Even the most daring evangelist crypt must admit that bitcoin seems to have been the worst investment of 2018, at least in purely monetary terms. The cryptocurrency has lost almost 80% of its market capitalization since it reached an all-time high of about $ 327.15 billion. The rate of adoption and volume decreased in the same way. Organizations that were planning to launch their bitcoin-based services delayed their projects or completely demolished them. As an experienced trader would say, the bitcoin bubble is bursting – or it has already broken out.
The Anatomy of a Bitcoin Bubble
The surprising changes and bending of a financial market can confuse viewers. In the end it is a game of feelings that passes – from one investor to another. If one sells, other purchases. But in case of an accident, when one sells, nobody wants to buy. It starts with some investors who download the resources at the top, then spirals towards the outside. Other investors flock to the sale action only because of the panic and the price starts to fall faster. It attracts more sales pressure, leading to fission.
What the 2018 has brought to the bitcoin market has been a lot or sellers against limited buyers. In 2017, it was the opposite – more buyers versus fewer sellers. The different performances of both financial years, in order, show that the investors bought bitcoins both on speculation of an upward trend, and to acquire other digital resources that promised even higher returns in less time.
ICOs, as they are called, were a phenomenon in 2017. Ethereum-enabled blockchain projects, which claim to be the next Apple or Microsoft, raised funds after selling their unregistered and unregistered digital assets for the best cryptocurrencies like the bitcoin. Therefore, purchase orders have begun to accumulate, bringing the value of the bitcoin to its historical maximum at $ 20,000.
The year 2018 was the time of delivery, but no ICO was presented for the show. According to a research paper published by the Carroll School of Management at Boston College, nearly half of the blockchain projects went bankrupt within four months of their introduction.
"What we discover is that once the three months have passed, at most six months, they do not surpass other cryptocurrencies," researcher Leonard Kostovetsky told Bloomberg. "The strongest return is actually in the first month."
The biggest takeaway is that these blockchain projects have had a large amount of bitcoin tokens with them. Therefore, they would probably have had to abandon their bitcoin reserves for fiat to escape or pay operational costs. So, the bubble burst.
Digital Currency Group founder Barry Silbert supported the theory during an interview with CNBC. The head of Galaxy Digital Holdings, Mike Novogratz, has also told Bloomberg that the ICO market has practically died after "a lot of hype" and that the bitcoin will emerge from its depression along the way.
Bitcoin: the long road to recovery
The bursting of a bubble does not necessarily mean the death of the underlying asset. The financial sector is full of examples where traditional metrics have defined market overvaluation followed by a long-term bearish correction.
The dot-com bubble, for example, approaches that of the cryptographic bubble. In the late '90s, the introduction of the Internet caused a huge wave of speculation in the dot-com companies. The Nasdaq Composite Index, which listed most of these technology startups, jumped from less than 500 in the early 1990s to reach peaks of over 5,000 in March 2000. The index collapsed of 80%, but came back in 2015 to set new highs.
The crypto market crashed similarly after many of its startups failed after raising millions of dollars in excessive investments. Bitcoin, as many believe, is the survivor of a market cancellation.
Lou Kerner, a capitalist crypto of fortune, called bitcoin the Amazon crypto, claiming that the digital currency would survive the crypto bubble exploded in a similar way to how Amazon did after the dot-com crash.
"If you go back to the internet bubble, which is what many of us in encryption are looking for, Amazon, probably one of the biggest companies in human history, was down more than 95 percent in two years ", he told CNBC in November.
Crypto has been so weak because most of it has no underlying value outside of trust. [But] bitcoin, in turn, we think it will replace the gold at the end. Gold is a $ 8 trillion thing.
The market is already preparing a bitcoin reception as it moves from retail to healthier institutions in 2019. Bakkt, a bitcoin futures platform backed by Intercontinental Exchange, will be launched at the end of January. The US Securities and Exchange Commission (SEC) would also provide its final version of VanEck's bitcoin ETF which, if approved, could open the multi-billion dollar investment gates in the bitcoin space.
Rising Dominance of Bitcoin
The bitcoin domain refers to bitcoin market share compared to the rest of the encrypted market. Since the crash began, investors have constantly returned to bitcoin. Since November, bitcoin has occupied about 50% of the entire cryptography market, reflecting the feeling of investor improvement.
Cypherpunk Jameson Lopp, in his latest report, also found that Bitcoin is growing on almost different metrics from the economy. In 2018, the cryptographic market driven by the digital currency raised $ 3.12 billion in investments, four times more than in 2017; the academic and user interest in it has grown twice; the currency development repository has seen more commits than any other cryptographic project; and its Lightning Network solution has gained momentum throughout the community.
"Yes, bitcoin went wrong [concerning the] exchange rate in 2018, "said Lopp." But from almost every other metric the system is improving and growing. Those of us who are dedicated to this system must continue to BUILD and add value; we have no control on the market, but I expect that it will reach us sooner or later ".
With strong foundations behind it, the bitcoin would most likely correct, but it would be more mature than previous corrections. The rich investors, who have already been hit by a collapse of the US stock market, would be more inclined to shift their value to safe havens such as the dollar, the yen and gold. Bitcoin, being a relatively new phenomenon, could capture their eyes once their infrastructure is ready to handle more volume and liquidity.
Shutterstock foreground image. Price charts from TradingView.