Part 1. Bubbles as a scarecrow for newcomers
The cryptomania 2017 was colossal. Although cryptocurrencies have existed since 2009, many people found out about them just in 2017, against the backdrop of the outstanding growth in rates and a clear sense of revolution. Many newcomers thought that the rates would grow forever. They were ready to buy digital currencies at any price considering any declines to be local, and growth to be global.
But 2018 brought an unpleasant surprise: the market suddenly began to break down. In the first quarter, many people hoped that this was only a “correction,” but the collapse continued. If early in 2018, Bitcoin (BTC) carried a record price of $20,000, then by September it had fallen in price to $6,300, that is, threefold. And the “heroic” ethereum (ETH), which almost surpassed BTC in terms of capitalization in Summer 2017, had fallen fivefold: from $1,300 to $250.
In autumn, the market froze. It seemed that the bottom was reached and the restoration would begin soon. However, November brought another surprise: the rates dropped again. For example, BTC fell in price from $6,000 to $ 4,000. This happened so suddenly that it looked like an evident conspiracy of the major players, so-called “whales”. Autumn investors, following the earlier ones, suffered losses. Many of them completely become disillusioned with the crypto-market, having decided that it is entirely in the grasp to manipulators: such a “market” resembles MMM where quotes are randomly set by puppeteers.
In Winter, the market froze again, while in Spring a long-promised growth began. In March it continued to ascend carefully, and in April it continued to ascend unexpectedly sharply and symmetrically to the drop in November. In both cases, the BTC rate changed by $800 just for an hour, but in November it was a drop, while in April it was a rise. In both cases, there was no kickback: on the contrary, the movement went on. Optimists rushed to buy cryptocurrencies, but the most population smelt a rat. If not only drops but also rises occur "in a snap", is this not the best proof of pulling the strings?
So do we believe in true market recovery now? Perhaps this is another trick? Is it worth investing in cryptocurrencies or is it better to forget them like a nightmare? Is the market entirely in the hands of puppeteers or does it have objective laws? We will try to understand this in more detail.
How did it get started: bitcoin and its bubble 2013The first world’s cryptocurrency was Bitcoin (BTC). It appeared in 2009 and firstly it was known only to specialists in cryptography, as well as to particularly advanced free market activists. But soon it attracted the close attention of investors demonstrating in 2010-2013 a tremendous growth of 4 orders: from $ 0.1 to $ 1000. In other words, the average exchange rate grew by a factor of 10 per year (!!!)
In 2013, this BTC’s success gained worldwide fame. However, as often happens, the shock popularization was no in favor of the asset rate: reaching a record mark of $1,200 in December 2013, BTC began to fall in price. Towards the end of 2014, its rate rolled back to $250, following which it remained relatively stable in 2015. A significant part of the growth in 2013 turned out to be a bubble. However, after blowing off the bubble, the BTC rate still remained significantly higher than it was early in 2013 (especially, in all previous years).
How it continued: altcoins and general market bubble 2017The new growth of the BTC rate began in 2016, and became especially explosive in 2017. At the same time, altcoins, new cryptocurrencies, “alternative” BTC - ethereum (ETH), lightcoin (LTC), emercoin (EMC), and many others asserted themselves in a massive way. If until 2016 they stayed in the deep background of the market flagship, then in 2017 their total capitalization for some time exceeded the capitalization of BTC. In Summer 2017 there was a moment when the ETH acting alone nearly advanced the BTC.
By the end of 2017, BTC had risen in price to $20,000, while the total capitalization of the cryptocurrency market reached a huge amount of $800 bln (higher than capitalization of any global corporation). But this turned out to be yet another bubble: throughout 2018, just as in 2014, the rate of BTC and other currencies was falling). By the end of the year, the market capitalization decreased to $130 billion.
What can be shown by the comparison of two bubblesFinancial bubbles constitute an unpleasant phenomenon, and yet a logical one. By studying their dynamics it is possible to reveal a lot of interesting things about the nature of the new assets. If we look attentively at the figures, it is possible to note: the bubbles of 2013-2014 and 2017-2018 have much in common.
⦁ In both cases, the rate of bitcoin has dropped approximately five-fold. Market capitalization in the second case has dropped approximately 6-fold.
⦁ In both cases, a general decline lasted about a year, followed by a quiet period.
⦁ In both cases, "after bubbles" the rates have been fixed at the levels that are considerably higher than the levels "before bubbles". For example, at the end of 2014, BTC was much more expensive than at the end of 2012, while in late 2018 it was much more expensive than in late 2016.
DECLINE IN 5.3
DECLINE IN 4.8
This simple comparison shows: the scale of the 2018 cryptocurrency crash is exaggerated. The bubble has developed according to the same scenario, as it happened last time, and seriously frightened only the novices.
Judging by the charts, the cryptocurrency market is more alive than dead. Moreover, it quite well follows the standard laws of financial bubbles’ development, and its multi-year trend is clearly positive. For the credibility one can recall, for example, the chart of the oil prices in the 2000s. As we can see here there is also a bubble and decline, but after that – recovery to the values, which are much higher than before the bubble. That’s what happens when the assets are really valuable (not just a short-lived hype), and this is exactly what we have been observing in case of cryptocurrency market.
With a high degree of probability, right now cryptocurrency investments are of particular interest. The upward movement looks quite reasonable, and why it has happened so abruptly, is there some catch behind it, and what are the fundamental reasons that contributed to the upward trend – we will discuss all these questions next time
Analytical department, Trident company, Victor Argonov, Candidate of Physical and Mathematical Sciences.
Source:
http://trident-germes.com/
