The cryptocurrency
community is no stranger to accusations of crypto being a bubble. As
far back as 2014, media pundits were referring to the bursting of the Bitcoin (BTC) bubble, with a Financial Times article
from September of that year even containing the ill-fated prediction,
"We’re going to stick our neck out at this stage and call this the end
of Bitcoin."
Well, Bitcoin certainly didn't end in 2014, but this
hasn't stopped other experts and commentators from throwing the word
“bubble” around with gleeful abandon in the half-decade since the
cryptocurrency's prematurely reported demise. However, while certain
mainstream observers simply regard the entire cryptocurrency market
as one giant balloon, other individuals have been offering more nuanced
claims recently, assertions that revolve around a distinction between
Bitcoin and the vast majority of altcoins.
More specifically, veteran trader and author Peter Brandt recently compared
the altcoin market to the dot-com bubble, claiming that Bitcoin's
recent strong rallies won't be replicated by other cryptocurrencies.
Similarly, ShapeShift CEO Erik Voorhees argued last year that Bitcoin and altcoins form two separate markets, while on July 1, crypto-Twitter personality Lil Bubble published
a parody music video that perfectly encapsulated the current plight of
altcoins, which have been slightly flagging behind Bitcoin as it
increases its market dominance to 62.2% (as of writing).
Related: The Burst of the Bitcoin Bubble: An Autopsy
But even if it is true that Bitcoin's price has increased by around 128% over the last three months (compared to “only” 81% for Ether),
there's no real indication or evidence that the majority of altcoins
will tumble to virtually nothing while the original cryptocurrency
remains strong. This is because, if you take the matter of market price
out of the equation, it still remains just as arguable that certain
altcoins have at least as much to offer in terms of functionality as
does the bitcoin.
Bitcoin vs. altcoins
But try telling
that to Peter Brandt. Not only did the author and founder of Factor LLC
compare altcoins with the dot-com bubble in a tweet
at the end of June, but in speaking with Cointelegraph, he doubled down
on his comparison, predicting that the vast majority of altcoins will
disappear in the not-too-distant future:
"I believe
that the advance in late 2017 and early 2018 in altcoins will prove to
be bubbles. I am of the firm belief that 95% of alt-coins will
eventually be worthless and that BTC will occupy 80% to 90% of the total
market cap of cryptocurrencies. No doubt several of the altcoins and
macro-cap coins will find utility in specialized niches. It remains to
be seen which coins these will be."
These are strong
views, but aside from the fact that Bitcoin has been rising in value
more quickly than its rivals, it finds support in a number of quarters.
For one, American broadcaster and Bitcoin cheerleader Max Keiser
recently predicted during a CNBC interview that altcoins won't enjoy the same kind of rally that BTC is currently witnessing, and that most will fall away:
"Look,
the dominance index is at 60% again, and it's going back to 80% or 90%.
Because that's the only logical place for anyone who wants to be in
crypto to be. But the short answer is, in my view, the altcoin
phenomenon is finished."
In fact, Keiser's views
don't stop there. He told Cointelegraph that there's a big gulf between
Bitcoin and other assets, particularly in terms of whether they've hit
their “true” market value. Keiser wrote via email:
"Bitcoin
is virtually the only financial asset ‘not’ in a bubble. Sovereign
bonds are in multi-hundred year bubbles. The USD and various fiat money
are in historic bubbles. Stock markets are in bubbles. Most property is
also in a bubble. Gold and gold mining stocks are undervalued and good
places to invest, but their upside is limited as compared to Bitcoin."
In his interview with CNBC,
Keiser offered some arguments to support his strong pro-Bitcoin view,
such as that the top cryptocurrency has been improving its scalability
with SegWit and the Lightning Network, and that it offers the most
secure chain by quite a large margin. On top of this, he told
Cointelegraph:
"Bitcoin’s hashrate, hitting new highs
of 70 quintillion hashes per second (10x the estimated grains of sand
on Earth), will continue to explode higher, taking BTC’s price
exponentially higher and no alt-coin can compete. Like seedlings
struggling under the canopy of a giant oak, they will wither and die."
