By Ben Marks, Founder & CEO, Blocktrade Capital
Some skeptics think the crypto bubble has burst, but that is simply not the case. To explain why, we must first define bubble. A bubble occurs when an “asset trades at a price far exceeding its intrinsic value.” In simpler terms, a bubble is when an asset is highly-priced and has no practical use case to support that price. Its value is merely a byproduct of short-term trader excitement about that coin. The growth rate might be sustainable in the short-term, but in the long-run it’s almost certain to come crashing down.
Bitcoin in Mid-2017: Possible Bubble Territory
The price of Bitcoin skyrocketed from $963 at the start of 2017 to $14,156 at the start of 2018 – that is an astronomical increase of 1369%. The discussion that there was a bubble was semi-understandable since it was still unclear what Bitcoin’s main use case was, other than something that could be traded on exchanges.
A lot of people thought Bitcoin’s main use case was for everyday transactions, like buying a cup of coffee. The problem with it being a payment coin is that holders didn’t want to part ways with their Bitcoin, since its value kept increasing over time. Why pay for your coffee with Bitcoin when you can just as simply pay with cash, and the Bitcoin you didn’t spend becomes worth twice as much the following the week? Bitcoin’s main use case then came to be defined as a “store of value”, in other words a long-term investment you have no plans of parting with anytime soon.
Today Bitcoin’s use case still isn’t entirely defined, and that’s not a problem. Why not? Because cryptocurrency is no longer just Bitcoin. There are over 1500 different coins trading on exchanges, with 30 of them having market capitalizations of over $1 billion. These coins have a multitude of different use cases. Ethereum is a platform for smart contracts. Ripple makes it easier for banks to move funds internationally. Monero is a privacy coin. And these use cases continue to evolve.
The Landscape Has Evolved
The cryptocurrency industry is no longer just a niche group of technical people working in the field. There are developers, traders, entrepreneurs, venture capitalists, and more, all of whom are looking to invent, buy and trade coins. Even traditional finance heavyweights are getting involved. George Soros – the most famous currency trader of all time – recently gave approval for his $26 billion hedge fund approval to start trading cryptocurrency. 2 executives from Blackrock Investment Management left to launch a crypto fund. One of Steven Cohen’s top fund managers’ left to launch a $50 million crypto fund. And just this week, Goldman Sachs announced it is opening a Bitcoin trading operation.
Furthermore, a recent survey showed that 20% of financial firms plan on trading cryptocurrency within 3-6 months. This is a far cry from mid-2017 when the financial industry was almost uniformly criticizing it, calling it a “noxious poison”, amongst other things. It’s clear cryptocurrency has come a long way in its acceptance by the mainstream public.
Bubbles burst – They expand at such a rapid rate that they explode, unable to support such fast growth. Cryptocurrency is too diverse to explode because there are too many different people and projects involved for any one coin to cause the entire industry to collapse. The industry has tremendous growth potential. $6 trillion in pension funds hasn’t entered the crypto space. $5.9 trillion in private wealth management largely hasn’t touched crypto. Same with the $3.2 trillion in mainstream hedge funds. It’s exciting to think how far this industry can go. The sky’s the limit, and now is the time to buy in.