Bitcoin Is All the Rage, But a Cryptocurrency Market Correction Seems Inevitable
Cryptocurrency innovation and valuations have advanced dramatically in 2017. It was certainly Bitcoin’s big year, but 2018 is shaping up to be the year when the cryptocurrency “men” get separated from the cryptocurrency “boys.” It’s hard to believe that there are now some 1,400 cryptocurrencies around. The problem is, as always, how to discern the ones that will succeed from the sure failures. To be sure, few have realistic prospects.
Already in 2017, Bitcoin’s success encouraged newcomers, acting as the tide to lift crypto-boats. Surely, not all rose in as ludicrous a way as Bitcoin. But beware, many of these cryptocurrencies may soon lead to “fantasm” or “ectoplasm” investments; if you’re not careful, all that will be left is the ghost of your money. In a less dramatic way, Ethereum co-founder Charles Hoskinson warns that the cryptocurrency market will crash and then consolidate. (Source: “Cryptocurrency market will see crash and then consolidation, Ethereum co-founder says,” CNBC, January 9, 2018.).
That seems like a hint from someone willing to put a face to a name, unlike Bitcoin’s mysterious Satoshi Nakamoto. Hoskinson enjoys a safer cryptocurrency standpoint. He has chosen the “sure but steady” path, foregoing the potential for quick billions—and even faster potential bankruptcies of the various cryptocurrency offerings—for the millions involved in developing the common denominator at their heart. Hoskinson, who has left Ethereum’s leadership to run IOHK, a blockchain research firm, now focuses on developing the technology at the heart of Bitcoin, Ethereum, and all other cryptocurrencies.
Blindsided by Bitcoin’s “Virtual” Shine
Indeed, many Bitcoin or other cryptocurrency investors may have been blinded by Bitcoin’s gains, ignoring the most important bit. The cryptocurrencies will come and go but their technology shall remain. It’s all about blockchain, which has the potential of becoming the new Internet. Many, including myself, have compared the market for cryptocurrencies to the 1637 Tulipmania, aka the tulip bubble. Perhaps it might be more useful to compare cryptocurrencies to the dot-com bubble.
Many companies tried to take advantage of the Internet by adding a “dot-com” dimension to their name and service. For every spectacular success, there were many more dramatic failures. But, there was a common denominator. The idea of the Internet grew exponentially, leaving a handful of dedicated companies, like Amazon.com, Inc. (NASDAQ:AMZN) or Google, now known as Alphabet Inc (NASDAQ:GOOG), growing exponentially. While picking the winners requires more luck than the skill even the most talented analysts can muster, it’s clear that blockchain is the crucial product that the cryptocurrency bubble has created.
Too Many Alternatives to Bitcoin
Many Bitcoin alternatives have emerged. Cardano, for instance, is just one of the cryptocurrencies to use blockchain technology developed by Hoskinson’s company. So while some investors will lose sleep wondering whether they should choose Ripple over Ethereum, Bitcoin, or Petro (Venezuela’s crude oil backed cryptocurrency), others will be starting to look for those leading innovation in the blockchain itself.
The inevitable course is that the major national currencies like the Dollar or the Euro will eventually spawn digital versions of themselves. Meanwhile, there’s no telling where blockchain technology might lead. Its potential and limitations are unknown, just as the Internet was in the early 1990s—or even more so, in its rudimentary phase in the 1970s.
In 2018, the cryptocurrencies will compete for your attention. Ethereum, for now, seems to be the one cryptocurrency to act as a shelter when the others fall. Many think its value might rise, double or triple even if other cryptocurrencies fall. But as more countries in Asia, where so many people and—increasingly—investors live, start to ban cryptocurrency speculation, there are no guarantees. If it’s Ethereum today, it will be Bitcoin tomorrow and back. Of course, ease of use and more transparency, as contradictory as it sounds for a cryptocurrency, is what will help the various new entries challenge Bitcoin.
If 2017 saw one cryptocurrency get most of the attention and the gains, 2018 will see that dominance erode. As the currencies compete, blockchain will be the one factor tying them together. Investing in cryptocurrencies is the equivalent of looking at the finger that points to the moon, instead of looking at the moon. Like automobiles in the early 20th century, many tried to make them, but only those who best adapted the technology to the market have survived to this day.