Bitcoin surges, while altcoins wither – Is an altcoin ‘bubble’ about to burst?

Bitcoin surges, while altcoins wither – Is an altcoin ‘bubble’ about to burst?

Bitcoin just keeps chugging along, continuing its five-month intermittent surge routine, having blasted off from its $3,130 launch pad in December and now currently toying with $13,000. In the not too distant past, when Bitcoin took a breather from its “surge routine”, its altcoin brethren had a habit of surging, as well, benefiting from a rally driven by investors becoming more comfortable with higher risk dynamics. Of late, however, investors’ risk tolerance has not been expanding, as in the past. Advocates keep wondering when the altcoin rally will come, but observers are beginning to question whether an altcoin “bubble” has formed.

Yes, Bitcoin is up to its old form again, blasting through formidable barriers of resistance, but more importantly for some investors, the world’s favorite digital asset is also increasing its market share dominance in the crypto industry. Today, its share is 65%, but it has been on a rise since early 2018, after its previous “bubble” deflated. Its dominance then fell to around 35%, but it has gradually ascended to the present day value of nearly two-thirds of the total industry market cap of $350 million.

One of the first firms to see this change coming was A.T. Kearney, a top ranked global management consulting firm with annual revenue turnover in excess of US$1 billion. It predicted last December that:

By the end of 2019, Bitcoin will reclaim nearly two-thirds of the crypto-market capitalization as altcoins lose their luster because of growing risk aversion among cryptocurrency investors. More broadly financial regulators will soften their stance towards the sector.

The rapid rise of Bitcoin’s share dominance, however, has rekindled a debate about crypto valuations – Are cryptos overpriced, and have altcoins formed a “bubble” that is ready to burst? If you peruse the historical record, you will find that discussions of Bitcoin being a “bubble” as far back as 2014. Skeptics were on a roll back then, declaring that the rise in BTC valuations was unsustainable, even well before its “parabolic” explosion in 2017. The Financial Times was even so bold as to suggest in an article: “We’re going to stick our neck out at this stage and call this the end of Bitcoin.”

As it has done many times over in the past decade, Bitcoin took the contrarian’s route, much to the chagrin of its detractors, until early 2018 when its “bubble” did finally implode. These same skeptics, however, rejoiced during every grueling month of Crypto Winter that followed, many claiming once again that cryptos were dead on arrival.

Fast forward to today, and we have a much different picture, where an assortment of fundamental drivers are at play, not just speculation mania, as in 2017. Institutional interest is up and growing, as major projects rush to support their needs, i.e., Fidelity Investments, Bakkt, ErisX, the Nasdaq, and a host of other traditional firms. This support, however, may only benefit a few major programs. What about the mass of altcoins below? Are there now two crypto universes?

As we reported at the beginning of this month: “Peter Brandt, a notable commodities and crypto analyst, is one, who favors the argument that a “bifurcation” may continue. He has quipped that:

Crypto maniacs, who believe altcoins will benefit from bull runs in Bitcoin… may be very disappointed.” He also compares the present situation to when the “ bust” occurred back at the turn of the millennium. Companies of real value went on to achieve wonderful things, but the “alt-coms” of the time, as he called them, suffered greatly and died out.

Since this memorable quote, Mr. Brandt reiterated his strong beliefs in an interview with Cointelegraph:

I believe that the advance in late 2017 and early 2018 in altcoins will prove to be bubbles. I am of the firm belief that 95% of alt-coins will eventually be worthless and that BTC will occupy 80% to 90% of the total market cap of cryptocurrencies. No doubt several of the altcoins and macro-cap coins will find utility in specialized niches. It remains to be seen which coins these will be.

Brandt is not alone in his opinion that altcoins are in peril. American broadcaster and Bitcoin cheerleader Max Keiser recently noted that:

Look, the dominance index is at 60% again, and it’s going back to 80% or 90%. Because that’s the only logical place for anyone who wants to be in crypto to be. But the short answer is, in my view, the altcoin phenomenon is finished.

