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INVESTING IN CRYPTOCURRENCY: THE BLOG
The Age Of Ethereum?
This has been a significant week in the world of cryptocurrency. Bitcoin, going from historic high to historic high, broke the $3,000 mark for the first time. Perhaps even more notably, Ethereum skyrocketed to $350 and beyond, and now has overtaken a third of Bitcoin’s market cap.
Are we witnessing “The Flippening,” that mythic event long prophesied, in which Ethereum becomes the world’s leading cryptocurrency and Bitcoin leaves the stage? We just may be witnessing the beginning of it, but ETH has a long way to go.
That should not blind us to how far it’s come. BTC was at $975 on New Year’s Day 2017. It’s tripled in value. ETH was at .95 cents. It’s risen thirty-five times in value, and is likely to break $400 in days to come.
Can we assume that that rise will be sustainable, though? Bitcoin managed it; presumably ETH can too. But investing has a few characteristic laws that we ignore in the heat of the moment: the rule that what goes up, must come down; the rule that when investments become profitable, profit-takers eventually capitalize their gains, and sell. Bitcoin has already dropped $250 in what may be the start of a deepening correction. ETH’s time will come.
The question is one of overall trends. Will the inevitable Ethereum correction be temporary, or will ETH follow Bitcoin into four figures?
CoinDesk‘s State of Blockchain Q1 2017 study has some material that suggests a fundamental shift in market dynamics may be on the horizon.
It seems positive investor views on Bitcoin are almost evenly split with negative, while Ethereum investors are 93% positive. Yet that hasn’t stopped Bitcoin from tripling in value. And the fact that most Ethereum is bought with Bitcoin is not as significant as it seems: most investors convert their currencies to Bitcoin before purchasing alternatives, a fact that by itself argues for the persistence of Bitcoin.
In a way, the new developments change nothing. Both cryptocurrencies are excellent investments, indeed the leading ones, and any sane portfolio will contain a good deal of both. The epic battle between the two for market dominance has yet to be fought.
But there are a couple of interesting grace notes. Am I the only one who’s noticed that Ethereum’s sudden surge follows directly on the heels of developer Vitalik Buterin’s meeting with Vladimir Putin?
Market manipulation is no stranger to the cryptocurrency market: are we witnessing not a Flippening so much as a Trumpening? Russia may or may not be providing some shadowy assistance to Ethereum, but the possibility of a major player like Russia entering the field, like the possibility of a passionately anti-Trump media dragging Ethereum into its vocally anti-Russian agenda, may complicate the supposedly seamless rise of Ethereum in interesting ways.
Meanwhile, what of the alt coins? Bitcoin remains nearly half the cryptocurrency market, and when it surfaces to the top, it does so like Moby Dick: the surrounding water level declines profoundly. Ethereum (long viewed as an alt coin albeit the prince of alt coins) has not been entirely isolated from this effect.
But this time, as Bitcoin has reached historic heights time after time, so has Ethereum. The flow of funds to both has left the surrounding investments a desert. Coins as interesting and promising as ARK, Verge, Stratis, Sia and BAT have taken a beating Sonny Liston could have dished out. Former stars like Ripple and Digibytes are descending the price stairs as grotesquely as Gloria Swanson in Sunset Boulevard. Is it the end?
Well, no. Again, there are rules. When prices descend too, bargain hunters descend too. Just as Bitcoin and Ethereum will correct, so the alts will ascend too, and very likely to greater heights than before.
Those who expect Ethereum to rise to imperial heights in one seamless ascent and reign unopposed are delusional. In cryptocurrency investing, nothing is secure. ARK and cryptocurrencies yet in the wings are waiting to execute putsches of their own. Yes, every portfolio should be invested in Bitcoin and Ethereum. But now is the time for cannier investors to think in the longer term and look into some of the alt coins cited.
Given the choice between investing the same amount into one Bitcoin or three thousand ARK, I would go with 3,000 ARK. Admittedly, doing so as Bitcoin apparently flourishes and ARK apparently withers is not a joy. But give it time.
Wailing And Gnashing Of Teeth
So. Is the Great Cryptocurrency Bubble of 2017 over?
A number of young cryptocurrency investors on Youtube appear to think so. And how! A series of videos not unreminiscent of campus selfies of crushed Hillary supporters in the wake of Trump have appeared, and everywhere one witnesses howls and wails, weeping and gnashing of teeth.
It’s understandable. March, April and May of this year was a historic boom in terms of cryptocurrency investments and prices. By May, Bitcoin not only broke the $2,000 margin for the first time, but seemed to reach a new historic price level first each day. Alt coins unknown to the general public made staggering gains. Everything seemed to be rising all all at once.
Yes, children, you can say you were there when Ripple rose not seventeen percent but seventeen times its value in barely a week; when Digibyte shot even higher even faster. I myself thought $600 a nicely piddling amount to place on Digibyte; up it roared to $57,000 in a matter of days. Who can blame newbie investors for being astounded and intoxicated? Or crushed, when down prices came tumbling.
But is it apocalypse? The end of Bitcoin? Not even remotely.
In fact, it isn’t even a bad thing.
It is axiomatic among investors that at some point, when prices rise, profit-takers will move in and take some profit. Watching the price rise is fun, but they know it can’t go up forever, and besides, they have their eye on that Corvette. Of course they’re going to sell part of their gains.
Unfortunately, when they do, the herd see prices fall, and panic, and follow suit, not withdrawing part of their profits, but in fear and trembling dissolving it all. And too, now there are bots. When prices fall, machines sell, with no human hand present to set the brake.
The result is a fast and deep price dump, and inexperienced investors, watching the $2,800 Bitcoin they purchased fall to $2,000 again, and below, turn pale, sell at a loss, and vow never to invest again.
They’re fools. It isn’t simply that Bitcoin is today again at $2,200, a historic high as recently as last week. That’s a drop, but it isn’t Gotterdammerung. Anyone who bought Bitcoin for under a thousand at the start of the year has ever reason to be happy.
More than that, though, i’s also a lack of history. Older hands remember when Bitcoin was at $1,200, dropped to $400, then rose back to $800 in the blink of an eye. The very first “crash” of Bitcoin was on April 11, 2013. On April 10, it reached a historic high of $266. The next day it fell to $135. Investors cursed it and sold. Now it’s roughly ten times the value it was then.
As with Bitcoin, so with Ethereum, and a whole range of coins. The carnage of last week appears to have settled for the moment, and the result is not a blasted landscape but coins not terribly distant from their earlier highs.
The question is, are the new prices a new floor? Or will prices tumble further? Or will we see a similar extraordinary rise?
My guess is — all of the above. The truly worthless memecoins will tumble further, hopefully unto deletion, but then worthlessness eventually finds its own level in every market. The wilder investors have washed out with them for the moment, but the canny ones are buying coins at bargain prices, and the less expert investors who were singed but not burned, the interested but not yet wealthy, are investing more slowly and carefully now that they’re somewhat reduced now in funds and wary.
Sense is re-asserting itself, in short, which is all to the good. So, most likely we will continue to see incremental gains till mania seizes the crowd again. Which it will.
Till then? I would shop for bargains. At the moment, they abound.
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