Alpari analyst Vesselin Petkov argues in his newspaper column “RBC-Crypto” about repeated last year’s excitement in the coming months
At the end of last year, one of the most discussed topics in the media related to the financial world, was the cryptocurrency market. He attracted attention due to the enormous growth in value of Bitcoin, Ethereum, Litecoin and other cryptocurrencies.
In early 2017, a bitcoin was worth about $1000 and in December the price has risen to $20 000 over the year it grew by about 20 times. A huge jump was observed in other coins. For example, the cost Ethereum has increased by almost 130 — fold-from $10 to $1300 and more.
People who have made fortunes in the past year, there were a lot. They began to tell their success stories in forums, in social networks, and later, journalists around the world began to actively promote the subject, recording and publishing interviews with the lucky winners.
I work in the financial markets for over 12 years, and going on cryptocurrency forums or sites for traders and investors who are daily faced with such stories in the past year. I remember one about the wealthy in Ethereum young man from Europe. He bought a bitcoin at a price of $2-3 a couple of years ago, and when it rose to $1000, cashed out and moved with his girlfriend to live in Thailand. Bought in the resort town house in a gated complex with pools, not working, enjoys nature walks and surfing.
Naturally, all of these publicized success stories have attracted the attention of people around the world. In the end, the cryptocurrency market have connected a huge number of new non-professional investors. There was an unprecedented infusion of money, which added fuel to the fire and led to the strengthening of existing colossal hype. Everyone wanted to get rich quick. However, in early 2018 the situation has changed dramatically. Why?
In my opinion, at the end of 2016 — early 2017 from bitcoin was still not completely filled blocks limited to 1 MB. Statistics BlockChain.info the occupancy of the unit during this period was on average 80-90%. When the middle of 2017 bitcoin become more actively buying, his units began to fill up 100%, and then surfaced a scaling problem (technically, the first cryptocurrency can handle a maximum of 5-7 transactions per second).
Fundamentally, then there was no reason for the growth of the stock market, but he still continued to gain momentum. First, because many thought that the problem of scaling of bitcoin will be solved very soon. Secondly, many people began to buy altcoins, which allegedly already found a solution to the problem and their prices have risen astronomically, although at the moment no coin has yet to deal with this issue. Thirdly, many people who purchased the cryptocurrency, not versed in the subject.
Basically, they bought the cryptocurrency under the influence of the so-called herd mentality and syndrome loss of profit (eng. Fear of missing out; abbr. FoMO). However, this pyramidal growth of a financial asset that makes it highly overbought, sooner or later begins to crumble, especially after the number of new participants who purchase the asset dries up.
The question is: can last year’s boom in stock market have to be repeated at the end of the year?
I think that, most likely, no. For this we need to return to the three factors that played an important role to boom in 2017.
Strong boom in the stock market at the end of this year, I didn’t expect. However, I suppose that the situation of the last 2017 will ever happen again. Crypto currencies will not disappear. Blockchain technology more and more will be implemented in the daily lives of people. The problem of scaling of bitcoin sooner or later, but still resolved. And this will lead to new growth in the cryptocurrency market, which subsequently will lead to a new boom.