The Coming Altcoin Exodus
Bitcoin has been losing market share to altcoins at an accelerating rate as we see more and more pumps not only among smaller altcoins, but also among the largest ones. These pumps are often driven by four different catalysts:
The announcement of partnerships. Often it doesn't matter how large the company is they are partnering with, how relevant it is or the scale of the partnership (exploratory or full colloboration).
Not a new catalyst, but being added to another exchange is becoming an even larger pump catalyst now that the altcoin market has become so frothy. Even speculation about being added to an exchange (e.g: Ripple to Coinbase) is enough to send a cryptocurrency soaring
Hard forks or airdrops - any event that encourages one to hold a cryptocurrency at a certain block. NXT is a perfect recent example of this
Coin burns or reduction of overall supply (artifical or real) - Ripple locked some of their supply in escrow. Despite this being an artificial decline in supply, it has (in part) driven some of this rally as it has fueled confidence and is the #1 viewed post on Ripple's site for 2017. Tron's coin burning is another perfect example.
These four catalysts drive astronomical returns even when it doesn't make sense. However, all good things come to an end and I suspect that soon, altcoins will flee to Bitcoin. Note that almost all altcoins must be bought with Bitcoin - the opposite is true too (altcoins are sold for Bitcoin). This exodus of altcoins to Bitcoin will occur, in my opinion, after one of three potential catalysts:
A hard fork announcement for Bitcoin with a ton of buzz. Doesn't have to be Bitcoin Cash or Segwit 2x (the original) in terms of size - even something like Bitcoin Gold can cause a frenzy with enough hype and buzz.
The Lightning network becomes increasingly deployed. All of a sudden the narrative will become "once altcoins only advantage against Bitcoin, speed, becomes compromised, what do they have? Nothing - Brand is everything." That's my speculation on how the crypto investor community will think - and I suspect people will think this EVEN IF Lightning doesn't really solve Bitcoin's problems. Note that crypto investors have already illustrated how flippant they are - just back in October, everyone was talking about how altcoins were going to die and Bitcoin was taking back its dominance. Now Bitcoin is going to die because it is slow and expensive. Just wait - the narrative will change, as it always does.
More financial instruments are made surrounding Bitcoin or more institutional hype comes. While an ETF still seems a long way off, we may see a more mainstream product for Bitcoin options than LedgerX. Note that the financial instrument is not the important part - the important part is the idea of institutional investors jumping in. In other words, any headlines that suggest this could easily send Bitcoin soaring - How many times have you heard "get in before Wall Street does!"?
When any of these catalysts occur, Bitcoin will become the predominant cryptocurrency that capital flows to (both from altcoins and from outside the crypto market). The cryptocurrency market as a whole is overvalued right now, but I suspect either way (the bubble further inflates or it pops), Bitcoin will overperform altcoins.
What are your thoughts on the declining dominance figure? I know there will be a wide variety of passionate opinions, so feel free to let me know.
Let me say first that I’ve been following your YouTube channel and I think is top notch. Keep on the good work man. I even liked your recent post about RaiBlocks, it was honest, and for me, that’s all that matters.
I agree with you that most altcoins right now are overvalued, but I think Cardano is not one of them. If anything, Cardano is only slightly overvalued right now (as I write this, ADA is trading for $1.20, something closer to $1 would be a better price IMHO) and I think that when next major release of the project is out (expected for Q2), the price could reach a support level of about $2.
This year started with a huge influx of new people wanting to buy cryptoassets for the first time (myself included) and I think coinmarketcap.com has become somewhat misleading lately. Of the top 10 coins, six have much higher circulating supply (in the billions) than the other four (in the millions), the other four being the staple coins listed on coinbase and most exchanges that accept fiat. People new to crypto initially only care about this top 10 coins, and the metric they use to compare this coins is not volume or marketcap, but price. I think this gives the high supply coins a advantage in that their price feels more accessible and reasonable to the average buyer. Cardano benefits from this advantage, and as soon as Cardano get listed in coinbase and the other mayor exchanges (and I think is a better candidate than Ripple for that), or if archives some kind of important partnership, I see people seeing it as the new Ripple and reaching a marketcap in the top 3.