However,
while other crypto traders would concur that Bitcoin is likely to
increase its market dominance in the coming months, they wouldn't go so
far as agreeing that altcoins are going to be wiped out. This is the
position taken by Josh Rager, a trader who told Cointelegraph that, even
with Bitcoin's current rise, there will remain other cryptocurrencies
that perform well as a result of offering value propositions not covered
by BTC:
"The Bitcoin dominance of the total market
share is at 65% and as long as this continues to move up than the rest
of the market will likely stay stagnant with price. As we see BTC
dominance drop, we'll know that the rest of the cryptocurrency market
will likely start to benefit with funds shifting towards altcoins with
strong fundamentals. Not to mention a lot of other crypto assets with
solid tech coming to the market starting in late 2019."
United
Kingdom-based trader and author Glen Goodman takes a similar view to
Rager, explaining to Cointelegraph that at least some altcoins boast
technological advantages over Bitcoin, something that makes their demise
unlikely:
"Bitcoin is probably the most rational
crypto asset to assign a high price to, because it currently has the
highest likelihood of future mass-adoption. Some other cryptos are
highly valued because their technological innovations show great
promise, and that's perfectly valid, but technology is worthless if no
one actually uses it, so all cryptos prices are based on the assumption
that one day people will adopt the tech or use the product. Bitcoin is
the only one most people have heard of, so it has a big head-start, but
that doesn't mean the others are all doomed by any means."
In
other words, there appears to be a loose consensus among traders that
Bitcoin is separating itself from the altcoin market, and that altcoins
in general may be overpriced. Nonetheless, even with this separation,
only the most hardened BTC champions believe that the altcoin market is
on the verge of withering away. Indeed, as trader and CryptoOracle
partner Lou Kerner told Cointelegraph:
"While most
altcoins are probably significantly overvalued, some, like Chainlink,
may emerge as very valuable entities. So it makes more sense to look at
these on a case by case basis then make generalizations."
Crypto as a whole
Speaking
of generalizations, it's worth considering the question of whether the
cryptocurrency market as a whole, including Bitcoin, is overpriced and
currently passing through a bubble period. Well, as with the previous
question, there is a consensus among traders that there is probably some
overpricing going on, although this doesn't necessarily imply a Bitcoin
or crypto bubble is taking place, as it looks as though the market is
moving on the basis of a genuine belief in future adoption and growth.
Glen Goodman, a former reporter for the BBC and ITV who quit his day job several years ago to become a full-time trader, told Cointelegraph:
"Crypto
markets are largely driven by speculation but that doesn't mean they're
currently in a 'bubble'. Classic speculative bubbles are characterised
by euphoria and the mass-involvement of ordinary people who believe they
will soon become rich. We saw that phenomenon in late 2017. […] I sold
my crypto holdings shortly after, and waited for the bubble to fully
deflate, which took about a year."
Now, Goodman
agrees that the market is still driven by speculation, but this is
speculation in the sense that people still don't know for sure how the
industry will develop, even if they're confident that crypto will sooner
or later gain a wider foothold within the global economy:
"The
market is still driven by speculation because it's difficult to assign
fundamental value to cryptos. They don't have profits and revenues like
stocks do, so it's very hard to decide how much they're truly worth. But
crucially, that does NOT mean they're worth nothing. They are priced
according to traders' personal assessments of their future prospects.
Amazon didn't make profits for many years, but its share price kept
rising anyway, because people expected great things in the future.
Likewise, if many people rationally believe Bitcoin will achieve
mass-adoption, then a high price is not unjustified."
Josh
Rager also holds that, overall, crypto isn't really in a bubble phase,
although he does admit that certain aspects of the cryptocurrency market
and industry have been bubble-like in recent months:
"The
cryptocurrency market as a whole isn't a 'bubble' but I do believe we
saw a bubble with ICOs and crypto assets not backed by solid
fundamentals. In 2017 all you had to do is put together a small team,
build a website and have a white paper to be considered a potentially
valuable company. But as we saw, the majority of these companies 'run
out of funds' by the end of 2018 and their assets were dumped on
exchanges."
