With all things, perspective key. So, before we even get started here I do want to point out exactly where we’re at as far as the history of cryptocurrency value is concerned.
This is a snapshot of the Cryptocurrency market cap from July 2013 to now.
I think it’s safe to say it’s been a pretty insane ride to the top of this chart. Cryptocurrency has been talked about all over the world, in mainstream media, in living rooms, hallways at work, you name it. In that time your grandmother, uncle, mail carrier, probation officer, and coffee barista have now become crypto traders.
In the last chart posted, in 2017 the market cap had a low of 100B. We ended the year at 576B. The beginning of January saw us to over 815B.
And now… on Tuesday, January 16, 2018, the market cap is down to 558B and people are losing their fucking minds.
It’s honestly my favorite part of a dip (other than the giant discounts on crypto).
First of all, let’s be real here. If you don’t think something should correct after going vertical in such an intense rate as the cryptocurrency market cap did, you’re not paying enough attention to market fundamentals and economics.
Second, this isn’t new. While this market is ever-changing and we’re quite literally in new waters – anything could happen next, all of this is totally uncharted. With all of that said, we do have history of the market to lean on.
So… what’s going on? The market is changing, it’s evolving… bigly.
For a majority of the time that cryptocurrency has existed, Bitcoin has been the dominant force of the market cap. It’s always had the largest market share of cryptocurrency cap, and on many exchanges, it is the primary cryptocurrency traded against all others. That is to say; in most cases when you want to get on an altcoin exchange and trade, you will be buying the altcoins with bitcoin (more exchanges more often are showing up with new markets however, it is common to see more options now like a Litecoin market exchange, and ETH market exchange).
With Bitcoin being as dominant, and with the price reflection of many of these alt coins being tied to the price of Bitcoin, it’s not at all surprising to see how when the price of Bitcoin surges and swings, so then does the entire cryptocurrency market.
What’s interesting is while Bitcoin has historically been around 90-80% dominance ever since the inception of the crypto market cap, in 2015 this dominance threshold was first challenged, and Bitcoin broke into the 70% range, it went back to 80 and stayed there until March of last year. In the past, the crypto cap was obviously a lagging indicator of the bitcoin market cap, today the market cap is becoming even more distributed between the other existing cryptocurrencies, as Bitcoin now sits at around 35% market cap (which is actually up from the low 30%’s earlier).
Bitcoin Growing Pains.
…so, value and the market is still tied to Bitcoin, but it’s becoming less dominant. Got it.
If you haven’t been paying attention, Bitcoin has been going through a lot lately. Let’s look at some relevant issues:
The network issues are a big deal. Some people think that bigger blocks are the way to go, when it comes to solving the scalability issue, some thing that second layer solutions are the only way to truly solve it (I happen to agree with the latter). However, that’s neither here nor there. The Bitcoin Cash blocks are already filling up, the scalability problem isn’t being solved right now by anyone. Until a solution like the The Lightning Network and SegWit implementation can really make a difference in ratio, this is a struggle cryptocurrency is going to have to live with. Adoption will get higher, and the networks will become more congested.
Big money is interesting. I think most people (present company included) assumed that once Wall St. got it’s hands on cryptocurrency we would see prices shoot through the roof. I also think the part we forgot is there are a lot of people with a lot of money who don’t have the same kind faith in cryptocurrency that many in the cryptocurrency community have, and are more than happy to bet against it with futures trading. More money and volume does not just mean more buys, it also means more sells.
Buy the Rumor, Sell the News.
With China and South Korea, these are wild-card situations. There’s a popular saying going around, “If China bans it, you should invest”. I’m sure it exists for a reason. And the South Korea situation sounds a lot less threatening to the market than a lot of headlines are suggesting.
Currency is backed in confidence. Without central regulatory bodies to control and manipulate prices, FUD becomes a far more effective weapon.
Bitcoin is also (as it has been since the inception of Bitcoin Cash) constantly having to deal with it’s nemesis, Roger Ver, and the constant FUD (Fear, Uncertainty, and Doubt) attacks that come with his “BITCOIN CASH IS THE REAL BITCOIN, SATOSHI’S TRUE VISION” rhetoric.
