Market Insights: Another Bloody Monday

Market Insights: Another Bloody Monday
February 5, 2018 Alex
In Market Insights

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Disclaimer: Not professional or financial advice

Bitcoin as a Gatekeeper

Bitcoin still drives price in the entire crypto market because it’s still the on-ramp for most of the crypto market. You still can’t go from Fiat straight into different currencies – you must buy BTC, LTC, ETH, or BCC (BCH) first. Bitcoin is the biggest amongst these gateway cryptocurrencies, so to speak.

Bittrex is going to allow people to go straight from USD to altcoins. As this is rolled out, you will start to see BTC lose its dominance, because it will no longer be something people necessarily have to go through to trade in other currencies/tokens.

What this means is that bitcoin’s allocation in your portfolio might change. BTC may stabilize in price, making it a good hedge against overall volatility. By the same token, it might not have the same growth potential as other coins (but it also might not go down as much).

Volume and The State of Demand

At this point, what’s key is how much demand there truly is from the market. That is, how many people really believe BTC is worth the price that it is? This is determined by volume – buy orders and sell orders. If the price is dropping but the volume isn’t there, you might want to reevaluate where your bids are.

As of now, demand has thinned. There are a number of factors – news, regulatory information, etc. – that are making people uncertain as to whether they want bitcoin. Nothing has changed tech-wise, though. The top part of the bubble cycle we’ve seen has been built on speculation and hopes for price, not a thorough understanding of bitcoin as an actual product.

A Matter of Perspective

If you zoom out on the 1-Day BTC chart, it looks like the ‘big bubble’ is clearly defined and obvious. It certainly is in terms of gross price. But if you switch to the logarithmic chart, it helps lend some more perspective, and lets us see that the changes in price aren’t all that crazy (especially as compared to 2013). In retrospect this bubble may have more in common with late-2013’s bubble.

Cryptocurrency is likely to be the biggest bubble of our lifetimes, and it is likely going to the biggest shift of wealth in our lifetimes, but this bubble is not that shift. It will take time, and a real bubble, relatively speaking (think 10-, 12-, 15-trillion dollars minimum). Such a bubble would enable true movement of wealth. How this will happen, and what it will look like exactly, however, no one really knows.

Back to the Micro

When it comes to choices about individual cryptocurrencies, protocol tokens are a play to consider. It’s still very early when it comes to protocols, and no one really knows what’s going to come out on top. ICOs can be a good bet if you can find good teams and products.

Bitcoin is as of now having something of a branding crisis – it’s regarded as a store of wealth, but now it has lightening network, and segwit – and there’s some confusion about how to think about it. Ethereum has been gaining more momentum, and has a clearly defined brand, which is good for growth.

Bitcoin’s dominance is sure to see some change because of things like Fiat to altcoin access, but until then it probably won’t change too drastically. The network of Bitcoin is still the biggest, with the most developers, the most nodes, etc. That said, BTC might not be the best opportunity for ROI over the next couple of years. It’s important to note that BTC is unlikely to be the biggest loser, though.   

China’s Crypto Control

China is doing everything they can to contain cryptocurrency activity in the country, such as adding offshore crypto exchanges and ICO websites to its “Great Firewall”. This is not uncharacteristic. China applies firewall technology to Facebook and Twitter, effectively controlling information as they see fit. They are simply doing the same with crypto, but it can take time to see what news about China turns out to be true.

All of this aside, something is bound to win in China. So far as investments, it might be a good idea to have some Chinese protocols (ex: NEO, Qtum, etc.).

Credit Cards and Crypto

J.P. Morgan and Chase are no longer allowing customers to buy cryptocurrencies with credit cards. While banks shouldn’t tell you what to do or not do with money, this might help the overall health of the system.

Overall, buying crypto with a credit card might not be a good idea (but you should do what you deem best for yourself). We got into the latest bubble in part because people have been buying with credit, using money they don’t have. It is, of course, always a good rule to not invest with money you can’t afford to lose.

The more banks shun crypto and the according technology, the more momentum it’s going to gain. It might not reflect in the demand curve quickly, but it will straighten it.

Be Prepared for the Next Great Bubble

To make a lot of money in crypto, you have to be able to put a lot of money into crypto. If you don’t have the fiat to invest, it is probably in your best interest to find a way to make more so that you have the cash ready.

You must ask yourself: When things start to go back up, what am I going to do? Do your homework to become a calculated investor. Have your fiat ready to put into crypto so that you don’t miss out.

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