Is bitcoin a bubble? If it is, it has some puzzling aspects

The crypto market in 2018 is completely different from that of 2016-2017.

It is like comparing the Middle Ages with the Renaissance.

In 2016-2017 we were in the midst of obscurantism.

Cryptocurrencies and blockchains were seen with suspicion by governments and regulators.

The favourite pastime of the various countries was to spread negative news, backed up by the financial world and the authorities.

Almost all development projects in the blockchain were still at a stage very close to a wishful thinking, rather than within a framework of reasonable possibility.

However, in just a few months, with the arrival of 2018 it all changed:

– Many blockchain development projects, especially in key finance and retail sectors, have become a reality.

– Links between traditional finance and cryptocurrencies have appeared in the open, with the emergence of Coinbase, Poloniex, Circle, Kraken and many other large exchanges in the club of savings management institutions and banks.

– European and American financial regulatory bodies have begun to legalise or set in motion a process of concrete legalisation for cryptos.

– The access routes for institutional capital in the crypto market are all now operational and accessible.

– Centralised digital currencies based on the blockchain have become a real policy option for many countries, even though it is currently only considered as a possibility to be implemented under very specific circumstances.

– Decentralized blockchains are increasingly reducing the technology gap with centralized blockchains, while some areas of finance and banking are beginning to rethink their negative prejudices about decentralization.

In short, since 2018, cryptocurrencies are no longer a foreign body within society, but they are beginning to be an integral part of the economic, political and social development at all levels and in most countries.

But then, we must ask ourselves, why do the prices of cryptocurrencies not reflect this situation? On the contrary, they seem to have worked in a completely different way.

The year 2018, which we can consider the “Renaissance” of the crypto sector, is plagued by a long stagnation around the minima of the whole market and none of this excellent news is contributing to the increase in the nominal value of these assets.

On the contrary, in 2017, in the midst of the “obscurantism” phase of the industry, we enjoyed a fantastic bubble thanks to which many of our subscribers built their fortune in a few months.

How could such an amazing bubble have happened in those terrible conditions?

And above all, why is it that today the bubble is not being repeated, even though the markets are in excellent condition, compared to that time?

To really understand how cryptocurrency prices work, we must first get used to the incredible speed with which this market goes through economic cycles – normally lasting several years.

We usually tend not to make big differences between one year and another when it comes to stock exchanges and financial markets.

However, we will never understand cryptocurrencies, if we do not attempt to overcome this habit.

In 2017, for example, the crypto market has fast-tracked through the dot.com bubble cycle.

In a time span of 12-24 months, between 2016 and 2017, the crypto market developed all the characteristics of the bubble of the 1990s, bringing to its conclusion a cycle that in the previous century had lasted ten years!

At the end of 2017, that bubble came to an end and left a completely different market behind, just as the bursting of the ten-year dot.com bubble changed the American stock exchange forever in 2000.

Let’s see in detail why the 2017 bubble was similar to that of dot.com.

Many researches has found that the dot.com bubble was created thanks to

– transactions made by individual traders, instead of by funds or other managed savings instruments

– shares in young start-up companies, very often during IPOs, rather than shares in “traditional” companies

The following chart, for example, shows the difference in 1999 between the average return obtained by institutional investors (mutual funds, hedge funds, and so on) in the regular shares of the stock exchange at the time and that of retail investors, i.e. traders who used the first available platforms with individual accounts in the shares of those companies which were linked to the Internet.

As you can see, while the average return on funds was around 31%, that of traders was around 96% after the first day of an IPO.

It is clear then that the bulk of the gains that made this bubble so sensational were made by simple traders in those first days of IPO start-ups, which at the time flourished exactly like the ICOs of today.

Between 2016 and 2017, roughly the same thing happened with cryptocurrencies.

Retail investors (i.e. simple individual traders like myself and yourself) have increasingly invested capital in blockchain start-ups through ICOs.

And it was precisely the oversized prices of those tokens released in the ICOs that quickly brought the whole market to a head.

