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Crypto Analysis — Bitcoin, Altcoins, And The Entire Cryptocurrency Market (4-25-17)

The cryptocurrency asset class has expanded at an exceptional rate during the past two-to-three months. In the past, most new money entering the fold has gone into Bitcoin; the cryptocurrency that started it all. This time around, Bitcoin has been rising, but the bigger story has been the rise of the "altcoins."

Altcoins and DASH

The new money entering the crypto market has pooled into altcoins - or other cryptocurrencies - at nearly an exponential rate. In fact, some of these altcoins HAVE risen exponentially. DASH is a prime example after it experienced a run-up from roughly $9.00 in December 2016, to $109.00 by March 19th, 2017. During that time, DASH's market capitalization expanded over ten-fold from $61 Million to $787 Million (As of this writing DASH has a market cap of $523 Million at $72.08 per coin).

Ethereum

DASH wasn't the only major altcoin to experience a major run-up. It may have been the coin to get the party started (after analyzing the charts of many different altcoins) but there were many others that followed in its footsteps. Among those was Ethereum; the second largest cryptocurrency by market capitalization, and a developer favorite due to its smart contract capabilities. Since its inception, Ethereum has been all the rage. Many think that this could be the coin to challenge Bitcoin's dominance. So far, it seems like a ways off, but the recent run-up has shown that it is indeed a contender. On February 13th, 2017, Ethereum (NYSE:ETH) sat at $11.23 per coin and had a market cap of around $1 Billion. By March 29th, 2017, it boomed into a $4.79 Billion market cap with each coin valued at $53.12. (As of this writing, Ethereum currently has a market cap of $4.5 Billion at $49.92 per coin)

Ripple

Ethereum wasn't always #2 to Bitcoin's #1. Ripple held that distinction for quite some time, and like Ethereum, Ripple has been a tech and banking company favorite. It should also be noted that Ripple's rise-and-falls have not correlated with Bitcoin's - it has a mind of its own. With that said, it too has experienced an impressive run-up with the altcoins. On March 20th, 2017, Ripple's market capitalization was $277 Million. By April 3rd, 2017 it was $2.24 Billion. (As of this writing, Ripple currently has a market cap of $1.2 Billion at $.0328 per coin)

The Cryptocurrency Market

Bitcoin has always been the leader of the pack, as it has held 80-90 percent market share of ALL cryptocurrencies combined, but this recent run-up has dropped its share down to around 66 percent.

To put that number into actual context, when Bitcoin's market cap was roughly $12 Billion on June 20th, 2016, the entire market cap of all cryptocurrencies was roughly $14 Billion. Now, Bitcoin's market cap is $20.4 Billion, and the entire market cap of all cryptocurrencies is $30.9 Billion. We now have over $10 Billion invested into altcoins - up from $2 Billion a year ago - and up from $3 Billion just two months ago. Looking at the chart below, we can easily see the impact of $7 Billion pouring into the altcoin market within this short, two month timeframe.

One of the biggest surprises is that Bitcoin's individual market cap has actually grown during this time period - and that it is quickly approaching its all-time high of $1,270. It needs to be noted that approaching previous all-time highs has been very significant in Bitcoin's past in terms of what happens to its price afterwards. In my prior writings, I noted that Bitcoin's rise-and-falls follow a specific cycle. When an all-time high threshold is breached, the price rises aggressively for a short period of time, and then it inevitably drops and corrects. It then gradually makes its way up to the old all-time high and repeats this cycle again. (As of this writing, Bitcoin currently has a market cap of $20.4 Billion at $1,257 per coin)

We are close to hitting that all-time high threshold again, but this threshold is a little different from the prior ones. This is largely because speculation of the Bitcoin ETF - an Exchange Traded Fund that would have allowed stock-market money to enter the ecosystem - fueled the rise to $1,270. The "real" previous all-time high was $1,130, set in January, 2017; but because we were on the cusp of a potential ETF approval, the price no longer followed its usual pattern. Instead, it broke through that $1,130 threshold in haste, and quickly fell after the ETF was disapproved.

But what shocks me most is that we're approaching the $1,270 threshold it in the face of a declined ETF, a scaling debate, and a very significant rise in altcoins. If you told me that we would be approaching the all-time high this quickly after the Bitcoin ETF was disapproved and that altcoins would rise by over $7 Billion, I would have said you were nuts. But that's what has happened… It seems that people have cryptocurrency fever, and this is best demonstrated by the current parabolic nature of the total cryptocurrency market capitalization chart.

