Bitcoin Was ‘Total Bubble’ & 95% of Crypto ‘Will Die Painful Death’: Bitwise Exec.

The bitcoin bull market was a bubble that burst in 2018, but the “painful” event had a major upside: It attracted a lot of money and talent to the burgeoning industry. That’s the assessment of Matt Hougan, the global head of research at Bitwise, creator of the world’s first cryptocurrency index fund.

“It was a massive run-up and a massive pullback,” Hougan told Bloomberg’s Barry Ritholtz on his podcast. “[It was a] total bubble.”

While financial “bubbles” understandably carry a negative connotation, Hougan says the bitcoin bubble fueled intense media interest in blockchain and the crypto market.

Moreover, soaring crypto prices lured a tremendous talent pool to the industry that it otherwise might not have wooed but for the spectacular daily headlines in 2017.

Hougan: Bitcoin Bubble Resembles Tech Bubble

Bitwise research boss Matt Hougan: Bitcoin was definitely a bubble. (screenshot)

In this sense, Hougan says the bitcoin bubble is not dissimilar to the Internet bubble of 1996 to 2001, which imparted similar collateral benefits to the then-nascent tech industry.

“It did the same thing that happened with the Internet, which is it attracted a huge amount of talent. It did bring a lot of capital and interest in development to the ecosystem.”

“So, I do think interesting things will be born from that. But, yes, it was a difficult year in 2018.”

“I think [bitcoin] is the next dotcom. Remember, the dotcom bubble created, but it also created Amazon.”

Hougan also says that 95% of cryptocurrencies that exist today will crater into extinction ― and that’s a good thing for the market.

“There are 2,000 cryptocurrencies out there; 95 percent of them are useless and will die a painful death. The sooner that happens, the better.”

“But from those ‘ashes,’ will merge important things. Just like from the dotcom ashes emerged Amazon, Google, and Facebook, etc.”

So basically, Hougan says it’s important for the crypto market to purge all the sham virtual currencies so that the worthy ones can survive and thrive.

Bitcoin Is the New Millennial Gold

Hougan also says bitcoin is the millennial generation’s version of gold. He pointed to recent surveys showing that millennials (individuals born from 1981 to 1996) have a favorable view of cryptocurrencies compared to baby boomers (people born between 1946 and 1964).

“Every generation has an asset that they love or a way of getting exposure that they love.”

“The Greatest Generation love gold, then people loved active mutual funds. Gen X loved hedge funds. Millennials love crypto.”

Hougan attributes this to the decentralized nature of crypto, which cuts out the middle man. He believes that’s particularly appealing to the younger generation.

Hougan’s optimistic view of millennials is a stark contrast to that of CNBC analyst Scott Nations, who says millennials are too stupid to realize that bitcoin is a bubble they should avoid like the plague.

(Blockchain Capital/Twitter)

Matt Hougan: Don’t Lose Perspective

As for the crypto market’s wild daily price swings, Hougan noted that established corporate juggernauts like Amazon, Apple, and GE have all weathered massive stock market fluctuations on their rise to the top.

Accordingly, he doesn’t pay too much attention to the constant media hype that bitcoin is dead. He says all this cyclical lurching is part for the course, so everyone needs to calm down.

“Bitcoin’s gone through six or seven, 70 percent-plus drawdowns in the past. And each of those has set the stage for a new rally.”

“I’m not saying that will necessarily happen here, but it’s down 70 percent. It’s up 300 percent over last two years. So it depends on your perspective.”

Institutional Investments Will Come

Like bitcoin bull Mike Novogratz, Matt Hougan is confident that institutional money will eventually pour into the market; it’s just a matter of time.

To buttress this claim, Hougan noted that Fidelity is building up its blockchain unit to facilitate the mainstream adoption of crypto.

“Fidelity is hiring up to 150 people to build a way for institutional investors to buy crypto and store it with a name they trust. One of the greatest brand names in the future.”

“We know, we had conversations with 2,000 institutional and financial advisers last year. There is dramatic interest in crypto. They want good ways to get exposure.”

Author: Samantha Chang
Image Credit: Featured Image from Shutterstock

Bear Market Birthday: The Crypto Bubble Popped One Year Ago Today

One year ago today, the crypto bubble reached its fever pitch before the inevitable crash that occurred throughout the remainder of 2018 and has lingered into the new year.