Then, as was the case for the dot.com market (after 10 years), this phase also ended for the blockchain market (after 12-24 months).

Why did it end?

To answer this question, first of all we have to note that in 2018 ICOs have not decreased at all compared to 2017, as some people assume.

On the contrary, the capital invested in 2018 already amounts to USD 19 billion, while in the whole of 2017 it did not exceed USD 5.5 billion:

Yet, this time around, the capital invested in ICOs has not created a bubble in the cryptocurrency market as a whole.

It was not possible for them to do so because today’s market, unlike last year, is completely disconnected from the ICOs.

It was precisely this disconnection that broke the 2017 bubble and established the 2018 market, which, compared to the previous year, is like a different geological era.

But how did they disconnect the crypto market from ICOs?

These are the key points:

– In a first phase, all ICOs were outlawed, forcing the exchanges to insert the new tokens in their listings in a much slower way.

– The intimidating action of some governments on those same exchanges has then forced them to change location or to undertake long bureaucratic processes to receive various authorisations and permits.

– Traditional finance has acquired some of the most important exchanges, effectively freezing their operations.

– In this context, it was no longer possible for exchanges to manipulate cryptocurrencies upwards.

– The whole market has escaped the clever control of the exchanges, which until then had been able to calm down the bearish trends.

– In a few months, a vicious circle has been established whereby no new capital has entered.

– Conclusion: Investing in ICOs in 2018 does not come from new capital, but from capital already in the crypto market, which has simply relocated with a greater share to the ICO sector.

Without the link to ICOs and exchanges that have lost (at least for now) the freedom to manipulate the market (in many previous articles we went on and on on to explain that a certain manipulation is always necessary in any market), cryptos are now entirely in the hands of traditional finance, which is at the post, waiting for the conditions needed to allow the capital that matters to flow in.

At this point, no one is able to understand what interests are at stake and what will be the concerted signal that will kick off the next season of bullish cryptos.

However, we can say with certainty that the next cycle will be completely different from that of 2016-2017, since the weight of traditional finance and institutional capital will be much greater than in the previous cycle (in which it was virtually nil).

And the difference will lie entirely in the manipulation instruments that the market will equip itself with.

Will exchanges still dictate the law, or will futures or other derivatives be preferred?

And should it be the exchanges, who will lead the ranks of said manipulation?

Will the owners of the tokens still have the freedom to use the exchanges to protect or alter the prices, or will they have to submit to stronger hands that will guide the main exchanges, which as mentioned above are now in the hands of Goldman-Sachs and their companions?

The crypto market is still so illiquid that it takes nothing to increase prices.This makes it very plastic and pliable by anyone.

Unlike the traditional stock exchange, where only those who have immense availability can really manipulate matters, here any small or medium size company, especially if it has done a proper ICO, can raise and lower the prices at will.

Therefore the possibility to manipulate this market is not a money issue, but, as said before, of controls and rules, which are today much more stringent than before.

Not so stringent, however, to prevent the return of homemade manipulation by exchanges forever.

Once said exchanges have regained security and legal permissions, you’ll see that they’ll get back to livening up the situation.

We are therefore in a hybrid market, where traditional finance can’t yet place a leash, but will do its best to counter the forming of large spontaneous bubbles such as that of 2016-2017.

This does not mean that there will no longer be a bubble.

Bubbles are essential to the economy, as we have explained time and again in our articles.

The question, then, is not whether there will be a bubble, but rather when there will be one and above all, of which type, triggered by whom and for what reasons

Answering these questions, constantly monitoring the rapid evolution of the market, is the main task for those, like ourselves at BlockchainTop News, trying to predict the most important trends for investors.

The next cycle of cryptos is already forming before our very eyes. Many new players have entered this market and the balance of forces is changing.

Stay in touch to follow the evolution of this new economic season. We will try, as always, to give you the broadest and most objective view possible, basing ourselves on events that escape the official media.

Click here to receive our next articles for free at your email address.