Analysis of the current situation in the cryptocurrency market: factors of growth and stagnation, main problems of cryptocurrency trading, reasons for the future transformation.

Instead of the expected rise to at least $400 billion, the cryptocurrency market capitalization can hardly reach level $300 billion. However, the interest in BTC is increasing. Its market share has been 10% up in the recent months and is approaching 50%. Unfortunately, the cryptocurrencies structural problems are far stronger than the local positive news, and so, the market is going to transform fundamentally in the near future. You will learn from the article about the current problems of the cryptocurrency market and how the situation will be changing in the next few years, as well as about its prospects.

Inevitable fate of cryptocurrency market

Comparatively recent increase in the market cap up to $300 billion and the rise of BTC proportion up to 43% inspired some more positive to investors. Although, there is not that much to be happy with. During the past three months, capitalization has been down for any asset. If, in spring, there was a hope for the quotes moving in the range of $300 bn - $400 bn, then now, the approaching level 300 is thought to be a reason for the positive. I won’t be surprised if investors are happy with level 250 in a month.

What is going on with the crypto market and what are its long-term prospects? I tried to answer these questions from my point of view in the article.

Global transformation of cryptocurrency market is about to start

Cryptocurrency is an internal coin for a certain project (startup) that performs a certain task. It can be common or private payment systems (Bitcoin, Ripple, Dash, Monero), decentralized networks to create certain applications, based on them (Ethereum, NEO), and other projects with original ideas (advertising exchange, cloud platforms to store data or renting computing power and so on).

The crypto market rise in 2017 turned cryptocurrencies into a means of speculation, making the blockchain idea itself be of secondary importance. As at mid-July, 2018, there were 1649 cryptocurrencies, officially enlisted by the monitoring website CoinMarketCap. Over 1000 of them are just beautiful front covers, not even supported by their developers.

Crypto market problems:

  • A stronger influence of negative news than positive. After the crash in 2018, crypto community is growing more and more skeptic, so, positive information has only a local effect. For example, the recent BTC rise from $6,400 up to almost $7,400 is associated with the upcoming launch of the first ETF, planned on August 10. Remember, what happened after a similar surge ahead the futures trading had been launched. The futures prices dropped from $19,000 down to $7000, followed by the BTC price drop. Futures were expected to open the access to cryptocurrencies for investor capital, which prefers real derivatives, rather than the engagement with cryptocurrency exchanges. That didn’t happen. So, what effect will ETF make?

  • Cryptocurrencies safety is a myth. PoW, looking insecure, proved to be not that much worse than PoS. The recent finish of EOS ICO, based on PoS algorithm, has proved that this algorithm also has many flaws and soft points. And now, even Vitalik Buterin is not willing to change Ethereum algorithm.

Here, one may say that cryptocurrencies are going to collapse, but let’s again study the statistics. In 2011, BTC was 93% down from its local high; in 2013 – 70%, and in 2014, bitcoin price dropped by 86%. And each next high was higher than the previous one. However, at that time, the cryptocurrencies were not so numerous.

Can the crypto market at least return to its historical highs? It is quite possible, but it is not going to be soon. For now, the main growth drivers are the news about loosening of the crypto regulations or new forks. But on the other hand, there are huge losses that investors have suffered from hacks, investing into fake startups or different restrictions, including advertising.

A single strong growth driver could be the recognition of cryptocurrencies as the money on new generation, but is impossible due to some reasons:

  • The issuance of most cryptocurrencies is limited, which breaks the economic laws. A try to link money with gold, whose issuance is limited, failed. A country’s currency is backed up with the national industry and its balance-of-payment; while the cryptocurrencies are not related to certain countries. However, in June, 2018, China announced the first steps towards developing Chinese own cryptocurrency to avoid the gap between the fiat money and the digital currency. But it is rather a kind of blockchain-based digital money.

  • Total capitalization of the real currency market is hundreds of times more than the cryptocurrencies.

  • Cryptocurrencies are anonymous and confidential.

Here, I can compare this factor to the notorious Dot-com bubble. The developments seeking to create the Internet started as early as in the 1960s; but the first prototype of the modern World Wide Web appeared only in 1989. The Internet development resulted in numerous startups, which started to appear in 1995. Most of them turned out to be burst bubbles later. The popularity of the Internet encouraged investors to invest their money in multiple Internet-based projects, without careful checking their credibility.

In 2000, the U.S. stock market lost about 78% ($5 trillion); in the next two years, over 50% of startups were shut up. However, the strongest projects survived at that moment; they are now the world’s largest corporations. The example of Amazon, eBay, Google proves that there can well be cryptocurrency startups that will survive after the bubble bursts.

Conclusion. What is the crypto market future?

The market’s structure will be entirely transformed, as well as the approach to the cryptocurrency concept. It will look like this:

  •  All scam projects will disappear, for not being demanded. Now, it is just a means of pump and speculation; developers lose their interest as soon as they make their profits. The first wave of correction, which caused the crypto market to lose over 65% of its capitalization has already finished. Speculators are gradually losing their enthusiasm. It means that ICO will stop paying off; 80%-90% of “spam coins” will be delisted from the exchanges. There will be only 30-50 startups, supported by the developers and the network participants.
  • Cryptocurrencies will turn from a speculative instrument into an investment one. Blockchain technology will again be the main driver, whose development will push the crypto quotes up. But there will never be such an explosive surge as it was in 2017
  • Cryptocurrencies will remain an auxiliary instrument, but they are unlikely to become a full-fledged financial means in the next 3-5 years. It is because the global financial system can’t be quickly transformed from the fiat money to blockchain. The cryptocurrency problems are: limited issuance, poor protection, confidentiality. Cryptocurrency will remain a payment means in local startups. Partly, it can be compared to the stock market: a company’s stock will increase in price if investors are more interested in it. But the stock, itself, will never be a currency. The same will be true for cryptocurrencies. Their prices will indicate investors’ interest in the project, but they won’t be real money.

 

It is difficult to say how much time the crypto market transformation will take. It took Dot-coms about year to develop from a bubble to a complete IT market. If we compare the lifespans of Dot-coms and cryptocurrencies, fundamental changes are likely to start already in early 2019.

Of course, it is just my personal opinion; but it is based on the facts, described above. What do you think about this? What do you think the cryptocurrency market will be in 1-5 years? Do you believe in cryptocurrencies future? Let’s discuss it in the comments!

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Crypto market prospects: what investors should bet on

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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