The main reason I think Cardano’s current price is justified is because of the amazing level of human capital and talent in the Cardano team. Charles Hoskinson, the leader of the team, is like the John Hammond character in Jurassic Park, in that he “spared no expense” in recruiting for this project. People like Philip Wadler, one of the principal designers of the Haskell programming language and a long time wizard of the functional programming world (please check his homepage and tell me you're not impressed: http://homepages.inf.ed.ac.uk/wadler) is designing the language for dapps, among other things. I really need to stress this point about Cardano, I haven’t seen this concentration of sheer talent in ANY other crypto project. The daedalus wallet alone has 9 developers, that’s more than total the number of developers for at least 80% of the altcoins. This is one of the better design wallets I’ve seen in this space and is just getting started.
Everything about Cardano is beautiful, well designed, well thought out and planned. The documentation is excellent, and the YouTube channel of IOHK (the main company behind the project) is very well produced, I’m yet to see anything like this for any other project in this space, and I invite anyone interested in the technology and plans for Cardano to watch the whiteboard sessions, they are surprisingly engaging and noob friendly.
Charles said in a recent interview that his goal for Cardano is to be the first cryptocurrency to reach o trillion dollars in market cap. For that Cardano would have to be priced a about 39$. I believe Cardano has a fair chance of reaching this goal within the next 3 years, and it will prove to be a great long term value investment.
Human capital is valuable and their team is remarkably impressive, but if you told me today that Bill Gates was making a cryptocurrency that was more in the concept stage, I wouldn't pay over $10b for it. I mean that's a unicorn. Your explanations for why it is undervalued explain more why its price is justified, but not that its valuation is which are two separate deals. Ideas can only be worth so much without execution and testing of scale, security, governance, etc.
Just added you to my steemvoter rules for an automatic upvote. Thanks for your work. Really enjoy hearing your thoughts. I listen to you and @cryptoverse daily.
While this means a great deal to me Bill, be cautious - I don't want you to upvote content you don't like from me. I have no issue if you take away an upvote just because the content isn't something you are on board with.
I completely agree that it's now bitcoin's time. Altcoins are now in bubble territory, and I believe that when the crash comes, instead of completely cashing out profits, some people will just keep everything in Bitcoin. It's easier, more practical, and avoids taxes when cashing out.
However, we have thought about this in advance. We need to give time to the mass market to realize this. Altcoins will keep pumping for at least two weeks or one month. Then bitcoin will go crazy. And alts will crash.
Also, you said @cryptovestor that every single coin is overvalued right now. I agree as well because there are no real usecases yet, for any coin... except steem!
Steem already monetizes websites, like steemit, but also Dtube, utopian.io etc... Many people already make a living on steemit. Steem has no competition, there is no other product in the world that does the same thing as steem. You can't really compare it to anything else, and that's why I believe that its valuation can be correct, even undervalued in my opinion. Especially if we take into account Smart Media Tokens which are coming out soon.
Why would people cash out with BTC when the fees are so high and transactions are so slow. Makes way more sense to cash out with LTC or ETH, that's what I do...
LTC and ETH are still altcoins and will probably feel the crash as well.
Not sure about that, many exchanges have also ETH pairs and many people actually buy ETH first instead of Bitcoin because of fees or transaction times
Something that I think is often overlooked is that a lot of new people have no clue what the transaction fees are.
That's what a lot of people do, at least those that don't keep their funds on exchanges (which everyone should be doing).
The fee's and slowness of BTC are just too much to make it a good resource to use and this isn't changing anytime soon.
I agree - people will want to keep money in the crypto market, so Bitcoin will remain the number one option for them to go to. As silly as it sounds, Bitcoin is genuinely the "flight to safety" asset in this field. This euphoria for alts could definitely go on longer, but I don't pretend to know when such things can end so I just take action when I have high confidence an event will happen (altcoins moving to Bitcoin).
I don't like being a shill, but Steem is definitely one of the better ones. It's still got a long way to go though as it is far too abused. Most people would be willing to do what they currently do for Steem for much less money, meaning it is paying out way too much. More importantly, however, is that the reward pool tends to pay far too much relative to the value the content brings to the blockchain (as defined by new users, investors, and views).
