The King is dead?
There have been hundreds of articles predicting the death of Bitcoin over the years, with each author made to look silly in short order. There is no reason to think that Bitcoin will ‘die’ but the recent uptick in the cryptomarkets has felt more altcoin driven than previous recoveries.
Bitcoin, often quicker to return to previous highs than its rivals remains 53% off its all time high (ATH), with competitors such as Ethereum (48%), EOS (20%), Monero (49%), VeChain (44%) and OmiseGo (34%) all recovering quicker. OnChainFX has Bitcoin ranked 21 out of the 79 assets it lists (which are most of the larger caps) for example. This lag is compounded by the timing of the previous run Bitcoin had, given it hit its ATH on the 17th December compared to most altcoins which were early to mid January (Ethereum, for example, hit its high of $1,432 on the 13th January).
Bitcoin’s dominance vs all other cryptoassets is also close to historical lows, sitting at c. 36% (slightly up from its low in January of 32%. This is continuing a downward trend. Following a near decade of 80-90% dominance, 2017 saw Bitcoin drop from 87% on January 1st to 38% by December 31st. Obviously much of this is to do with the hundreds of new projects that have launched, but it also speaks to a flow away from Bitcoin and into other projects which have appreciated at a faster rate.
Whilst Bitcoin has not dropped as much as many others (with Ripple, Cardano, Tron, Dash and NEM to name just a few still 70%+ off ATH), this recovery has not felt Bitcoin led. Sentiment is hard to quantify, and personal bias plays a large role, but there is more and more discussion of the non-Bitcoin aspects of DLT. This is partly due to Bitcoin’s lack of any real adoption beyond store of value as well as the endorsement of blockchain (which is becoming synonymous with smart contracts and Ethereum rather than Bitcoin) by businesses, governments and media. Those new to crypto do not ask me about Bitcoin; they ask about Ripple, Tron and Monero. The more savvy might ask about the small caps.
It is also due to the first wave of working products being launched on top of other platforms, and on Ethereum in particular. These launches capture attention and mindshare. And it is not just Ethereum. Projects have launched on top of Neo and EOS is launching its mainnet imminently following a quite ludicrous yearlong ICO. Even Verge, an operation that has so often exemplified the absolute worst traits of crypto, secured (*cough* paid for *cough*) a deal with MindGeek, the owner of adult entertainment websites. Regardless of your feelings about the deal, it secured mainstream media attention.
What has Bitcoin done? In all honesty, not much. Lightning Network launched atop the network in March, but I don’t think that will solve Bitcoin’s issues. Transactions have halved since their peak in December and are back to the same levels as in 2016. The dream of Bitcoin as a globally used currency is as far, if not further, away as ever before.
I think part of the issue Bitcoin faces lies in its inability to provide the 2,000% returns that it used to be able to offer. Bitcoin, an inordinately volatile asset, has ceased to be interesting enough to tempt many first time and small investors who are preferring to invest in the even more speculative altcoins. But flavours of the month can change very quickly.
June 14th 2017 saw Ethereum come within touching distance of Bitcoin, achieving a market dominance of 32% vs Bitcoin’s 38%. It was a high point that it has not come close to matching since (Ethereum currently accounts for 16% of the crypto market capitalisation). From that point on Bitcoin began to surge, as the hard fork Bitcoin Cash captured the attention of the crypto world and dominated Q3 and subsequently most of Q4 as it spurred on an increase from $2,500 to $20,000.
I do not believe Bitcoin has another such event that can capture attention in the way that this fork did, as this fork (unlike all others since) was the culmination of a divisive and multiple year ideological rift over what Bitcoin should be. Sitting today, Ethereum looks well placed to reprise its challenge to Bitcoin’s dominance. And should Bitcoin not be the largest, what else does it have? It will always be the first – but first movers are often forgotten.
This piece so far has concentrated on the reasons why I think Bitcoin’s displacement as #1 is an inevitability at some point.
With that said, I believe Bitcoin is primed for an imminent run up in price.
Long live Bitcoin
The one area where BTC hasn’t fallen much is in its trading volumes. More than $8bn of BTC changes hands a day, as high as any time bar mid-late December where trading peak at $15-20bn. Given BTC is currently trading at under half the price, this suggests that the number of Bitcoin being traded has broadly stayed consistent. It remains the de facto pair of choice for trading, although moves by Bitfinex and Binance to introduce more fiat – crypto pairings may start to eat into this.
It also remains the default investment of choice for most normal investors and is one of the few cryptoassets with the liquidity for institutional investment. Even large alts do not have the daily volumes to support large scale trading. Bitcoin does. If institutional money entering the sector isn't just some sort of elaborate joke then Bitcoin is going to be the prime beneficiary.
Bitcoin is also more stable than most other cryptoassets. It has nearly a decade of proven security and operational performance. It has survived challenges that other projects have not had to face. This is an important and often overlooked advantage.
The crypto market frequently bears witness to large and concentrated movements. Bitcoin reflects this, with most of its gains coming on a small number of days per year. When Bitcoin moves it moves fast.
It will not take much to launch another run which will see media outlets proclaiming that $50,000 BTC is perhaps days away, as Bitcoin passes through headline grabbing barriers of $10,000 and $15,000. They are big numbers, but small (for crypto) % increases. Once Bitcoin surpasses its ATH and goes through $20,000 we will see a clamouring of money pouring in which will exceed even the December rush.
Recent weeks have seen a lot of smaller alts soar on the ratios vs BTC and ETH but I expect this to slow and reverse. This is a good time to secure some profits vs BTC whilst still maintaining positions in the stronger altcoins and retaining spare funds to invest in ICOs (ignore the naysayers who decried ICOs as being dead; nearly every ICO I see launch at present is immediately going for 3-4x straight out of the gates).
I have begun to move back into Bitcoin (and Ethereum, which I also like to outperform) with the aim of being 40-50% BTC/ETH and 50-60% others by the end of May. From February to April, by contrast, this figure was barely above 10% BTC/ETH.
Disclaimer: I hold BTC, ETH and OMG. If you enjoyed this article please follow me @FlatOutCrypto