Crypto Market Down 84% on Anniversary of All-Time High

One year ago today, the crypto market cap peaked at just under $835.7 billion. | Source: CoinMarketCap

According to CoinMarketCap, the cryptocurrency market cap — which measures the combined notional value of all cryptocurrencies — reached $835.7 billion on Jan. 7, 2018 at approximately 11:17 UTC.

At one point, the aggregate value of cryptocurrency tokens in circulation rivaled South Korea’s M1 money supply. | Source: CIA World Factbook

That meant that, at least on paper, cryptocurrency as an investment class was worth more than Facebook and Twitter — combined — as well as the narrow money supplies of all but eight countries.

The cryptocurrency market cap declined sharply in Jan. 2018 to begin a gradual downtrend that continued throughout the remainder of the year. | Source: CoinMarketCap

Today, however, the cryptocurrency market cap sits at just $136.3 billion, representing an approximate decline of 84 percent. Even more remarkable is that this occurred even as the number of crypto projects tracked by CoinMarketCap has swelled to 2,086.

Ripple Worth More in Jan. 2018 than Entire Crypto Market Cap Today

Notably, the cryptocurrency peak occurred several weeks after market bellwether bitcoin first fell into decline. The introduction of bitcoin futures in mid-December seems to have punctured the bitcoin price bubble, as the flagship cryptocurrency peaked near $20,000 just days after its futures contracts began trading on regulated US exchanges CBOE and CME.

However, that capital did not flow out of the cryptocurrency markets, at least not at first, because the altcoin bubble continued to inflate at a wild clip through late December and the first week of 2018.

Bitcoin’s share of the crypto market cap cratered in January 2018 as ripple (XRP) and other altcoins resisted the pull of the bitcoin price decline — at least for a week or two. | Source: CoinMarketCap

That bubble was largely driven by the price movements of ripple (XRP), which became the poster child for retail-driven speculation even as its backers sought to market it as the suit-and-tie cryptocurrency built for banks and other financial institutions.

Ripple was particularly popular in the South Korean market, where the “Kimchi Premium” drove the token’s global average as high as $3.84. On Monday morning, the ripple price was sitting at $0.366, representing a one-year decline of more than 90 percent.

The ripple price peaked at a global average of $3.84, driven by rumors of a Coinbase listing (which still hasn’t happened) and South Korea’s “Kimchi Premium.”

At its peak, ripple — then the second-largest cryptocurrency behind bitcoin — had a market cap of nearly $149 billion, which is more than $13 billion more than the total crypto market cap today.

Of course, ripple wasn’t the only cryptocurrency to take a 90 percent or greater buzz-cut from its early 2018 peak. Other major coins and tokens also holding that dubious distinction include bitcoin cash (96 percent), litecoin (90 percent), tron (92 percent), cardano (96 percent), monero (90 percent), dash (95 percent), NEM (97 percent), NEO (96 percent), and zcash (94 percent).

Searching for Crypto Winter’s Silver Lining

Advances in the Lightning Network and other scaling technologies shows that the crypto bear market has not been a fruitless time for the industry.

Needless to say, 2018 was a tough year for investors. However, it wasn’t all bad for the cryptocurrency ecosystem as a whole. The bear market forced investors to eye projects with greater scrutiny, and regulatory crackdowns have all but killed the initial coin offering (ICO) market but will hopefully result in new legislation that promotes true innovation while protecting investors from fraud.

Most importantly, the bear market did not stop developers from continuing to build out the technologies that will help bitcoin and other cryptocurrency networks scale to accommodate mainstream adoption, whenever that does arrive. The Lightning Network (LN), for instance, has continued to see its total capacity grow, despite the fact that the bitcoin price has been in decline. Moreover, the median bitcoin transaction fee has fallen to a more than three-year low, even as the network processes about 75 percent more payments on a daily basis than it did the last time fees were this low.

That’s not to say the work is complete. Fraud is still far too common in the crypto industry, and many much-hyped applications of blockchain technology have yet to demonstrate to utility compared to their centralized counterparts. And somehow, $700 billion in losses later, many projects still seem overvalued. (Dentacoin — “The Blockchain Solution for the Global Dental Industry” — has an implied market cap of $64.9 million.)

Nevertheless, as investors await the next great bull run, the industry will hopefully emerge from Crypto Winter as a more mature ecosystem, one better prepared to establish itself as more than a passing fad.

Author: Josiah Wilmoth
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