Given this, Steem unfortunately is currently a platform that gives more than it takes. This ecosystem will continue to work while we are in a bubble, but when the bubble pops, a lot of content creators will suddenly get slammed by declining Steem value (Steem will go down regardless of whether or not it makes sense just like all other cryptocurrencies). This will be a crucial event in Steem's future.
I hope that the continued development on Steem is able to successfully curb major issues to the platform like abusive self voting, vote buying, disproportionate rewards relative to the value of the post (while subjective, there are some obvious cases that simply should not happen) and many other forms that I won't list here.
Lots of people will lose their ass on altcoins when the correction comes.
https://steemit.com/crypto/@hvlyarmedtrader/the-most-important-video-for-ripple-xrp-investors#comments
If the main goal will be just cashing out through bitcoin when the bubble pop will seem imminent, then the bitcoin crash won't wait for much longer. I know that's not what you said, but if they are not evangelical abot their altcoin and they just wait for the right opportunity to cash out, they will have the same relationship towards bitcoin - it's just that the time to cash out from bitcoin will come a bit later.
I agree 100% with what you say about Steem. Very few people in this environment focus on actually creating value.
yes...
For once more, you speak out the word of logic. The voice in the back of our heads that tells us: "Is X coin that much valuable that deserves a 10 times increase in just 2 days? Does this market cap really represent the issues that this X coin tries to solve, or the new benefits it provides to humanity in this period of time? Does this new alliance/team formation with company X or the new listing in an exchange platform make the coin so much more valuable?" We need to ask all these questions before we place any bets, and more importantly before we miss lead this wonderful technology into a rapid fall.
While I do believe that there are a number of reasons for the existence of about the top 200+- crypto currencies, I am afraid that at the moment most of the market cap is represented by people that have absolutely no clue in what they buy. People that are hoping to catch the next 10x and make huge profits. Don't get me wrong, I my self consider a "wise" strategy to invest 10-20% of a portfolio in many different alt coins, due to the increasing potential of huge incomes, but please please please: always do some basic, 30 minutes research, to find out why and who developed any of the coins in your portfolio.
A final thought on how this could lead to a sudden fall: big players with lots of money invested in this market not only follow the news, but actually deeply understand the uses and practices of each coin. While it is very hard to actually count that into a number (price), it is much easier to get a feeling of an approximate evaluation. So when these people understand that any crypto is very overpriced, they will cash out lots of money and create (willingly or unwillingly) panic which will lead in an even bigger decrease in market cap. Then, as soon as the price returns to the level that represents the real value, they will buy them back.
I don't know if we got a week, or a month, but I feel that we are getting closer and closer. If this happens, I believe that market cap of cryptos will drop 30-40% and bitcoin will rise again to 50% market dominance; thus, maintaining the same price or small increase. I am NOT a financial advisor, and you should all make your own research before you take action into investing.
Why don't we start using crypto currencies as actual currency rather than just using it to buy and sell. It is decentralized and worth nothing but what you want it to be worth so why don't we use it for it's intended purpose? Fluctuating prices hurts it as a currency because I don't want to buy something with 10 coins and then the next day the item is worth 3.
Probably because there is limited reason to use them as one since they just keep going up and its so volatile that you can't price anything in them. Aside from privacy, limited reason to use them for right now.
I don't understand much about Steemit yet but sure like your videos and all content you provide us. Thanks for your hard work!
Welcome to the club - most people don't, even those who have been here a while. Glad to have you over here and thank you for the kind words.
Somebody asked me in my blog why people even talk about bitcoin - implying, obviously, that it is a dead coin - which is an interesting sentiment against the odds.
If you measure crypto in crypto terms rather than those of commodities, you can say that Bitcoin already has a very good use case - it is the coin for trading and keeping value, like you said. In most cases than not, you will need to buy it and hold it to make other purchases. This is the "cash" of trading. Ethereum has a similar application, albeit on a noticeably smaller scale, and it is also the platform for ICOs. So there is another useful coin. Steem, in its weird symbiosis with the actually used product called Steemit, is probably another one although you are encouraged to hold it rather than use it, which does not constitute a pure "use case" in my book.
