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The answer is yes it is! Feel free to read something else now! Or you can read on and i’ll explain why this is a good thing.
Firstly, what is a bubble? Well according to the English dictionary it is defined as the following: “used to refer to a good or fortunate situation that is isolated from reality or unlikely to last”. Spot on I say. Crypto currencies will be one of the biggest bubbles we will have seen in our lifetime once its over and the music has stopped. But until then it is worth investing risk capital to ride the wave and get some healthy profits as a return, if you know what you’re doing.
Bubbles bring attention and investors to projects that would otherwise not have seen the light of day. They breed innovation and champion progress. Look at the previous technical bubble we had, the infamous dotcom bubble. Whilst a lot of investors lost paper money (by this I mean money that hasn’t been realised in profits yet), when it was all said and done, it did give birth to two of the most important companies we can’t live without now. Google and Amazon as well as innovation which has allowed us to purchase cheap data packages and having most of the Western world connected by enhanced data networks isn’t something that should be taken for granted.
Now to get really confusing technically we are in two crypto bubbles. We have the Bitcoin bubble and the alt-coin bubble. They are both independent and reliant on each other to a certain extent. Bitcoin is by far the most well known cryptocurrency out there. It has what we call the first mover advantage and is what all of the crypto exchanges for a very long time had as the main coin that had to be purchased to trade into other cryptocurrencies. This gave Bitcoin lots of advantages as it had to be purchased to trade with. Naturally over time this increased its market cap.
On top of this having stories of various investors and teenagers purchasing Bitcoin very early and making millions has caught the media limelight and this also contributed to the rise in the price of Bitcoin. Mining has also been very popular and profitable for early adopters of Bitcoin. The actual concept of having a decentralized currency that isn’t controlled by any government or private company is what has appealed to investors post the market correction of 2008. Consumer confidence of banks was at an all time low and this gave the spark that was required for another form of transactional commerce that is subject to less control. I say less control as the crypto market is at the moment one of the most manipulated as there is no control of it by any financial authority, in true decentralised fashion. However remember that anything goes from $0.008 in July 2010 to $17,900 in December 2017 is a bubble. It’s not normal and shouldn’t be thought of as the norm.
We then have the alt-coin bubble. Like in the late 90’s and early 2000’s there were literally thousands of companies offering different services for various applications and uses via the internet, we are seeing the same thing with alternate cryptocurrencies. There are as of early January 2018, 1384 cryptocurrencies or tokens you can invest into. On average there is 1–2 new coins being introduced into the market everyday. Whilst some of these coins have real world use and can benefit mankind if the project they are undertaking delivers everything promised, the majority of coins out there will not deliver what they have promised.
These alt-coins are what is taking up the majority of the crypto market share now. As of the 8th January, the whole crypto market is around $700 billion, with Bitcoin having a dominance of 35% of the market. That leaves the alt-coins who collectively dominate 65% of the crypto market. This is where the growth will be. Over time whilst the price of Bitcoin may go up, investors who invest in alt-coins will be the ones that have the better returns. We shall go through some examples later on in this article. Again anything that goes up thousands in percentage in a short period of time is a bubble.
So where does that leave an investor who is thinking of navigating and trying to gain some healthy profits from investing into cryptocurrencies? Well, firstly you should never invest in something you don’t understand. It doesn’t matter if you’ve heard all of the success stories, if you can’t explain what your investing in to yourself or your dog, don’t invest in it. If you are in the position where you have done your research and are confident enough to invest some money into cryptocurrencies, only use risk capital. This is money you can afford to lose. I’ve read many stories of various investors selling their houses, businesses, etc and putting it all into Bitcoin. Foolish! Just think about it, would you sell everything you own or park all of your wealth into one stock? The answer for most of us would be no. It should be the same when it comes to cryptocurrencies. They should be a part of your investment portfolio, but not your sole investment.
So where are we now in terms of this bubble popping? The answer is what makes it a bubble is also that no one knows when the top is or when it will pop. No one has a crystal ball and can predict how the markets perform. What I will say is that using past evidence as an indicator, i’d say we are early in terms of crypto investing topping off.
The current crypto market cap as of January 2018 is $700 billion. Let’s put this into perspective. Bill Gates is worth $86 billion. Warren Buffet is worth $83 billion. Apple is worth $900 billion, yes Apple is worth more than the whole crypto market as of January 2018. The entire global USD circulation is roughly $1.5 trillion. The gold market globally is worth $8 trillion. Stock markets in total are worth $66 trillion and the entire supply of all money invested or in existence on the planet is roughly $84 trillion.
The dotcom value, or lets say the NASDAQ combined value on the 10th March 2000 was $6.71 trillion. By April 6th 2000, it was $5.78 trillion. In less than a month, nearly a trillion dollars worth of stock value had completely evaporated. It was downhill from there really.
So, by looking at the past tech bubble, where innovation, greed, consumer confidence as well as private investors plowing money into stocks for extravagant returns, this has a very eerie feel of what is happening in the crypto market at the moment. With the presence of social media, instant alerts and more information being readily available, I do think the crypto bubble will pop at around the same or slightly lower level than the dotcom bubble. The reason for this you ask? I say FUD! Fear, uncertainty and doubt are rife in the crypto markets and we are just getting started!
So here are some examples of the profits you could have made if you invested $1000 on the 1st January 2017 into one of the coins listed below and just held it, your crypto portfolio in early January 2018 would show the following:
- Bitcoin profit would have been $14,000
- Monero profit would have been $24,000
- Litecoin profit would have been $50,000
- Ethereum profit would have been $87,500
- DASH profit would have been $88,900
- Ripple profit would have been $335,000
- NEO profit would have been $515,700
As can be seen from the list above, anyone that would have invested into alt-coins rather than Bitcoin would have had much better returns in 2017. I certainly know which one I would have invested my money into from the list above (i’ll give you a hint, it begins with N).
Everyone has a different strategy when it comes to crypto investing. For me once the market gets to around $8 trillion or if a tool is available where its as easy as making a phone call or email to a broker to invest in cryptos and your coins are secure and in your name will be my signs for when to start exiting. At the very least you should be taking out your initial investments with profits made so if you do lose money, you haven’t set yourself back years in wealth accumulation.
Stay tuned for further articles regarding the crypto market.
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The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.