Is there a crypto “bubble”?

Crypto valuations have always been a topic of fierce debate, because these digital assets are not structured in a fashion similar to traditional financial assets. There is no revenue stream that can be discounted to the present to determine if there is value, along with probabilities to reflect degrees of value. Crypto advocates staunchly defend present valuations, since they argue that they actually do represent the present value of potential successes in the future. As time goes by, technologies will be ingrained in society in the same manner that Internet innovations evolved into today’s reality.

Have investors, however, gone over the line – Have they overpriced their perception of future prospects, thereby forming a “bubble”? Yes, speculation will always be a part of this market, and yes, again, the current “parabolic” slope of Bitcoin’s current bull run appears to be unsustainable, but both of these “yes’s” does not mean that we are necessarily staring a “bubble” condition in the eye.

Glen Goodman, a former reporter for the BBC and ITV who now focuses on cryptos, does not see a “bubble” at present:

Crypto markets are largely driven by speculation but that doesn’t mean they’re currently in a ‘bubble’. Classic speculative bubbles are characterised by euphoria and the mass-involvement of ordinary people who believe they will soon become rich. We saw that phenomenon in late 2017. […] I sold my crypto holdings shortly after, and waited for the bubble to fully deflate, which took about a year.

Josh Rager, another well respected trader and analyst with a large following on social media, posited:

The cryptocurrency market as a whole isn’t a ‘bubble’ but I do believe we saw a bubble with ICOs and crypto assets not backed by solid fundamentals. In 2017 all you had to do is put together a small team, build a website and have a white paper to be considered a potentially valuable company. But as we saw, the majority of these companies ‘run out of funds’ by the end of 2018 and their assets were dumped on exchanges.

Rager went on to add:

The psychology of 5-digit Bitcoin over $10,000 has already set in, as we saw sub-$10k prices were quickly bought up over this past week. Bitcoin and crypto miners seem to be holding on to more Bitcoin because they’re profitable once again so there is a lack of selling pressure from miners overall. Not to mention all the new instruments for Bitcoin and the crypto market including BAKKT and institutions getting into the market more. And even LedgerX was recently approved to offer physically settled Bitcoin Futures to retail investors. All these signs show me that the market is maturing and we’re not in any type of mania.

Max Keiser scoffs at the notion of a Bitcoin “bubble”:

Bitcoin is virtually the only financial asset ‘not’ in a bubble. Sovereign bonds are in multi-hundred year bubbles. The USD and various fiat money are in historic bubbles. Stock markets are in bubbles. Most property is also in a bubble. Gold and gold mining stocks are undervalued and good places to invest, but their upside is limited as compared to Bitcoin.

But what about altcoins – Are they in danger?

Let’s not forget that Max Keiser also said that, “The altcoin phenomenon is finished.” If there is a bifurcation occurring in the crypto industry, it is not happening at the top of the heap. The general conclusion is that investors are beginning to “cull the herd” of lower altcoins, so to speak. This group is being divided into two sub-segments – the ones with strong fundamentals and the ones that do not have them. In line with innovation cycle analysis, the latter segment will fail, the former will go through many transformations and consolidations, and the final result will not look at all like it does today.

In that vein, Max Keiser believes that:

In ten years we’ll see Bitcoin, and a bunch of coins that don’t exist now; the new crop of seedlings that start with promise, then fade away.” Glen Goodman concurs: “In ten years, most of the cryptocurrencies we know and love will probably be in the crypto graveyard.

In conclusion, Goodman asserts that:

As we saw with Netscape, AOL and AltaVista in the early Internet era, it isn’t necessarily the first-movers in a new industry that end up the biggest successes. Perhaps even Bitcoin itself will be usurped by something faster and even more ingenious. A household brand name like Bitcoin is a valuable thing, but it does not make a brand bulletproof. Just ask Nokia. Or Blackberry. Or Kodak. Or Blockbuster. Or Toys ‘R’ Us.

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