It's simple really: No one makes
money if cryptocurrencies fall.
Sean Williams (TMFUltraLong) Jan
13, 2018 at 10:39AM
What an incredible year 2017 was
for cryptocurrencies. Having begun the year with a combined market cap of less
than $18 billion, the aggregate value of all virtual currencies by year's end
hit $613 billion, representing a better than 3,300% increase. Cryptocurrencies
soared even more to begin 2018, hitting an all-time aggregate market cap high
of $836 billion on Jan. 5, before losing a little bit of steam. These are
essentially lifetime gains for investors that have been crammed into a span of
just 52 to 53 weeks!
Yet, what's really interesting is
that bitcoin (CCC: BTC-USD), the world's most valuable and popular
cryptocurrency, wasn't a primary focus in 2017. Rather than investors flocking
to bitcoin, the goal among digital currency investors became to find the next
bitcoin. As a result, a number of burgeoning cryptocurrencies ran circles
around bitcoin last year. In particular, Ethereum (CCC: ETH-USD), Ripple (CCC:
XRP-USD), Litecoin (CCC: LTC-USD), and Dash (CCC: DASH-USD) were veritably
unstoppable, with respective gains of 9,383%, 36,564%, 5,260%, and 9,282%!
A physical gold bitcoin lying
atop a messy pile of hundred dollar bills.
IMAGE SOURCE: GETTY IMAGES.
You're giving these crypto
catalysts too much credit
How on Earth do virtual coins
that have gained 5,000%, 10,000%, or possibly more, keep heading higher? What I
can say with some certainty is that it's not entirely due to the emergence of
blockchain technology, as much as Wall Street would like to believe so.
Blockchain is the digital, distributed, and decentralized ledger tethered to
virtual coins that's responsible for recording all transactions without the
need for a financial intermediary, such as a bank.
Unquestionably, blockchain does
offer a number of potential advantages if financial service companies deploy
the technology in place of the current payment networks. As a decentralized
network, blockchain ensures that cybercriminals would never be able to gain
hold of enough data to cripple a cryptocurrency, and that no single entity
would ever control a majority stake.
Furthermore, since transactions
are being verified 24 hours a day, seven days a week, blockchain-processed
transactions may be verified within seconds, as opposed to waiting up to three
to five days with cross-border payments. Additionally, not having a middleman
involved means potentially lower transaction costs.
Dice that say buy or sell being
rolled atop a digital chart.
IMAGE SOURCE: GETTY IMAGES.
Other catalysts, such as bitcoin being
accepted as legal tender in Japan, select investors choosing bitcoin as a store
of value over gold, and a weaker U.S. dollar, have possibly played a role in
pushing cryptocurrency prices higher, but they're not the primary source of
higher market caps.
The logic behind higher
cryptocurrency valuations
If you want to truly understand
why cryptocurrencies like Ethereum, Ripple, Litecoin, and Dash have pushed
higher, then you need to familiarize yourself with the logic behind the
cryptocurrency market.
With the exception of bitcoin,
cryptocurrency investors have but two choices to make: Do I buy, or do I sell
what I own? That's it. There are no options contracts to choose from and no
futures to consider, unless you trade futures contracts on bitcoin offered by
CME Group or CBOE Global Markets. There's also no ability to short-sell a
cryptocurrency. The path to prosperity is very narrow when it comes to virtual
currencies. If they go up, everyone makes money. If they go down, no one makes
money. That logic leads to one natural conclusion: everyone buys.
Source: https://www.fool.com
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