Cryptocurrencies Parabolic Nature

The cryptocurrency market is notorious for parabolic rises. There have been numerous examples in the history of cryptocurrencies, and I've highlighted a few of the current rises within this writing (DASH, Ethereum, and Ripple). Historically, these rises always follow up with a big, dramatic crash. What goes up must come down after all, and cryptocurrencies aren't any different. It seems that after all parabolic run-ups, the price corrects by over 50% - and oftentimes by over 80%. Usually, the run-ups last for a month or so, and then they start to correct after new highs fail to be made. We could easily witness this within the altcoin market very soon. I also have one other reason to believe a correction will be made to the altcoins, but I will share that towards the end of this writing. With that said, there is one altcoin that could still be in the midst of a parabolic increase and that is Litecoin.

Litecoin

Litecoin is basically a clone of Bitcoin and was the second cryptocurrency to ever exist. It experienced a parabolic rise along with Bitcoin back in November of 2013, but it has fallen to the wayside and lingered downwards ever since. That is, up until this past month. While most of the other altcoins were experiencing rapid gains during February and March, Litecoin hadn't budged. But something changed, and it changed big. Litecoin starting signaling for Segregated Witness (Segwit), which is an upgrade that has been at the forefront of Bitcoin's scaling debate. Once this possibility became realistic, Litecoin's price began to rise. Litecoin went from a market cap of $210 Million on March 29th, 2017, to a market cap of $568 Million on April 6th, 2017.

Then, Litecoin went into a holding pattern as there became a possibility that activation may not take effect. For Segwit to become activated in Litecoin, 75% of blocks mined within a certain time-frame needed to be reached. This decision rests on the Litecoin miner's shoulders, and if enough miners decided not to signal for Segwit, it wouldn't activate. There was some debate, but eventually the Litecoin miners came to a consensus, and well over 95% of blocks mined since the consensus have been signaled for Segwit - a clear sign that Segwit will be activated. As a result, Litecoin broke out of its holding pattern on April 21st, 2017 and currently sits atop a $739 Million market cap with one coin valued at $14.55.

Based on the current statistics and assuming they continue, it seems very likely that the Segwit upgrade will activate in Litecoin. Considering that Litecoin has not experienced a rise like the others, it wouldn't be surprising to see more money fueled into Litecoin; especially with $7 Billion in new altcoin money looking to funnel into the "next big move." But hey, I could be wrong - it has had quite a run-up already.

Bitcoin and the Crypto Conclusion

Let's end this analysis with the most important cryptocurrency: Bitcoin. We are rapidly approaching the all-time high of $1,270, and assuming Bitcoin does have a significant breakout; $1,600 to $1,700 would be the new, all-time high price target if it followed its normal pattern. This time, I'm not so sure it will. There has been nothing normal about this current rise, nor has there been anything normal going on within the entire cryptocurrency market itself. Investment has been entering at a very rapid pace, and if you ask me, the cryptocurrency fever is reaching a boiling point with charts starting to look like they are in at the beginning stages of a parabola. With well over $10 Billion poured into the crypto market over the past two months and Bitcoin's all-time high close to being breached, I wouldn't be entirely surprised if this scenario played out.

Now, I previously mentioned the possibility that some of that $7 Billion in new altcoin money might fuel into Litecoin. The same could be said with Bitcoin, but at a much larger scale. If Bitcoin started rising very quickly, I would fully expect the free-floating altcoin money to flow into Bitcoin. As all of those altcoins have already hit their all-time highs in parabolic ways, I believe they are in their correction phase. So if Bitcoin breaks out, it's reasonable to conclude that investors will leave those coins and chase Bitcoin's gains (This was the other reason I thought altcoins would correct).

If this ends up being the case, we will have a very good looking chart in terms of price and that parabolic scenario might just play out. If it does, and Bitcoin does go down this path, that $100 Billion market cap benchmark could very well be reached within the year. I'm not calling this by any means; rather, I'm just continuing the thought process. Only time will tell and I'm not going to act like I'm smart enough to actually know this. Invest at your own risk.

Investor Warning

There are substantial risks involved when you invest in cryptocurrencies and you could lose everything you invested. I obviously like cryptocurrencies as an investment, but I am by no means an investment professional so don't consider this investment advice. I simply enjoy analyzing these markets and writing about it. So don't enter the fray because of me. I don't want that on my conscience. If you do, be smart, have a plan, and learn how to be your own bank.

With that said, I am open to the idea of working for a firm or individual(s) that would like to use my knowledge on this topic. Contact me if you're interested.

Bitcoin Optimist out

(Originally posted here on Medium.com)

Disclosure: I am/we are long BITCOIN AND CRYPTO.