Cryptocurrency Deja Vu?
It is said history doesn’t repeat, but it does rhyme. Cryptocurrencies are proving to be an exception. Are we seeing DOUBLE?
The two charts to the left compare the BUBBLE in late 2013 to the LARGER BUBBLE in late 2017. (https://coinmarketcap.com/charts/). These charts are EERILY similar. Is History actually Repeating? Is it possible Cryptocurrencies will experience YET ANOTHER speculative cycle?
Then Versus Now
Both the 2013 and 2017 Bubbles were fueled by HOPE and HYPE. In 2013, there was a great deal of HOPE and not too much HYPE. But, during the 2017 Bubble and speculative craze, both were abundant.
In 2013, the Cryptocurrency Sector was still in its infancy. Ethereum (ETH), Ripple (XRP) and Bitcoin Cash (BCH) did not exist. The only major altcoin traded was Litecoin (LTC).
It too, experienced a repeat of history. (See Below). We have frequently noted the high correlation among Cryptocurrencies. This seems to have been a trait of the Sector during the first Bubble, also. “Inflection Point (Part 4): Cryptocurrencies: Commodities or Collectibles?” (https://markonomics101.com/2018/08/04/inflection-point-part-4-cryptocurrencies-commodities-or-collectibles/).
A key difference today, of course, is that the promise to revolutionize the financial services business has JUST NOT HAPPENED. More importantly, it is far less likely IT WILL EVER HAPPEN.
Both of Litecoin’s Bubbles are shown for scale in the chart to the left. At this point, holders lost nearly 95%, in both bubbles, from their all time highs. The promise of an EVEN BIGGER BUBBLE in the next few years may keep hard care fans hanging on.
Cryptocurrency proponents cite very encouraging trends in use. One study, by Cambridge Centre for Alternative Finance, found that Cryptocurrency use had doubled in 2018 versus the year earlier. Their study estimated the number of users in the US at 35 million, or roughly 11% of the population. (https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/).
Another study has shown that usage of Cryptocurrencies to transfer money internationally has surged to a share of 15.8%, taking from PayPal and Western Union. (https://www.ccn.com/exploding-cryptocurrency-use-in-remittances-from-us-15-8-now-using-cryptocurrency).
And, more importantly, capital is still slowly finding its way to the sector. Van Eck, a significant ETF and mutual fund sponsor, has submitted plans for a Bitcoin ETF to the SEC. A Bitcoin ETF has been proposed for some time, and it would seem that such a security is inevitable. If true, the entire sector would get a HUGE injection of liquidity along with a much needed vote of confidence. (https://www.coindesk.com/cboe-re-files-vaneck-solidx-bitcoin-etf-proposal).
Recently, billionaire Cryptocurrency investor Mike Novogratz and Galaxy Digital announced they are in the process of securing $250 million in venture capital funding. Should this be successful, the benefit to the entire sector would be large.
The Nasdaq and Fidelity mutual funds recently invested $27.5 Million in ErisX, a regulated, US-based Cryptocurrency exchange.
The population of currencies continues to grow. According to Bit Screener (https://www.bitscreener.com), the number of Cryptocurrencies is now 2852. If that’s correct, the number of currencies would be nearly double the 1600 that existed a year ago.
The exact number is some dispute, however. Coin Market Cap list the population at 2103. (https://www.coinmarketcap.com). Either way, as long as the interest in innovation continues, the Sector ought to remain quite viable.
Therefore, despite the carnage in the Sector, rumors as to the “DEATH” of Cryptocurrencies remain PREMATURE.
The Same Problems Remain and New Ones Arise
Cryptocurrencies have been plagued by a variety of problems preventing wider use. A key problem has been loss due to outright theft or fraud.
Now comes another reason. Canada’s largest exchange, QuadrigaCX, has LOST $190 million worth of Cryptos. Was the exchanged hacked, as has virtually EVERY OTHER EXCHANGE? No, the only person with the password DIED without any other person having it as a backup.
QuadrigaCX founder and CEO Gerald Cotton was SOLELY responsible for the access of coins held in “cold storage”. Ironically, this type of custody is designed to prevent hackers, but led to the total loss of the coins. Cotton died without providing for any continuity. The storage is so secure, no IT expert has been able to access the coins. (https://www.ccn.com/190m-gone-how-canada-biggest-bitcoin-exchange-lost-it).
The constant loss of coins, for numerous reasons, prevents widespread public trust and faith in Cryptocurrencies. In the case of Bitcoin, it is estimated that more 25% of the ENTIRE ISSUE is gone permanently.
The Value Issue Just Won’t Go Away
Cryptocurrency enthusiasts often throw out HUGE numbers which they believe represent “value”. The rest of us look to things like cash flows or assets or utility to endow something with a value.
Bitcoin has NO claim on any ASSETS or CASH FLOWS. Ownership of the coin DOES NOT entitle the holder to anything BEYOND the coin. Holder’s do not have a claim on Blockchain technology nor any other potential game changing technology.
Wall Street’s lone Bitcoin Bull, Thomas Lee of Stratford Advisers, still forecasts a $25,000 price level eventually. Lee has mostly given up predicting BTC target prices, but believes “fair value” is currently between $13,800 and $14,800. What’s noticeably missing is exactly HOW this value was determined. (https://www.ccn.com/resilient-bitcoin-price-will-rally-to-25000-eventually-tom-lee).
No Real Upside For Currency Holders
Whether Cryptocurrencies succeed or not, holders will have all the downside with virtually no upside. A perfect example is Ripple, currently the second largest currency in terms of market capitalization. Some background on the relationship of XRP’s parent, Ripple Labs and XRP was outlined here months ago: “Ripple’s Triple Gives New Hope To Cryptocurrency Investors”. (https://markonomics101.com/2018/09/24/ripples-triple-gives-new-hope-to-cryptocurrency-investors/).
The Corporate Parent to XRP, continues to do just fine selling XRP tokens. This does not HELP holders of XRP, nor provide a basis for value, other than as a service. There are absolutely NO investment value for XRP. (https://ripple.com/insights/q4-2018-xrp-markets-report/).
Cryptocurrencies may be repeating the BUBBLE cycle of 2013 or they may not. After the peak in 2013, Cryptocurrencies tread water for years before beginning their 2017 “Moon Shot”. In 2017, it was much easier to promote the “Pie In The Sky” Hype that sent prices vertically without value. Not anymore.
Nowhere is accurate information as important as Cryptocurrencies. “Investors” have been misled. Whether prices go up or down, the investment value of Cryptocurrencies will remain the same. ZERO!
Be Informed, Not Misled!