Everything else is reflective of what this market has been in the past couple of years - buying promises and hypothetical use cases.
That said, I noticed that in the past few months, markets have been moving not just in unison with partnerships, but also in unison with "solutions" to problems. I feel like the rise of XRB, for example, was preceded by the cryptokitties and subsequent talks of scalability. Somewhere around the same time, there was a bit of a rise in decentralized exchanges after issues with Bittrex and Coinbase. Substratum has really jumped on the net neutrality repeal controversy to make a good case for itself, and it is working.
The more I research social media, the more I notice this pattern, and it helps to make good buys. If you want to make money, look for "problems" everyone is talking about or starting to talk about, and buy something that is still in its infancy but promises to resolve the issue.
Now I remember you said that for scalability to be a relevant problem, there must be adoption first. True. But cryptomarkets are clearly not running on actual problems and solutions to them. They are running on "perceived problems". So if everyone starts saying quantum resistance is an issue (seems to be a growing "problem" trend), then whatever promises to solve the issue (or may already have something done for it) will rise like a rocket.
Just my two cents. I guess that's one reason I got interested in Hshare a few days ago that I asked you about. I did some digging around, so please take a look at my analysis (link) if you are interested. I would still love to hear your sobering thoughts on this particular coin for near future.
You nailed this so well on the head that I almost want to buy a ton of Steem Power just so I could provide more value with my upvote: Perception, not reality. I'm doing my best to get used to that, but coming from stocks it can be difficult. But I'm getting there with time.
I am sure cryptomarkets will get as boring as stocks one day. Then the lessons we will have learned from you will be of real value.
I think a transition from perceived to real problems and from perceived to real solutions will be key: that's when the 95% of the market players will fail, and the 5% will thrive into next Amazons and Googles. That will also be the time that will decide the losers and the winners among us, investors.
Until then, I am buying promises of solutions to yet irrelevant, non-existent or hypothetical problems.
Thanks for your reply! I hear you're busy.
Financial bubbles today do not "pop" like they used to. They fade gradually over time. There are a lot more warning signals today when capital starts to shift from one place to another. The bottom is not just going to suddenly fall out like how it did with the subprime crash or the various financial "event" crashes before it. This is especially true with these digital assets that move at the speed of light. Even the most casual retail investor is a lot more connected to the financial world than how it was in the early 90s and early 2000s. I know this because I was there. I remember every crash from the dot com to 2008 housing crash. You are mimicking the exact behavior of the old school popular CNBC bears that would give the same types of analysis with the U.S. dollar, stocks, and bonds. We're in a bubble! Stocks are in a bubble, bonds are in a bubble. Everything is in a bubble.. and not only was everything in a huge bubble, but that bubble was on the verge of popping! Now everyone needs to buy precious metals like gold so that they could hedge themselves from the imminent collapse that was always just around the corner.. every passing year, no matter how many years that growth would just keep trucking along and prove them wrong. Marc Faber, Peter Schiff, Jim Rodgers.. They used to call these guys the horsemen of the apocalypse. lol. All the gold bugs warning everyone that the bond yield curves were flattening(which they are), U.S. government debt was going to imminently default, and that there would be this massive exodus from stocks and bonds into the only thing that had "true" value.. Gold. I listened to these people for years and put tens of thousands of dollars into silver and gold bullion. You know what? Nothing happened. The apocalypse did not come. My investment actually depreciated. Jim Rodgers today is starting to evangelize Bitcoin now. At least he admitted that he was wrong. I'm still waiting on Schiff ;).. The reality is that people slowly shifted money away from the things that were depreciating in value and into the things that were appreciating. Nothing "crashed". It just faded from one place and into another. It's hilarious when you see financial news on TV, the DOW goes down a couple of points and everyone calls it a "crash". People move their money in a timely manner. Maybe it's bonds one week, maybe it's stocks. Then there is Bitcoin. Everyone saw that this was actually storing their value most effectively and went there. People trusted it.
