Altcoins upstaged bitcoin this week, as traders shifted funds around in search of additional gains within the cryptocurrency ecosystem. The coins racked up price increases without significant announcements or updates. (See also: Why Are Altcoins Falling Faster Than Bitcoin?)
Three cryptocurrencies - Litecoin, Ethereum, and Ripple - registered significant double-digit gains. For example, Litecoin was up by 86.5% from its prices last week. Ethereum rose by as much as 65% before paring back its gains. Ripple, a cryptocurrency that runs a payment network for banks, was the biggest gainer, moving up by 220% from its price a week ago.
Their surge continued well into the latter half of this week despite warnings from experts and developers. (See also: Litecoin Creator Calls For Caution). By midweek, some estimated that altcoins had pumped more than $20 billion into the overall market capitalization for cryptocurrencies, enabling it to push past the $500 billion mark. The cryptocurrency market was worth $537 billion at 15:33 UTC, up by more than $100 million from last week.
A New Record High For Bitcoin
Even as altcoins grabbed the spotlight, bitcoin set a new record high of its own, reaching $17,812.43 at 12:00 UTC today. The new record is remarkable, when you consider that the cryptocurrency was struggling at price levels of $13,000 at the start of this week. Much of its gains have come from trader optimism after the launch of bitcoin futures at the Chicago Board Options Exchange (CBOE).
The derivatives are expected to bring liquidity and price stability to bitcoin markets and pave the way for bitcoin ETFs. (See also: Bitcoin ETFs Are Next In Line After Futures.) They began on an encouraging note with the participation of 20 firms and 4,127 contracts changing hands in the first 22 hours of trading. CBOE had to twice halt trading due to interest overload from traders.
That said, bitcoin futures contracts are trading at a premium as compared to spot markets and could be an opportunity for arbitrage traders. (See also: Price Difference In Bitcoin Futures And Spot Markets Is An Arbitrage Opportunity.) The futures also require higher margins, in some cases as much as 100%, as compared to other contracts on CBOE on account of bitcoin price volatility. The agency has set a margin of 44% for futures contract trades for bitcoin.
What Does The Surge In Prices Mean?
The price increase for altcoins is not altogether unexpected. Bitcoin’s utility as a payment network or as a medium for smart contracts is limited. Other cryptocurrencies have moved in to take advantage of this gap in the market and this week’s price movements are predicated on their ability to carve out a market share in the future.
A few key players, such as Litecoin and Ripple, are beginning to emerge in the payment network space. The good thing about the market is that it is big enough for existing players. “I really don’t believe this is a winner-takes-all market,” says Ryan Taylor, CEO of Dash, another cryptocurrency that has seen its prices shoot up this year.
Taylor's assessment is correct. Litecoin is aimed at consumers while Ripple is aimed at banks. (See also: Is Litecoin The Future Of Cryptocurrency?) According to Taylor, the market for payment networks will evolve in a similar fashion as the credit card space, with tiers of payment processors. As an example, Visa and Mastercard are in the top layer while Discover is in the second tier.
On an overall basis, the cryptocurrency market is worth more than $500 billion now. At the start of this year, it was worth $19 billion. The skyrocketing prices for cryptocurrencies have drawn a variety of reactions. For example, Janet Yellen, the outgoing Federal Reserve chair, called bitcoin a “speculative bubble.”
Even billionaire Mike Novogratz, who has invested approximately 10% of his fortune into cryptocurrencies and set a new price target of $40,000 for bitcoin, called it a “speculative mania” in an interview earlier this week. “None of these protocols will be ready for prime time for, at least, 2 to 3 years,” he said. “We are selling the story about what the future’s gonna be and what people are piling on.” On the other hand, the prices have also triggered an introspection of sorts within the developer community.