What a brutal sell-off for bitcoin and ethereum. The former saw its price go down by $1,000 yesterday in just hours, from nearly $3,000 to under $2,000. While the latter saw it go down by $100, from a high of $217 to a low of $116.
The digital currencies space was booming earlier just yesterday, with the party at full swing as price went up and up, with bitcoin’s public space full of price memes, but sentiment appears to have quickly changed after an initial sell-off of some $500, with the meme becoming the below image:
Fear seemingly began to take hold, with the mood sobering considerably, as some suggest the music has stopped, giving way to the hang over. That, no one can know for sure, but is it probable and is it the same for both currencies or are their prognosis different?
There has clearly been a cool down, but whether it is temporary or more medium term we think is different for bitcoin as opposed to ethereum. We think the former might somber considerably, while for the latter this looks a bit like bitcoin during March 2013, soon before the currency had its biggest bubble in terms of price movement later that year, in November 2013.
Bitcoin – The Puzzling Rise
Just why did bitcoin rise so high in few days, doubling from $1,000 and nearly tripling to $3,000? The bitcoin community is deeply divided and constantly in-fighting over scalability with no resolution in sight. Sure, Japan may have aided by classifying it as legal tender, but the liquidity in Bitfinex and Chinese exchanges dried up when bitcoin was at $1,000.
The currency has seen backlogs of some 200,000 transactions, with billions of dollars locked up for hours or days, leading to increasing fees now averaging $3. The tech is, objectively speaking, slow and very expensive compared to alternatives such as ethereum.
Was the latter the reason for its rise? We think it most probably was a contributing factor. In most cases when ethereum is mentioned, bitcoin is mentioned too. By association, that leads to eth’s advantages rubbing off on bitcoin, so unsophisticated investors who just go by brands might have confused them.
Afterwards, the early lift-off gave way to heads turning and noticing, then the early bets, followed by up and up, with people no longer caring about what bitcoin or eth is, but just how to buy it, giving way to the euphoria phase which felts so good while it lasted, because everyone was partying and dancing.
But everyone knew the music would have to stop eventually. However, no one can really be sure. This may be the beginning of a long bear market for bitcoin, or just a temporary cool off with more lift off.
Ethereum – the Cool Kid
To many, ethereum is what bitcoin was back in 2012-2013, when the currency was new, cool, full of confidence and aspiration, dreaming of all sorts of things in an environment of high energy and creativity.
The boom times for bitcoin in 2013 are the stuff that makes life worth living. Unlike this year’s rise for bitcoin, back then it was a party, everyone dancing, everyone getting rich and rich by the day, everyone in disbelief that bitcoin reached $1,000.
For ethereum, this feels like March 2013 felt for bitcoin. Back then, the currency rose from around $20 to a high of $266, then crashed because an exchange was DDoS-ed. People panicked, but the crash didn’t feel real. There appeared to be no real reason for it, just a temporary cool off.
We would argue, although of course no one can know these things, but we would speculate that this crash in ethereum had no real reason behind it, but was caused by bitcoin. As such, to us it appears like just a temporary cool off.
No one can say how long such temporary cool off will be. The currency was moving very fast and that of course was not sustainable. It needed a pause after a torrent of great news that kept on coming and might continue doing so because nothing has changed in ethereum.
Except one thing. Many might ask that if bitcoin could reach such heights with its many problems and just one application of making payments which is not really even that good at doing, how high can ethereum go with its smart contracts and confirmation times of seconds, PoS plans and Sharding, Enterprise endorsement and all the rest?
No one knows that for sure, but it does mean that etherean’s confidence will probably not be shaken by today’s events, except for maybe temporarily. In fact, this may be an opportunity for ethereum because bitcoiners confidence might be significantly hurt.
That may mean many of them will move to eth. They were promised a $10,000 bitcoin and the currency might have reached it had it been able to handle all the traffic by scaling the network, something which they have failed to do.
They may thus consider that bitcoin’s gains of less than 3x since 4 years ago are not worth the risk, while eth, they may think, could do what bitcoin couldn’t, thus perhaps diversifying not to fiat, but to eth.
That’s probably after some cooling out. Everyone is probably in shock right now. The space will need some time to come to terms with a price drop of $1,000 for bitcoin, but it is doubtful eth will enter a bear market, while bitcoin probably will.
Instead, in our view, it is probable eth will, in the coming weeks or months, overtake bitcoin as they jump ship not to fiat, but to ethereum. However, for the short term, eth’s price has behaved very similar to bitcoin’s price during its early stages. Which means eth might see a low of $50 in the short term, probably consolidating around $70-$100 for a few weeks, to then re-start one of the greatest party on earth.
But, markets are unpredictable. The above might be priced in or the analysis might be completely wrong, but in our view bitcoin is a sell while eth is a good buying opportunity at any price level currently in the time frame of a year or two.
All of the above is of course complete speculation. We have no idea whatever what we are talking about, so you should listen to none of it. Of course none of it is in any way advice and all of it should be relied upon solely at your own risk. Any factual statement above may have not been intended as a factual statement or may be incorrect, although we do take care to be correct, but we are humans and do make mistakes. So that must be taken into consideration.
Finally, long standing wisdom which has served very well says diversify into different asset classes, such as stocks, digital currencies, safer holdings like bonds, and maybe even some in a savings account.