Cryptocurrency–Despite the hysteria and depression surrounding the bear market to start the year, one thing remains clear: cryptocurrency has a future as digital payment. It’s rare to find an industry that once commanded nearly a trillion dollars in capital then fade to complete obscurity. However, it is becoming more clear that not every currency will be able to make the cut. The reason the market is crashing is as a result of bloated, overvalued and overbought currencies that skyrocketed the entire market 600 billion USD in capital in the span of three months.
Cryptocurrency, as a whole, was valued at 200 billion USD to start November 2017. By the first week of January 2018, that number had climbed to 830 billion USD. Investors were riding high. People who had only entered the market a month before were flush with profit and easy capital. It seemed as if the market would only continue growing, or at the very least was far off from its pinnacle. We were witnessing exponential adoption, interest and support of the two with real dollars. Of course, we all know what happened in the aftermath. Bull cycles are like the wheee! downhill portions of roller coaster rides: thrilling, short, but inevitably come to an end. For investors who fail to know when to exit–which constitutes the majority of the market not looking to day trade or hoping to go long, the next stretch of the ride is uncomfortable: the slow, steady climb, characterized by anxiety over what lies at the end. We know the bear cycle will break–eventually. The hard part to predict is when that will occur, how much further market loss will be endured, and what the landscape and community attitude will be like on the other side.
Here is an overview of how some of the industry’s top currencies could fare in the event of a long bear market or total collapse.
Bitcoin has one of the more interesting futures of all currencies on the market and finds itself at a larger crossroad than ever before. In some ways, the current downward spiral to the market is a resetting of sorts. The overbought/overvalued market was largely propped up by the excesses of Bitcoin: the promise of decentralized currency that would continue to appreciate through deflationary mechanisms and make early investors (still an applicable term in 2017) far more wealthy than where they entered the market. That sounds a lot like a ponzi scheme to those on the outside, but they also neglected to see the value behind the technology and the benefits of something as novel as blockchain and cryptocurrency.
Now, the veneer has been scraped away from Bitcoin for a large portion of investors and the general public. Media outlets are lining up to deliver I told you so’s, despite never having understood the technology or market in the first place. Investors, especially those burned from losses and also those disappointed by the premature promise of riches, are also turning their back on Bitcoin–again, not having fully understood what the currency was for. Bitcoin, simply from its colossal market share and household name branding, in addition to the backing of powerful figures around the world, is likely to have a future after this bear market ends. But it is going to require significant change in market practices and community focus to achieve the original goal of Satoshi Nakamoto’s currency.
One thing has become clear: long confirmation times and exorbitant fees are antithetical to the public’s acceptance of a currency, regardless of the additional features offered by blockchain and crypto. Unless Bitcoin wishes to relegate itself to a digital store of value (like gold or real estate), utility has got to become the primary focus for the community and development. Lightning network or a similar method for reducing fees and congestion is now paramount in order for Bitcoin to be what most of the public imagines it as: a seamless digital payment for the modern age. If the bull market resumes and Bitcoin climbs again to an all time high north of 20,000 USD without solving the scalability and network congestion issue, we are looking at the same conditions for another collapse. In that situation, especially being nearly a decade since its inception, Bitcoin starts to look more like the product of a niche community–either that of its fervent, tech-influenced fan base, or the vogue currency of the wealthy and famous who see owning Bitcoin as having another limited quantity, precious asset.
It’s possible this market collapse and the reset alluded to above is the market attempting to flush out and overthrow BTC dominance. For the majority of investors in the cryptospace outside of exclusive BTC holders, there is growing dissent and frustration with the original cryptocurrency. Bitcoin prices are holding down the market, regardless of positive announcements and implementation going on in other currency realms. Ripple introduced two of the largest adoption endorsements in all of cryptocurrency earlier this year–Moneygram and Western Union–and yet the price barely reflected a blip on its spiral downward. That is an unhealthy market condition built upon BTC stilts that is destined to collapse over and over again unless Bitcoin can succeed for the long-run.
However, and it may be unfortunate for investors to hear, the entire market is ingrained through Bitcoin. From ubiquitous BTC pairings listed across exchanges, to the vast popularity Bitcoin holds over the rest of the currencies (compare BTC to LTC/XRP/ETH on google trends and you will see the disparity), the market is going to have to continue to rely upon Bitcoin as its source of income. Unless we see a total collapse, thereby allowing the industry to reset, old investors to be flushed out and new ones to enter through currencies outside of Bitcoin, it’s hard to imagine a change in market conditions that does not include Bitcoin following this bear market. Which means, rather than crypto-based tribes spreading FUD and creating zero-sum games with Bitcoin and their chosen currency, it would be to the benefit of all investors and enthusiasts in the industry to ensure that Bitcoin survives, or at least find ways to support cryptocurrency outside of disparaging non-invested coins. The industry of cryptocurrency has become highly politicized, with warring community factions attempting to tear down other currencies in the hopes of driving investment dollars to their chosen coin. But the general public doesn’t see this message as superiority or rational investing. Instead, they see a murky landscape of false promises, confusion, and uncertainty–all of the conditions that cause investment dollars to steer clear. For now, and for the foreseeable future, it’s clear that what is good for Bitcoin is good for all cryptocurrency.
The problem with Ripple’s pricing is twofold: the entire market is still reliant upon the condition of Bitcoin, for the reasons listed above, clouding any positive news or advancement for XRP, which has been significant to start 2018; and the coin-supply conditions of Ripple are vastly different from that of Bitcoin, creating elevated expectation in the investment-base, particularly those who entered the market after the start of the bull-run.