Did they go to gold? Why not? Because this would have been the obvious, clear and safest choice seeing that it was historically THE established hedge, right? I mean it's just the most logical choice. Why did Bitcoin win out over gold? Why would people flood to an entirely new and unproven asset? Because this is what the market decided and they reacted to it. I was a huge metals stacker in the early 2000s and when Bitcoin came into the scene, was highly skeptical of it. I told myself that there is no way that the US Dollar price of 1 BTC would be higher than the spot price of a single gold bullion. Boy was I wrong. Social proof is a very powerful influencer.. and the people decided.
Those doom and gloomers did not foresee so many things in terms of rapid technological and financial development. Bitcoin made way more sense than gold as a viable medium of exchange in hyper-inflated countries like Argentina than gold did. It was fast and efficient.
Now I'm hearing the same kinds of gold purists talk this way about Bitcoin. That eventually, people will tire of the altcoins and go to the one true place where there is real value. Bitcoin. It all just sounds so familiar to me. :) Just replace "gold" with what you are saying is Bitcoin. The one true coin! You see what I'm getting at here? It didn't matter how much further established Bitcoin is, this doesn't mean everyone will default to this.
All those doomsayer financial prophets are pessimistic by nature, which greatly affects their outlook, especially when they see a lot of green, but after a couple of years, it become more of a desire to realize a self-fulfilling prophecy than to look at the contrarian evidence that proves them wrong. The VIX is at an all time low right now. There has never been more investor confidence. We're in uncharted growth territory right now and there is no way to accurately call a bubble at this moment. Just because there's a lot of green on that board, doesn't mean it's all speculative frenzy buying driven solely by those catalysts you mention.
I think you will be waiting along with Schiffs dad.... I remember my first introduction to bitcoin when all the YouTube stackers we making fun of it by presenting an empty coin slab and calling it rare. One guy recognized its potential and hit the mining hard, think his name was davincij15. It's sad to see Jim Richards waste his tweets on bitcoin bashing but I guess he has nothing better to do. It just goes to show you that the people that have the ability, whether gifted or learned, to recognize shifts like these, are properly rewarded. I can't stand it when people point at early adopters and complain about their winnings and call it unfair.... Not only was money put on the line, but so was reputation and to some that has more value.
It's very common behavior with these older financial gurus. They can be very stubborn and set in their ways. I respect a lot of these people, including Richards, but it takes some humility to admit that you were wrong, especially after being a believer in something for decades. Got to put ego aside and fame makes it tough for a lot of them.
I heavily disagree with this assessment, but I respect the time you put into it and I know this is something you've thought a great deal about over time. My issue with it is that bubbles aren't due to information disconnects - Most people know that Bitcoin and cryptocurrencies are a bubble, even many ardent believers like Andreas Antonopoulos. The reasons bubble form is due to human nature and I don't think ANY technological innovation will change that, not even the internet. In fact, I think it magnifies it. Most people are lemmings. They buy into the hype and they sell into the dump. It'll happen, that I have zero doubt of. But unlike many other gold bugs and other naysayers, I'll dabble for two reasons:
So many new people know about Bitcoin because of its price. Even when it pops, we will have thousands of developers in blockchain just because of it and they won't want to leave.
At the end of all this, once true markets develop that offer products with utility, I don't see how we have more than 3 - 4 functioning cryptos with appreciable use. We have 3 - 4 main credit card companies (Visa, MC, Discover, Amex), 1 main payment system (Paypal), and I'm sure I could think of other industries that have settled on 1 - 4 main players. I just don't see room for more than 3-4 cryptos maintaining today's elevated market caps, and the ones that do would likely go through a crash before reestablishing themselves.
The bottom line is that neither little old grandmothers nor I want to convert our cryptos into one of the 1'000's of cryptos out there used by any particular company. We want something like Paypal, with a single system that is universally adopted. This is not just for ease of use, but also to maintain the value of crypto's (remember, one large impetus for their creation was all the QA being done by central banks).
There is one way I could see having more than single digit cryptos in the long run ... if each country or region has their own crypto unit, pegged to their local currency. But if this occurs, they are weaker as a store of value impervious to central bank manipulation.
