Cryptocurrency: lives or dies?

Part 1. Bubbles as a scarecrow for beginners

Cryptomania of 2017 was colossal. Although cryptocurrencies have existed since 2009, many people learned about them in 2017, amid a staggering increase in rates and a clear sense of revolution. It seemed to many newcomers that the courses would grow forever. They were ready to buy digital currencies at any price, considering any downturns to be local and growth to be global.

But the end of the year brought an unpleasant surprise: the market suddenly began to crumble. In the first quarter, many hoped that this was only a “correction”, but the collapse continued. If at the beginning of 2018 bitcoin (BTC) cost a record $ 20,000, then by September it had fallen in price to $ 6300, i.e. three times. And the “heroic” broadcast (ETH), which in the summer of 2017 almost overtook BTC in terms of capitalization, fell fivefold at all: from $ 1300 to $ 250.

In the autumn, the market froze. It seemed that the bottom was reached and recovery would begin soon. But November brought another surprise: the courses collapsed again. For example, BTC fell in price from $ 6,000 to $ 4,000. This happened so abruptly that it looked like a conspiracy of the largest players - the so-called "whales". Autumn investors, following earlier ones, suffered losses. Many were completely disappointed in the crypto market, deciding that it was entirely at the mercy of manipulators: such a “market”, rather, resembles AO MMM, where quotes are arbitrarily set by puppeteers.

In winter, the market froze again, and in the spring, the long-awaited growth began. In March, carefully, and in April, unexpectedly sharply and symmetrically to the November fall. In both cases, the BTC rate literally in an hour changed by $ 800, only in November it was a fall, and in April - a rise. In both cases, there was no rebound: on the contrary, the movement continued on. Optimists rushed to buy cryptocurrencies, but a significant mass of the population left a sensation of a dirty trick. If not only falls, but also rises occur “at the click of a finger”, is not this the best proof of puppetry?

So believe in genuine 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 it all began: Bitcoin and its bubble 2013

The world's first cryptocurrency was Bitcoin (BTC). It appeared in 2009 and at first was known only to cryptography specialists, as well as to especially advanced free market activists. But soon he attracted the close attention of investors, showing in 2010-2013 a tremendous increase of 4 orders: from $ 0.1 to $ 1000. In other words, the average exchange rate grew 10 times a year (!!!).

In 2013, this success of BTC gained worldwide fame. But, as it often happens, shock popularization did not benefit the asset rate: having reached a record high of $ 1,200 in December 2013, BTC began to get cheaper. By the end of 2014, its rate fell back to $ 250, after which it remained relatively stable in 2015. A significant part of 2013 growth turned out to be a bubble.

However, after the bubble deflated, the BTC rate still remained much higher than it was at the beginning of 2013 (and, especially, in all previous years).

How it went: altcoins and the general market bubble 2017

A new growth in the BTC rate began in 2016 and became especially rapid in 2017. At the same time, altcoins massively declared themselves - new cryptocurrencies, “alternative” BTC - ether (ETH), lightcoin (LTC), emercoin (EMC) and many others. If until 2016 they remained in the deep shadow of the flagship of the market, in 2017 their total capitalization for some time exceeded the capitalization of BTC. In the summer of 2017, there was even a moment when ETH alone almost got ahead of BTC.

By the end of 2017, BTC went up to $ 20,000, and the total cryptocurrency market capitalization reached a whopping $ 800 billion (higher than the capitalization of any global corporation). But this turned out to be another bubble: the whole of 2018, like 2014, the rate of BTC and other currencies fell). By the end of the year, market capitalization dropped to $ 130 billion.

What a comparison of two bubbles shows

Financial bubbles are an unpleasant but natural phenomenon. Studying their dynamics, you can discover a lot of interesting things about the nature of the new asset. If you look closely at the numbers, you can see: the bubbles 2013-2014 and 2017-2018 have a lot in common.

  • In both cases, the rate of bitcoin fell about 5 times. Market capitalization of the second case fell about 6 times.
  • In both cases, the main decline lasted about a year, followed by a lull.
  • In both cases, "after the bubbles" courses were fixed at levels significantly exceeding the levels of "before the bubbles." For example, at the end of 2014, BTC was much more expensive than at the end of 2012, and at the end of 2018 it was much more expensive than at the end of 2016.

This simple comparison already shows: the scale of the cryptocurrency disaster in 2018 is exaggerated. The bubble developed according to the same scenario as last time, and seriously scared mostly newcomers.

According to the charts, the cryptocurrency market is more likely alive than dead. Moreover, it follows well the standard laws for the development of financial bubbles, and the long-term trend is clearly positive. For persuasiveness, you can recall, for example, a graph of oil prices in the 2000s. As we can see, there was also a bubble and a decline, but then - a recovery to values ​​much higher than before the bubble. This is exactly what happens when an asset is really valuable (it is not a momentary hype), and this is what we observe in the case of the cryptocurrency market.

With high probability, right now, cryptocurrency investments are of particular interest. The rise seems logical, and why it happened so abruptly, whether there was a catch behind it, and what fundamental reasons contributed to the rise - we will talk next time the

Analytical Department of Trident, Victor Argonov, Ph.D.

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