Cryptocurrencies Extend Their 4th Waterfall Decline of 2018
The Cryptocurrency Sector is plumbing to new lows for 2018 as this is being Published. Total market capitalization is now $107 Billion, well below last week’s low. Less than a year ago, the sector peaked at $825 Billion (https://coinmarketcap.com/charts/). Since then, the Cryptocurrency Sector has lost 87%. SO FAR.
This Waterfall is brutal. The market is down 50% since November 14th ($210 Billion). Almost every single issue is trading at 52 week lows.
Despite the carnage, there are still 44 currencies worth $100 Million or more. Another 180 are worth between $10 Million and $100 Million (http://www.coinmarketcap.com). The rest, 90%, are worth less than $10 Million. They are longshots to survive.
Proponents frequently point to Bitcoin’s (BTC) limited supply of 21 million coins to establish its credentials as a currency. What’s missing in this justification are the “spinoffs” caused by “hard forks”. The original Bitcoin has now split into a dozen or so pieces. Three of the 8 largest cryptos are Bitcoin and its spinoffs.
Ethereum (ETH) and Litecoin (LTC) also have at least two renegade factions.
If any Cryptocurrency can splinter infinitely, the limited supply claim becomes absurd. There is NO demand for 12 different pieces of Bitcoin. In addition, the Cryptocurrency population continues to grow with new competitors. While it is believed that at least 1000 either have or will fail, this still leaves too many.
It is entirely possible that virtually all Cryptocurrencies will fail.
Cryptocurrencies Still Lack Source of Tangible Value
There once were dozens of Cryptocurrencies with multi-billion dollar market caps. Now there are 9.
The top 3 currencies account for 76% of the entire Sector’s market capitalization.
Cryptocurrencies have a tendency historically to be highly correlated with each other. During the summer, not only did the Sector exhibit vastly diminished volatility, but MUCH less correlation. Ripple (XRP) surpassed Ethereum (ETH) as number 2. It is now worth 30% more.
Ripple is the only Cryptocurrency to NOT make new lows recently. The Slideshow below shows the Sector and the top five currencies in terms of market capitalization. The charts are UGLY. We are witnessing a relentless liquidation, absent of any indications it will not continue to play out.
XRP has “outperformed” its peers because of some recent positive developments. However, it is unclear as to how holders of XRP will benefit. Ripple Labs, the parent and issuer of XRP, would be the likely beneficiary. For more background: “Ripple’s Triple Gives New Hope To Cryptocurrency Investors” (https://markonomics101.com/2018/09/24/ripples-triple-gives-new-hope-to-cryptocurrency-investors/).
XRP got more good news yesterday (https://www.ccn.com/ripple-r3-cordas-new-settlement-layer-now-supports-xrp/), yet there has been no discernible impact on XRP.
Investing in Cryptocurrency Companies
While the currencies themselves may proves worthless, the broader Cryptocurrency Sector may not. Blockchain technology, first introduced by Bitcoin, is believed to be revolutionary by its proponents. This too, is unclear.
“Blockchain” is an open, transparent and cumulative transaction ledger. According to Forbes, a “Who’s Who” of top companies are exploring incorporating this technology (https://www.forbes.com/sites/michaeldelcastillo/2018/07/03/big-blockchain-the-50-largest-public-companies-exploring-blockchain/#114f97902b5b). Apparently, it is having little impact so far. Many of the names on Forbes’ list are collapsing.
Blockchain technology, like Bitcoin itself, is not owned in a corporate structure with shares and earnings.
Alternatives to Owning Cryptocurrencies
The most reasonable means of benefitting from Ripple’s success would be to own a piece of Ripple Labs. Until it goes public, only the small group of current stockholders stand to benefit.
Some Cryptocurrency plays, according to Motley Fool, include semiconductor companies NVIDIA and AMD. Both make the very high speed chips used by “miners” who process transactions (https://www.fool.com/investing/2018/04/23/the-4-top-cryptocurrency-mining-stocks.aspx). Neither of these companies, however, has a large portion of business related to this sector.
Another list of 5 “low risk” Bitcoin plays is presented here: (https://investorplace.com/2018/04/bitcoin-stocks-to-buy-for-cryptocurrency-profits/). Two of these, Bitcoin Investment Trust (GBTC) and Overstock.com (OSTK), bear further scrutiny.
Bitcoin Investment Trust (GBTC)
Grayscale’s Bitcoin Investment Trust is the largest single holder of BTC with 203,000 coins. It’s market capitalization is roughly $850 Million or about $4,100 per coin (https://cointelegraph.com/news/lone-bitcoin-investment-trust-below-1-bln-for-first-time-in-2018).
One advantage of this trust is that it resembles an ETF and is less risky than buying or selling on an exchange. Plus, the investor is not subject to theft and scams, which continues to diminish attractiveness (https://www.ccn.com/bitcoin-scams-swindle-singapore-investors-for-78000-in-3-months/).
GBTC, however, is hardly a “low risk” way to play Bitcoin. The trust has lost 90% of its value this year.
Overstock.com is A Pure Play With Plenty of Risk
Overstock (OSTK) is the largest enterprise that accepts Bitcoin, but it won’t be for long. OSTK has announced plans to sell its unprofitable retail operations in favor of focusing on its own Cryptocurrency: “Cryptocurrency Casualties Keep Piling Up” (https://markonomics101.com/2018/11/26/cryptocurrency-casualties-keep-piling-up/).
OSTK has already spent $175 Million to develop tZero, including $39 Million in the first three quarters of 2018.
This venture, like any other, may be a complete failure. However, if it succeeds, shareholders will derive the benefit, because OSTK is publicly traded.
Caveat emptor: OSTK has lost 75% of its value this year!
Investors Will Be Well Served To Wait Things Out
There still remain very few REAL opportunities for investors, despite the hype. As it stands, this entire sector is more theatre than reality. The vast majority of players have no idea they hold nothing of value.
The environment remains heavy with risk and light with return.
“Be Informed, Not Misled!”