Likewise, Rager asserts that the total
crypto market cap has remained generally resilient over the past year,
despite having fallen from its peak of around $485 billion. He also
argues that, even though the market cap — without taking Bitcoin into
account — is just $105 billion, it will start to slowly creep back up
once the price of BTC begins a sideways movement and more money will
flow into altcoins. More importantly, Rager believes that current market
prices are sustainable, and that likely developments and innovations
will gradually push it higher. According to Rager:
"The
psychology of 5-digit Bitcoin over $10,000 has already set in as we saw
sub-$10k prices were quickly bought up over this past week. Bitcoin and
crypto miners seem to be holding on to more Bitcoin because they're
profitable once again so there is a lack of selling pressure from miners
overall. Not to mention all the new instruments for Bitcoin and the
crypto market including BAKKT and institutions getting into the market
more. And even LedgerX was recently approved to offer physically settled
Bitcoin Futures to retail investors."
As Rager
concludes, "All these signs show me that the market is maturing and
we're not in any type of mania." Other traders agree that things have
changed decisively since 2017, as Scott Melker — a trader at Texas West
Capital — noted to Cointelegraph that recent advances have come from
more sustainable sources:
“I know it's cliché to say
that ‘this time is different,’ but the evidence seems to support this
belief. The recent increase has been fueled by institutional investors —
retail has only started to pay attention in the past week, when the
price advanced to nearly $14,000. During the last bull run, average
people were already interested long before the price reached $10,000.
The mania has not set in this time.”
Regardless,
even if much of the current market activity has been sustained by
unjustified hype and overexcitement, some traders would argue that this
isn't much of a problem, since bubbles and manias are a part of
capitalism and are necessary to build the foundation on which lasting
industries are based. As GNY.io co-founder Richard Jarritt put it to
Cointelegraph:
“Alan Greenspan famously warned
against ‘irrational exuberance’ in relation to price-to-earnings ratios
of stocks way back in December 1996. The talk of bubbles in stocks had
arrived prior to the infamous tech bubble of the late 90's that saw the
NASDAQ Composite scale to its height at 5,132.52.”
Jarritt
adds that technology has proven particularly resistant to calls of
being a bubble throughout modern history, and that Bitcoin and crypto
more generally have only just begun as an industry. He said that “taking
the diffusion of innovation theory and putting it into the context of
how few daily transactions there are on the Bitcoin network currently
(compared to how many daily transactions the Visa network handles), it
gives space to imagine that cryptocurrency market valuations have not
yet fully matured into what could be a peak many multiples above today's
values or any past peaks in the industry.”
Related: Interview With Crypto ‘Optimist’ Brian Kelly: Bitcoin Is Still 50 Percent Undervalued
But
assuming that the bubble-esque market of today does evolve into a fully
fledged and sustainable industry in the coming years, it still remains
to be seen which cryptocurrencies will still be around in a decade or
so, and which will have gone the way of the dodo. Once again, opinions
on this are mixed, with Bitcoin bulls unsurprisingly arguing that the
first cryptocurrency will be one of the few present-day crypto’s still
alive.
“In ten years we’ll see Bitcoin, and a bunch of coins that
don’t exist now; the new crop of seedlings that start with promise, then
fade away,” Max Keiser said, implying that even new coins arising in
the future will struggle to dislodge Bitcoin from its position of
dominance. Other traders, however, aren’t quite so bold, and while they
accept that many cryptocurrencies will most likely perish, they admit
that, perhaps, even Bitcoin might end up being supplanted by other coins
at some point in the future.
“In ten years, most of the
cryptocurrencies we know and love will probably be in the crypto
graveyard,” Glen Goodman predicted. He went on:
“As we
saw with Netscape, AOL and AltaVista in the early Internet era, it
isn't necessarily the first-movers in a new industry that end up the
biggest successes. Perhaps even Bitcoin itself will be usurped by
something faster and even more ingenious. A household brand name like
Bitcoin is a valuable thing but it does not make a brand bulletproof.
Just ask Nokia. Or Blackberry. Or Kodak. Or Blockbuster. Or Toys ‘R’
Us.”
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