January has historically found a bear market for Cryptocurrency at some point.
It’s easy to feel like the sky is falling when the market cap drops from 800+billion back down to the 540 range, I get it. However, it’s important to not lose the forest for the trees.
Let’s take a look at a mixture of the end of Q4 and the beginning of Q1 in 2013/14.
Here, very clearly we see a bull run closing out Q4, a bit of a run back up in early January before the progress goes a bit sideways into Q2.
BTC Dominance for 13/14:
Here again, in 2014/15, a bullish Q4 gives way to a bearish Q1.
BTC dominance for 14/15:
2015/16 is a little more interesting in that, 2015 is the first time the Bitcoin dominance dropped temporarily under 80%. This was a clear indication that the altcoin market had been picking up. After gradual build in Q4, January was still left bearish, wedged right between a pickup that started beginning in February.
BTC Dominance 15/16:
BTC Dominance 2016/17.
And, 2017 Q4 vs YTD
If you’re looking at the previous charts, it shouldn’t be a real shock what you can expect next, or when you can generally expect things to go from there.
17/18 BTC Dominance:
So, while the cap is still growing, the dominance of Bitcoin is not. It’s my opinion that this is a good thing for bitcoin, overall. I believe that the last thing the Bitcoin network needs right now, is to be riding this incredible influx of volume by itself. This spaces things out a bit, but the clear market share distribution is a clear indicator of the relationship between these big cap coins and the alt market. Many believe we are reaching a point where the value of Bitcoin, or Ethereum will exist in parallel with the alt market and create a market harmony of sorts. Time will tell, but as a whole I think it is best if the entire crypto market doesn’t live and die off the performance of a single crypto.
While this is somewhat indicative of past trends, there’s other things we should be looking for, and things to be learned about the future based on how this Q1 continues to behave and shake out.
At the end of the day, none of that changes the fact that Bitcoin (primarily) and Ethereum (Litecoin, Bitcoin Cash as well, however in smaller volumes) are the ways that money enters and exists the market. As stated before, when you bring new money into crypto, you have to first buy BTC or ETH and then you can start buying and trading alts. Alternatively, if you’re going to take your money gained from alt trading, you are going to allocate those gains into USD by way of Bitcoin or Ethereum.
When the market is bullish, new money comes in, most commonly through a platform like Coinbase, and USD is put to crypto, and then that crypto is used to buy more crypto.
When the market is bearish, people will tie their gains to something like Tether, lock in their gains in USD rates before transferring to Bitcoin (or Ethereum) to cash out in actual USD.
This is evidenced by the Bitcoin dominance now coming up, while the price is alternatively moving down, and we’re seeing the alt market bleed out as people transfer their earnings into bigger cap coins, to then shift to USD.
In Conclusion, I don’t feel like there’s a real big cause for concern right now. We’re seeing similar market behavior that has been on display through Q4/Q1 transitions in the past, and it’s made a little different in how the market is changing at such a rapid rate. It’s really more interesting to me than it is scary. And I believe it also points out the utility and value that comes from any platform that is able to transfer crypto into USD, and the effect that has on the market during bear and bull runs.
If there is anything to worry abut it’s cryptocurrencies or companies that are operating on vaporware, or trendy marketing tactics as their only tangible proof of concept. In these times weak hands become the majority, and the holders that have the stomach to continue buying during a dip are the one’s who benefit most. This is why it’s important to do your research and make sure that the coin and the tech you’re investing in is worthy of investment. When the market dips, and the holders are keeping the value of a cryptocurrency from falling off a cliff, I believe you’ll tend to find people are far more confident holding something they truly believe in. I do think that after all of this is said and done, some of the coins at the top of the market cap aren’t going to be there any more, and i’m not sure if they’re ever going to come back.
This is not investment advice. Never ever invest any more than you’re willing to lose, and please do your own research when it comes to any and all things finance, and please do not make any investments or decisions based off of information you read here alone.
You can read more from Vinny Marshall on Think Liberty here.