After going through (and surviving) the dot-com bubble, I never thought I would see another mania in my life. To my surprise, the cryptocurrency craze seemed as if we had brought the time back to 1999.
Eight months ago, investors never get enough of the new digital gold rush. It was like the craze Pokémon Go . However, this smartphone-based game was giving away real money.
At its peak, the free Coinbase encryption app was the most downloaded app on iTunes. The company registered 100,000 new accounts a day, allowing them to pass every single stock trading platform.
As I went to work, I took the subway straps checking the encrypted prices and I heard about the new hot alternative cryptocurrency, or altcoin, everyone was buying.
Speculative highlands (defined as "anything other than bitcoin") with kitsch names like Tron, Wanchain and Electroneum dominated the conversations of the watercooler and cocktails. Most people owned things they did not understand.
You could not turn on the financial news without picking up a bitcoin segment or notice the price in their scrolling chyrons.
My physiotherapist was doing day-to-day exchanges between patients. His brother had accumulated enough crypto to buy a $ 400,000 house.
Acquaintances with whom I had not spoken in years sent me Facebook messages to ask if now was the time to buy. (I told them to be careful, it's frothy.)
Instead of the taxi drivers telling me their favorite dot-com idea, Uber drivers were throwing me on new cryptographic tokens they had found on Reddit.
2000 zero zero party over, oops, out of time
So tonight I will celebrate as it is 1999
The delusions of the investments are like wild and uninhibited New Year's Eve, followed from a new year painfully regretted Day.
Over the past eight months, the scrambled party gave way to a brutal bear market, with total capitalization falling from $ 813 billion to $ 206 billion with a loss of 75%.
But the bears were not easy either.
Bear markets are notoriously bad for bulls and bears. While a bull market chart might seem like a constant escalator, a typical bear market looks like an elastic jump, characterized by heavy dives and portraits rallies and then sharper dives.
In drinking, this is also known as the "dog's fur that bit you," which means the best cure for what afflicts you is to have a little more, like drinking a damn mary like short-term hangover remedy.
January, the crypto-market has witnessed a handful of fake booties and relief demonstrations that ended with animated sales to remind us that the bear is still alive and well.
However, in the last sale, something different that suggests that the cryptographic markets have found a medium-term fund.
How We Got Here
Before we talk about what is different in this sell-off, let's take a look at the basics of mania to help us figure out if the markets are completely emptied.
Even th The bitcoin dominated the headlines, the true zero point of the crypto mania was Ethereum (ETH).
Launched in 2014, the second cryptocurrency in the world feeds a decentralized platform capable of executing programmable "smart" contracts.
Ethereum & # 39; s platform allows entrepreneurs to create decentralized applications that can create new decentralized markets for things like cloud storage and computational power.
Put simply, toenets built on Ethereum allow you to rent your unused computer directly to someone else without needing a middleman.
It's easier than you think to launch a new token based on Ethereum and there are instructional videos on YouTube that suggest it can be done in 15 minutes.
In 2017, entrepreneurs with great (and not-so-great) ideas gathered on Ethereum to build thousands of new crypto tokens. Here there was the zero point of the initial offer of coins, or ICO, mania.
It did not matter what your token did or what the size of the addressable market was. We were in a market where everything simply went up.
But you could not participate in this mania without getting your hands on a certain digital Ethereum.
The Ethereum Frenzy
If you wanted to buy the hot, new cryptographic token, you first had to buy the ether. Then you sent the ether to the creators of the new project and, in turn, delivered their new cryptographic token at the ICO price.
When most of these new tokens began trading, they could be sold five or ten times back.
Now, when most people hear that their friend is doing five to ten times back in a matter of weeks essentially playing a smartphone app, they're likely to try and get into action on their own.
And that's exactly what happened. The frenzy grew bigger and a mania followed.
The price of Ethereum was trapped in a virtuous circle, dragging all the criptos towards an upward spiral. The increase in Ethereum has led to a larger number of ICOs, which has led to higher prices of ETH, which has led to an even greater (terrible) number of ICOs.
In 2017, ETH rose from $ 8 to $ 1,400.
As long as they could sell at higher prices ICO investors have eagerly bought anything offered, which required the purchase of even more ETHs.
As if at the right time, the encrypted world has produced Pets.com and Webvans of the Decentralized Revolution. C & # 39; was Dentacoin – bitcoin for the teeth; Bananacoin: to finance a banana plantation in Laos; and Jesus Coin – promising to outsource the forgiveness of sins.
In 2018, investors realized that decentralized salvation was untreatable. The markets have undergone a reversal of trend and the slip of Ethereum has drastically reduced the encrypted markets.
While the shift of bitcoins dominates the headlines, Ethereum has gone even worse.
At a recent price of $ 285, Ethereum has decreased by 5% in the past 52 weeks. This means that anyone who bought after the middle of August last year is now at a loss. In the same period, the bitcoin is still 47%.
Things have got worse in the past few weeks. Ethereum has plummeted by 40% and has dragged the lower encrypted markets.
What's behind the sell-off in ETH
Suppose you've raised $ 20 million last year for your decentralized startup with Ethereum for $ 500. Remember, all the funds raised were made in ether, not dollars.
The capital raised would finance the development of your project, allowing you to hire a team of programmers and spend dollars to market the idea.
Well, if you did not convert your ether into dollars, your $ 20 million raised when ETH was $ 500 is now worth only half of that as the price of the ether has dropped by 50 %.
And if I had raised capital when the ether was trading at $ 800, you're in even worse shape.
Once a virtuous cycle, Ethereum is now a vicious spiral. As the price of ether dropped lower this year, projects that raised capital at higher prices were forced to sell their ether to dollars.
Downward pressures caused a domino effect while projects that raised capital at higher ETH prices simultaneously capitulated.
What a difference it makes a year
Last summer the cryptographic markets were in full mania. Prices have risen almost every day, and investors have been clamoring for "fear of losing" (FOMO).
Crypto bellwether bitcoin reported an annual gain of 1.318% in 2017, from less than $ 1,000 to over $ 10,000.  But the market has been blocked on the contrary since the bitcoin peaked at the end of last year. Bitcoin, at a recent price of $ 6,100, is down 70%. Investors who once suffer from FOMO are now worried about further losses.
The exceptional results of the last year, the altcoins, have gone even worse. Flourishing tokens like Siacoin, Bancor and Ark fell 85% to 90% from January highs.
This caused the sale of Ethereum much more quickly than bitcoin. Over the past three months, the ETH / BTC spread has fallen by almost 50%, from 0.085 to 0.045
Because Ethereum represents thousands of new decentralized projects, the difference between price and bitcoin can be seen as a barometer of cryptographic risk. When investors sell Ethereum, the whole altcoin complex goes down with it, and this brings out other Ethereum sellers.
However, the last whoosh down could mark a medium-term fund.
The same spread hit the fund in April and led to a 53% crypto rally.
Remember, markets never fall in a straight line … and deep sinkings are usually followed by radical rallies.
Editor, Crypto Profit Trader