After years of predicting that Cryptocurrencies would revolutionize our financial system, disrupting banks, and threatening the Federal Reserve, the proponents remain mostly silent. Bitcoin (BTC), which now accounts for more than 50% of the entire market, has yet to show any commercial usefulness at all, since most merchants see no benefit in accepting them. Rather than be transformed, the financial system is very much like it was a year ago and the year before, when dollars and credit cards were all we needed to exist day to day.
Bitcoin’s “flaws” and risks remain but are better understood. Our treatise on Bitcoin, called “Bitcoin or Bustcoin” (https://markonomics101.com/2017/12/21/bitcoin-or-bustcoin/) is no less relevant today than it was one year ago. Even more concerning is that NOT ONE cryptocurrency, Ethereum, Litecoin, or Ripple have been able to mount any challenge to Bitcoin’s dominance. Not one shred of market evidence suggests that Cryptocurrencies are anything more than expensive Bus Tokens with an absurdly high price and valuation.
By now, we should have seen some significant integration of BTC and other Cryptos into mainstream society. We don’t. Sure, the anonymity is great for drug dealers and weapons merchants, but that seems to be their only use.
Presented above are the charts for: Bitcoin, the Total Market Capitalization of the Cryptocurrency Sector, and the Total Market Capitalization of the Cryptocurrency Sector – excluding Bitcoin (which represents more than half the Sector’s value). The Bitcoin chart MAY be exhibiting a type of “Rounded Bottom” which would suggest that a decent rally could be in the offing. Counter-acting this is: 1) the abysmal performance of the non-Bitcoin Cryptocurrency Sector, which hovers near its recent lows, 2) the fact this portion of the sector has turned Bearish having gone below a Major Resistance level, and 3) the historic degree of correlation between Bitcoin and Ethereum (ETH), Ripple (XRP), Litecoin (LTC) and other LARGE Capitalization Cryptocurrencies, as outlined here: (https://markonomics101.com/2018/08/04/inflection-point-part-4-cryptocurrencies-commodities-or-collectibles/).
The failure of the larger capitalization “Great Digital Hopes” Litecoin (LTC), Ethereum (ETH), Ripple (XRP), or Bitcoin Cash (BCH) to gain any ground on Bitcoin (BTC) itself does not augur well. They have not, and it would be safe to speculate that they WILL not become any sort of challenger. While Bitcoin may be showing some signs of life by halting its decline to lower levels, its key rivals are still for the most part, barely above their 2018 lows.
Most disappointing to Cryptocurrency bulls is just HOW LITTLE any have lived up to their hype. Their usefulness as “currencies” remains non-existent, while their high mortality rates continue unabated.
The constructive trading action in Bitcoin is encouraging but hardly a setup for another HUGE “sector” rally. Even a bursting bubble does not go straight down. The post 2000 Bubble in the Nasdaq (wiping out 85%) was interrupted by a 50% gain. The largest BULL MARKET in stock history occurred off the post-1929 Crash. Cryptocurrencies experienced a near 100% gain in mid-2018 in the midst of losing nearly 80%.
In fact, more money is typically lost AFTER a crash event than during the CRASH itself. Cheap, by itself, doesn’t mean BUY, any more than, overvalued equities mean SELL.