Bear Market Musings (2018 Q4)

Live Coin Watch Co-Founder Shares His Thoughts On Cryptocurrency in 2018

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Bear markets are a great time for developers like myself to focus on building the future of the industry. They’re also a good time for reflection once the madness and euphoric highs of an irrational bull market have passed.

These are just some of my opinions and thoughts I’ve had over the past few weeks. I’m certainly not your financial advisor and could be wrong on a lot of these.

We’re trying to improve the content here on Live Coin Watch news, starting with some more thoughtful pieces on the industry as a whole.

Do your own research and form your own opinions 🙂

We Will Probably See One More Altcoin Mini-Bull Run

I’ve noticed recently a lot of investors moving from altcoin positions into Bitcoin during this bear run. At a certain point, many of these tokens will become oversold.

Smart money could start moving back into altcoins again and the mini cycle repeats itself.

Instead of following pure hype, what’s important now is distinguishing which projects are actually hitting technological milestones vs. spending their war chests on matching developer lambos and meaningless conferences at 5 star hotels.

This requires deep digging. Spend some time talking to team members of projects you’re interested in. The dartboard theory of picking a hyped coin and waiting for moon probably won’t work anymore.

Whales Will Continue To Manipulate The Public 

The Market behaves irrationally because cryptocurrency volumes and liquidity is currently tiny. Compare the reported volumes by exchanges to any mature market like pork futures and cryptocurrency looks like a child’s game.

In addition, many Cryptocurrency investors are pretty emotionally driven, lazy moon-lambo seekers. Whale’s have been using headline news as a catalyst to move markets in the direction they desire. Unsophisticated investors then directly attribute market movements incorrectly to that news.

Example: Recently, Bitcoin ETF’s being denied “caused” a mini crash. Around the same time, Bakkt released a product that’s arguably more important to the fundamental value and adoption of cryptocurrency and the markets didn’t move back up.

Cryptocurrency Exchanges Will Keep Spoofing Volume

We have a game theoretical problem in the industry where exchanges are incentivized to report way higher volume to tracking websites.

Why?

Higher reported volume means their exchanges show up higher on lists. This means more free organic traffic for the bad actors.

In addition, the ACTUAL volume in cryptocurrency could be 40-50% smaller than the reported volume by the exchanges.

We’re working on trying to correlate traffic counts to spot outliers, but it’s fighting an uphill battle when we’re completely reliant on exchange API data. Currently, I believe it’s worth ignoring the actual volume amount of the total market when conducting analysis. Instead, I’d focus on the relative changes day to day when you’re researching.

Coins With <10,000 Holders Are Dangerous

I believe the number of holders is a metric too often ignored by the cryptocurrency community as a core fundamental driver of actual value. The most popular ERC-20 token, OmiseGo (OMG), only has around 650,000 holders according to etherscan.

Let’s compare an older project like OmiseGo to Quarkchain which only has 7,500 holders

Omise Go Market Cap: ~$445,000,000
Quarkchain Market Cap: ~$28,000,000

Neither of these tokens has an actual use case yet as far as I know. The only difference other than their development propositions is time on the market and overall hype/exposure which is directly correlated to the number of holders.

Witthout innovative economic models to fairly distribute tokens, newer projects are at a huge disadvantage when it comes to Metcalfe’s law. ICOs and newer projects launched after Q1 2018 missed the public hype train and an opportunity increase their network value organically. They’re now all playing catch up.

In addition, the industry trend of token sales being available solely to institutional investors decreases the initial number of holders. ICOs with 20,000 retail participants investing 1-2 ETH are a now a thing of the past.

Live Coin Watch will be adding # of token holders along with a proprietary valuation metric we’ve created similar to NVT ratio in the next few weeks.

Note: A friend mentioned to me how holder count can be gamed fairly easily by airdrops. Although airdrop participants are probably more likely to rapid fire sell for fiat/btc, his point is still valid. In our LCW ratio, we’ll find a way to remove small outlier balances that likely represent airdrop wallets.

So What Now?

If you want to succeed in these markets, I think it’s time to put in some tough hours doing actual work. The get rich quick era of cryptocurrency has passed, but the future is bright.

The fundamentals and technology of the industry are improving daily. Cryptocurrency has already gone mainstream in terms of overall awareness. Adoption is hopefully the next step.

We’ll continue to build innovative products at Live Coin Watch and support the industry. Comment below if you have any thoughts or if you think anything I said was absolute rubbish. Just be prepared to back it up with logic and facts 🙂

 

1 COMMENT

  1. Sliced to the bare bone. I just find out that i have soul mate, when it comes to analyzing the cryptocurrency’s market 😉 Cheers mate

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