We have addressed the problems related to Bitcoin’s hold over the market above, so let us examine how Ripple differs in coin supply that inevitably affects the pricing structure. Ripple has a coin supply over 4700 times that of Bitcoin’s. Obviously, no one is expecting XRP to be anywhere near the price of Bitcoin on a per coin basis, but that also has a large effect on XRP and investor behavior. Bitcoin has a precious, limited supply scarcity that is reflected in the pricing. Even after losing over 60% of its value since the last all-time high, BTC holders are fearful to part with their currency because they know they hold something special that may be difficult to obtain in the event of another positive price swing.
Ripple does not hold the same allure.
For roughly 500 USD, an investor can own 1000 XRP. Now imagine all of the investors that gathered bags of XRP when the price was still under a penny. Or under ten cents. Or even at the quarter USD valuation it held for most of 2017. Like BTC, there are a number of early investors in Ripple that hold a vast majority of the circulating XRP who are still flush with profits–thereby dictating the pricing structure. An investor who entered XRP at 1 USD (which looked like a great buy in light of its 3.80 USD ATH) is sitting on a 50% loss at this time. However, the person who purchased XRP for 0.01 USD is still holding a 5000% profit. Ripple’s pricing structure suffers from the enormous disparity in wallet amounts, but also investor mindset towards the currency. XRP is not precious in the same-way low cap currencies are, and because of that does not create the same trepidation in selling.
Sure, losing money on an investment is still a painful loss, but most people are selling at 0.60 USD in the expectation that they can buy back in again before the market leaves them behind in the event of a bull-run. Due to the massive coin supply, Ripple’s price is going to hold sustained valuation in the event of widespread, XRP-usable adoption. Moneygram and Western Union are significant partnerships, but they do little for the average investor. XRP, like every other currency, lacks legitimate uses for spending and sending outside of exchange speculation. Ripple has the utility and potential to be a market leader. It now requires the partnerships that give people reasons to spend XRP, thereby driving up individual coin value while also keeping the currency circulating through market as opposed to building up in the long-term holdings of a small investment population.
Charlie Lee, founder of Litecoin, predicted at the highest point of Litecoin’s price-run last December that investors should be wary of a looming price collapse. That warning annoyed large portions of the community, as it stifled the excitement over the price increase and signaled uncertainty to the general public. We argued that it was healthy for market conditions to consider the investment in terms of extreme gain and loss.
Of all the currencies undergoing this sudden crash, Litecoin has the most to gain. Growing frustration over Bitcoin usability could drive more users to Litecoin, as a cheaper, faster version of their favored cryptocurrency. It comes down to the Litecoin community, and Charlie Lee, accomplishing two things: growing partnerships that inspire LTC use for transactions and payment, and getting out from under the shadow of Bitcoin.
Every currency is trying to grow more adopters and reasons for payment. Litecoin benefits from its close relationship to BTC, but has yet to drive the message of superior performance. Again, this becomes difficult given the zero-sum-game approach of most crypto tribes, and the necessity for Bitcoin to succeed to elevate the market again. If we are spiraling towards a reset in the market and perception towards cryptocurrency, now could be even more opportune for Litecoin to step forward as an industry leader; essentially a Bitcoin 2.0. All currencies are going to be vying for this distinction, but Litecoin has the history, the market recognition and industry ties to legitimately replace BTC.
More than any other culprit, Roger Ver and Bitcoin Cash have the most direct responsibility for the market collapse. Originally, Coinbase was looked to as a beacon for cryptocurrency and introduction to the market. It was, and still remains, one of the easiest, most seamless experiences for buying and selling cryptocurrency from a new-user’s perspective. As cryptocurrency grew into the spotlight in Q3 and Q4 2017, it was simple and painless to direct relatives, friends and coworkers interested in cryptocurrency to the downloadable app to get started buying a limited selection of Bitcoin and other currencies. Then came the Bitcoin Cash fiasco, from which the market is still reeling.
The uncertainty, malicious confusion and insider collusion between Coinbase and Bitcoin Cash not only burned a large portion of investors (as the price shot from 2500 to 3900 USD in the span of hours, then back down again) but also kicked off the tanking of Bitcoin’s price. The heavy-handed tactics of BCH promoters, labeling BCash as the true Bitcoin and BTC as a fake did nothing but stirred confusion in the general public and created a barrier to investment. For those looking to Bitcoin as a non-inflationary, appreciative asset, the introduction of a contentious hard fork put their world in a spin. These investors and outsiders looking-on were right in coming to the conclusion that if BCH could spring up out of nowhere, what was stopping an endless number of hard-forks flooding the market? Not to mention, it added to the inequality and jealousy towards early-BTC adopters who were not only riding high on 17000% profits in the span of years, but also receiving air-dropped Bitcoin Cash seemingly out of nowhere.
It will probably take most of the year to reverse the headaches BCH has created for the marketplace. Investor confidence is all but gone from Coinbase, the company is now making headlines for a building insider-trading lawsuit, and more than handful of investors were so burned by the fiasco that they will never return to the crypto markets. It’s hard to tell what sort of future Bitcoin Cash will have in the marketplace. It will likely continue to be the suckerfish that rides Bitcoin’s price gains, as new investors to the marketplace put money into BCH thinking it is a cheaper form of Bitcoin. BCH has a good message–improved utility for Bitcoin–but it lacks the nuance and implementation to achieve that competitive edge. Again, a total market reset could put BCH in a position to succeed, particularly if Bitcoin fails to overcome the issue of scale and network congestion. But the contention of Bitcoin Cash and the militant approach to its marketing is hurting the entire industry. If nothing else, the end of 2017 made it clear that hard forks, in all forms, are going to continue to be a danger to the entire marketplace, particularly when they effect the top cryptocurrencies.