Ultimately, I'm hoping that 3 - 4 cryptos rise to the top over the next half decade, and I am lucky, insightful enough to have purchased one of those four.
This is a good point, but it's still confined to the old financial paradigm. It isn't a sure thing that just because the credit markets today ended up consolidating to 3-4 choices(Visa, MC, Discover, etc), that we would use that evidence to judge what the financial structures of tomorrow will most likely be. It's a little too "zero sum" thinking. Remember, one of the goals of crypto is to bank the unbanked. Today, even with the juggernaut financial institutions that Visa, MC, Discover have, there remains millions of people on this earth that are not their clients. My guess is that the competitive pool will increase to a much bigger size than what we are used to. That's what decentralization always does. Increase market competitors and offer more choices to the consumer. It doesn't have to follow the 3-4 winners on top and everyone else dissolves prediction, just because this is the way "it's always been". In the original post, Crypto Investor writes:
"These four catalysts drive astronomical returns even when it doesn't make sense. However, all good things come to an end and I suspect that soon, altcoins will flee to Bitcoin. Note that almost all altcoins must be bought with Bitcoin - the opposite is true too (altcoins are sold for Bitcoin)."
On what basis does it "not make sense", and how can we possibly know with certainly that those 4 catalysts are the primary drivers of all the growth in that space. It may be that those things spark those runs, but there are plenty of investors that are now coming into the space that don't care about Reddit posts or even look at the internet community following these things.
The big assumption here is that this will remain the same going forward. It might have been that altcoins and Bitcoin always had an inverse relationship with each other, but if you look at the trends going forward, you can clearly see that the relationship between the two are starting to slowly decouple from one another. This can be difficult to admit if you've spent a great deal of your crypto life evangelizing Bitcoin as "king". Again, it's this trap of zero sum thinking. We cannot foresee a major game changer coming down the road that will throw all of this analysis out the window. The past is great tool to speculate on the future, but it should be recognized that variables change constantly that make those old models obsolete. and a reassessment based on new information not known before must occur internally. One other thing that crypto investor may not realize here as well. Fiat is ALSO a position.. and it may be the case that fiat will be paired to more alts in the future, with exchanges dealing with a variety of positions that you can go in an out of. I can see all of this floating against each other in a much bigger and open market. Fiat to BTC, BTC to ADA, Stellar to fiat, Crypto to gold, Ripple to USD, to Yen, whatever. I can see the old credit monopolies being replaced by a much bigger list of lenders, all offering multiple tiers of financial services to meet very specific needs. Decentralization opens up markets, it doesn't limit them to a few.
"The bottom line is that neither little old grandmothers nor I want to convert our cryptos into one of the 1'000's of cryptos out there used by any particular company. We want something like Paypal, with a single system that is universally adopted."
^Grandma might not necessarily be expected to even know this. There are lots of projects working on under the hood universal wallets. Think about Bread(BRD) for example. I can see this type of project evolving into a one click payment solution that converts to anything. Atomic swaps under the hood. Today, apps like RobinHood made it so easy to invest. Any kid can buy and sell a position in a stock now. This was unheard of in the 90s.
Basically, my outlook for the future is more optimistic here. Sure, there WILL be losers in this competitive space, but I personally feel that there will be a lot more winners that we realize, and I hope we all come out on top. Cheers! :)
I am definitely guilty of focusing in on one of the original applications when I bought Bitcoin over 4 years ago, that of a currency not able to be manipulated by the central banks. Your point about grandmothers is excellent, companies will have to build a LOT of front end architecture that makes exchanging coins user-friendly for mass audiences. Cheers to you too !
I could see there being a few just based on the fact that the infrastructure is just starting to be built. The only way to get a monopoly in cryptos is a coin that works for everyone. Not going to happen.
I don't think it will be that few, just because there are use cases beyond "currency." But in terms of currency, yes there is limited room for success. Part of what I like about crypto is that it is so much simpler than having to deal with USD, EUR, JPY, GBP, etc. But if you got 50 different spending currencies, then I guess that's not really the case. Probably will be a mainstream currency and a privacy currency that will operate side-by-side and become adopted as a side option to existing centralized solutions.