They said it was over and that the bubble had popped. But Bitcoin had different plans.
After the Sunday brunch-time massacre on July 19, when prices briefly plummeted to $1,850, the bellwether digital currency rebounded over 50% to $2,900 in less than a week as miners signaled support for a measure that would avoid the chaos of splitting its blockchain in two. That vote on splitting the cryptocurrency is due Tuesday at 12:20 pm GMT, and should add some short-term volatility no matter the outcome.
Chart source: TradingView
However, cryptocurrency mania is still alive and well. It is often the case that investment fever lasts longer than investors believe possible, and this "crypto-bubble" will be no different. If there is a consistent influx of speculators willing to buy at higher prices, the price trajectory continues upwards. And there is plenty of demand still on the sidelines.
In January 2017, cryptocurrencies' total market cap added up to $18 billion, with Bitcoin holding an 88% share. Since then, total market cap has grown nearly 500% to $85 billion, while Bitcoin’s piece of the pie has dropped to 47%. Not only is the cryptocurrency marketplace growing, it’s also diversifying into other cryptocoins (also known as “alternative coins” or “altcoins”).
But for those who want to call this bubble “Dotcom 2.0,” they must compare cryptocurrencies' market cap with that of the dotcom peak in March 2000, when the 280 stocks in the Bloomberg U.S. Internet Index reached a combined market value of $2.94 trillion. With a market cap of around $85 billion, the crypto-bubble amounts to about 1/35th of that value. If cryptocurrency is really Dotcom 2.0, the bubble has plenty of room to grow.
There are a number of reasons why cryptocurrencies could actually be bigger than we currently think—global devaluation by central banks is making traditional currencies a lot less attractive while Bitcoin’s inherent transfer utility renders the middleman useless—but the most important driver of investment dollars right now is right in your pocket. All you need is a mobile phone and a digital wallet.
It’s also the first marketplace open to anyone in the world, 24/7/365, with very few barriers to entry. Right now, only about 16 million people have a digital wallet, but by the end of 2018, nearly 5 billion humans are expected to have a mobile phone and access to Bitcoin, according to blockchain.info. That leaves plenty of room for growth on the demand side.
I know, we’ve seen this before: History is replete with financial manias, but all of them have had a limited number of participants and considerable friction to purchase the speculative investment. The Dutch Tulip mania of 1620 was only available to Dutch residents, and the bulbs died in two weeks. The U.S. Railroad bubble of the 1880s ensnared only the bankers and financiers invested in it. And if you wanted to participate in the recent dotcom or housing bubbles, you needed access to U.S. markets. But none of these constraints exist for cryptocurrencies. Just grab a mobile phone, open a digital wallet, and join the party!
The Bottom Line
Cryptocurrencies have witnessed nearly 500% gains this year, yet total market capitalization is only 1/35th the size of Dotcom at its peak. Additionally, the pool of potential investors is a magnitude greater than the amount of wallets currently open. Buckle up, it’s going to be a wild ride.
For more on how to navigate the cryptocoin markets, please visit our site.