Many people see crypto space as a giant bubble. I would disagree, at least for now. I think we may be entering early bubble territory but won’t be quite there yet for another year or two. Here is my reasoning.
- Cryptocurrencies have not passed the $1 trillion mark. Cryptocurrencies are a whole new asset class and asset class below $1 trillion is not massive. Just see real estate, stocks, bonds etc as a reference. Tens of trillions of dollars if not hundreds.
- Cryptocurrencies are still not mass adopted. Very few people are acquainted with cryptocurrencies, even less own some, and even less hold a sizable amount. How many people can you think of that own more than $10,000 worth of crypto? I know only a couple.
- Demand is increasing. Most people who are committed to crypto, commit even more. New people board the train every day. Main alt exchanges stopped registrations due to overload. Sentiment is positive. We need a really major event to evaporate enthusiasm.
- Institutional money is underinvested. 2017 saw an influx of hedge funds into space but those are the 1% most opportunistic ones. Most of the big institutional money is on the sidelines as the financial instruments to allow you to hold bitcoin are not developed enough. We need ETF, instruments for hedging on BTC and the rest. BTC leads the way but it is a very early stage yet.
- Very few people hold a big percentage of most of the cryptocurrencies. Their free float is very small. Thus the explosive growth. I don’t see this changing in the nearest future.
- The fact that crypto cap is $750 billion, does not mean that $750 billion came into the sector. A lot of coins are just held by early adopters that got them for free or very few money and they never changed hands. So inflow is far less than that.
- You cannot really short most of the currencies. It is only possible for BTC since we have the futures. So big guys that can manipulate price are not here yet.
- Crypto withstood a lot of crisis. Death of crypto has been called many times. If you are following the sector since a few years, you would know that bulls’ conviction is quite sturdy.
Cryptocurrencies are here to stay and the innovation is just getting started in the field. Very few people probably have the vision how big that may get and what fields of life that may change. A very common comparison is between the internet and crypto currencies. I believe that every innovation dwarfs the previous one.
Not everything is rosy though. There are a few worrisome signs that i acknowledge. LTC founder sold his LTC holdings, Dogecoin (started as a joke) passed $1 billion cap and Ripple founder passed Zuckerberg in net worth shortly. I also see a lot of people with poor fundamental understanding of crypto who flock the sector to make a quick buck. Still, i haven’t heard the waiter talk crypto. These are early signs of a bubble, but as a said we might be 1-2 years away from topping.
We are in a massive bull run and bull runs don’t quit just like that. All time highs are a clear sign of an upward trend and there is nothing strange about that. And trends have the tendency to last. We haven’t broken any support levels yet, charts are off the roof. Why call a top and stay on the sideline? I would be the first to acknowledge when things turn bad but I just don’t see anything like that yet.
Crypto assets are not like anything else and every standard investment analysis seems weird. The only way to look at crypto is from a risk-reward point of view. You can lose what you invested but can make a few times over. Very favorable risk-reward.
I know most of the currencies are in beta, don’t have valid use cases yet or have many flaws and are being constantly stolen by hackers. Fundamentally this is as bad as it gets. But when we talk expectations phase, all it matters is how much more money are going to enter the sector and what is the investor sentiment. I think a lot of money are waiting to enter and we will see higher prices before we have a real hangover.