Cryptocurrency is fickle – and getting into Bitcoin, with its startling dominance of the $180 billion crypto market – is more and more expensive (and risky) on an almost daily basis.
At the time of writing, Bitcoin accounted for 58.41% of all cryptocurrency market capitalization, up from a low of 39.31% on June 20th. Meanwhile, Ethereum has retreated from 32.48% of the market on June 12th to 16.06% today.
Ripple? Plunged from 23.08% to 4.27%. And the same story is repeated across coins from Litecoin to Bitcoin Cash, which briefly soared over 10% of the market before plummeting to 3.97% today.
So why is getting into Bitcoin, getting harder?
The rise of the altcoins helped drive investor interest in cryptocurrency, generating staggering returns for many of those lucky (and prescient) enough to participate in ICOs in Spring and Summer of 2017.
These returns are often reinvested back into the market – for a variety of reasons. Firstly, it’s simply not that easy to withdraw extremely substantial amounts of fiat currency to a bank account in many countries. Or necessarily advisable.
Secondly, capital gains taxes can deter investors from realizing their gains in fiat immediately.
Thirdly, as institutional investors hop on board the cryptocurrency gravy train, the value of gold-standard investments (read: Bitcoin) continues to increase at rates that the traditional markets can’t emulate – thereby persuading the altcoin holders to continue to press for greater returns within cryptocurrency, rather than seek shelter in traditional funds.
And finally, the altcoins have begun to eat their own market.
ICO returns are flat, and in many cases tokens can be picked up immediately after lock periods on exchanges such as EtherDelta at prices less expensive than the final ICO price.
This is a multifaceted phenomenon, but some obvious reasons include:
- The unchecked proliferation of ICOs, with numbers expected to reach 8,000 in 2018 according to some sources.
- The continuing public wariness of scams and ‘shitcoins’ that serve no value other than to enrich their creators.
- The lack of clear and successful products emanating from the majority of ICO projects.
- Ongoing expectation and/or fear of imminent government regulation.
- “Pre-ICO” prices for institutional investors can drive downward trends as they seek immediate returns as soon as a coin is listed on a major exchange. (The Binance Protocol.)
The formula is quite straightforward.
Institutional money is one of the key drivers of Bitcoin price growth at this point. Although not always smart when working within its peer group, it seems safe to assume that it’s smarter (at least financially) than the average early adopter of blockchain technology.
Smart money goes where more money is to be found. If altcoins are no longer a guarantee of massive returns – or ANY returns – the smart money will be found in Bitcoin, cryptocurrency’s “safe haven” – if that isn’t a contradiction in terms.
Since early ICO investors are demonstrably loathe to realize their returns, and are equally able to see the flattening returns of more recent ICOs, it is also safe to assume they they are retreating to positions that produce steady growth. As they see Litecoin (a supposedly-shining example of an altcoin that’s well-regarded, fast, efficient and innovative) dip to its lowest point vs. Bitcoin since April, there’s a feeling afoot that BTC may be the only alternative to extracting fiat currency.
The proof of this is simple – Bitcoin domination. Its increasing stranglehold on the crypto world may not be healthy, but it has indisputably increased since the Altcoin Summer and despite forks, civil wars, bizarre bets and establishment fudding, Bitcoin continues to defy critics and increase market capitalization.
What this means for people who are just getting into Bitcoin is simple – it’s more expensive, and therefore potentially more risky, than ever before.
What a difference a million makes.
On Christmas Day of 2015, the Bitcoin world celebrated mining 15 million bitcoins. On that day, 1 BTC was worth $455.47.
In other words, for $455.47, you got to own 1/15,000,000 of the Bitcoin supply. Now, for $6,326.60, you get to own about 1/16,655,238 of the Bitcoin supply.
This isn’t inherently bad in some markets – it’s how stocks work, generally. The price of entry increases over time, rewarding those who help grow the stock with healthy returns (and stock splits, or forks!) while providing later adopters with steady income. The risk of losing the investment is usually higher for early stock adopters; however, the reward is also the highest if the stock succeeds. So far, so good.
But the risk in currency markets increases over time, since the product is actually a mutually-agreed value, not something with inherent monetary exchange value like pork bellies or orange futures. So unlike investing in Google, or Nike, a new Bitcoin holder actually has to take on MORE risk as the price increases.
This is probably why people like Jamie Dimon describe Bitcoin as a bubble – when, or if, the mutually-agreed value changes, there is nothing to prop up the ‘stock’ the way there would be if Google announced lower ad revenues, or Nike was slow to catch onto a fashion trend. Nor is there anything to anchor the value to the floor, such as a competitor or an anti-trust lawsuit.
Of course, the Bitcoin community can argue, quite coherently, that mutual trust carries inherent value – especially when pitted against the disdain so many people have for bankers like Jamie Dimon. The mutual trust has been betrayed by the banks, hence our adoption of a disruptive technology like the blockchain. The value wasn’t created out of thin air – it was created out of a shared feeling of necessity.
But whether that’s the case or not, we as a community need to understand that when Bitcoin IS cryptocurrency, the house of cards that we’ve been warned about will, indeed, come tumbling down. With the current degree of market domination, that is a scary future for crypto enthusiasts.
And a massive barrier to entry for those just now getting into Bitcoin.
(Graph courtesy CoinMarketCap.com)