Altcoin Bubble Stretched Thin But Bitcoin Prices Could Rise in 2017

Altcoin Bubble Stretched Thin But Bitcoin Prices Could Rise in 2017

Bitcoin Price Forecast 2017

Bitcoin is now the rich man’s gold. Trading at over the $1,300 price level, Bitcoin now has a $38.00 premium over bullion. No small feat, especially when you look at the roller coaster ride Bitcoin has been on since the start of 2017. But is the current Bitcoin rally just an echo of 2013, where Bitcoin bulls had to stomach an 80% plunge in prices? Nope. Despite the so-called altcoin bubble, the outlook for Bitcoin prices and other cryptocurrencies remains bullish in 2017 and 2018.

On the technical front, it’s been a great time to be a cryptocurrency trader with Bitcoin, its arch-nemesis Ethereum, and other altcoins touching record levels.

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Bitcoin, the undisputed (for now) leader in cryptocurrency, has a market cap of $22.3 billion, followed by Ethereum at $7.3 billion, and Ripple at $2.1 billion. (Source: “CryptoCurrency Market Capitalizations,” CoinMarketCap, last accessed May 1, 2017.)

Over the past week, Bitcoin prices have advanced seven percent, while Ethereum prices have soared 36% and Ripple is up 34%. The growing attraction of altcoins has, for the first time, sent the total market cap of the cryptocurrency market to over $37.0 billion. In fact, it will probably top $40.0 billion in the coming weeks.

For those that fear an altcoin meltdown like 2013, in addition to the technical factors, there are major fundamental issues that will see the altcoin rally soar significantly higher in 2017.

Back in 2013, the cryptocurrency market was only worth about $15.0 billion. It sounds like a lot, and it is, but the altcoin market was dominated by Bitcoin, accounting for more than 95% of the total cryptocurrency market.

Moreover, most of the Bitcoin trading was done by the Mt. Gox exchange, which handled roughly 70% of all Bitcoin transactions. Things didn’t go well for Bitcoin prices when the exchange filed for bankruptcy in early 2014. In fact, Bitcoin prices plunged.

It took three years for the cryptocurrency market to recover from the 2014 crash. Interestingly enough, it only took four months for the cryptocurrency market to double from $15.0 billion in December 2015 to $30.0 billion in April 2017. Some analysts see the altcoin market hitting $300.0 billion by 2020.

Therein lies the problem, most Wall Street analysts think the recent rally has created an altcoin bubble that will burst like it did in 2013.

But a lot has changed since 2013; there are a lot more players and a lot more exchanges. First, Bitcoin still has a huge market cap of $22.3 billion, but because of increased competition and, some would say, better ways to mine, Bitcoin’s dominance has fallen from 95% of the market to just 62% of the market share.

Back in 2013, there were only really 30 cryptocurrencies garnering any attention. Bitcoin was the largest with a market cap of $11.6 billion while Luckycoin was a distant 30th with a market cap of $230,043. (Source: “The Top 30 Crypto-Currency Market Capitalizations In One Place,” Forbes, November 27, 2013.)

Fast forward to 2017, and there are more than 800 cryptocurrencies. The top 173 have market caps of at least $1.0 million. Bitcoin still tops the list, but the 30th slot now belongs to BitShares with a market cap of $35.9 million.

To find a cryptocurrency with a market cap similar to Luckycoin, which is no longer with us, you’d have to look to PostCoin, which sits at number 259 with a market cap of $229,042. Just like stocks on the S&P 500, cryptocurrencies will come and go.

Cryptocurrency is also seen as being much more legitimate than it was in 2013. Four years ago, cryptocurrency was a fringe subject that received little legitimate air time. Today, there are designs to get a Bitcoin exchange-traded fund (ETF) approved.

The most recent effort for a Bitcoin ETF, led by the Winklevoss twins, was denied by the U.S. Securities and Exchange Commission (SEC) in March. However, the SEC recently announced plans to review its decision, which could open the door for the first U.S. ETF that tracks Bitcoin. (Source: “U.S. Regulators to Review Decision Denying Bitcoin ETF Filing,” Fortune, April 25, 2017.)

Already some have said Bitcoin could top $3,200 if a Bitcoin ETF does get the green light. Barring any news on an approved ETF, in the current environment, investors should expect to see Bitcoin top $2,000 in 2017 with additional gain in 2018.

What’s Driving Altcoins and Bitcoin Prices?

Bitcoin was born out of fear, and for the same reasons, cryptocurrencies will continue to find traction. Bitcoin was born in 2008, just as the global markets were crashing, the U.S. dollar was tanking, and the Federal Reserve was just about to launch its first round of quantitative easing, a monetary policy that flooded the market with trillions in U.S. Dollars.

How can you not like a currency that doesn’t need a bank, doesn’t rely on the Federal Reserve, and doesn’t care what the global reserve currency is? Cryptocurrencies like Bitcoin and Ethereum are certainly more attractive than a fiat currency that can be seized, like the government of Cyprus did in 2013 when it snatched 10% of all savings and deposits.

What about gold? In 1933-34, while the U.S. was in the depth of the Great Depression, the U.S. government decided that it was the perfect time to seize the gold holdings of the American people.

Executive Order 6102 was signed by Franklin D. Roosevelt on April 5, 1933 and gave American citizens (that were in possession of gold coins, bullion, and gold certificates) less than a month to turn them into any Federal Reserve Bank or member bank of the Federal Reserve system. (Source: “Franklin D. Roosevelt,” The American Presidency Project, last accessed May 1, 2017.)

Back then, the U.S. dollar was tied to the value of gold, so the U.S. government thought confiscating gold was a great way to protect the dollar. When all was said and done, the U.S. dollar had been devalued by around 40%.

But that was then. What about now? Until 1975, it was illegal for Americans to own gold, unless it was in jewelry or collectors’ coins. This doesn’t mean the U.S government is going to take away our right to buy gold.

But it does go to show that the government can and will do whatever it wants to get what it wants. The Federal Reserve can print off trillions of dollars, manipulate interest rates, and even go into negative interest rate territory if it wants. Anything to “help” the economy. Cryptocurrency, like Bitcoin, is the perfect foil and way to store value.

Judging by the incredible rise in Bitcoin and altcoin prices, more and more investors are seeking cryptocurrency as a safe place to park their money, a safe-haven investment. Gold has previously been the litmus test for gauging the level of fear in the markets, but Bitcoin, Ethereum, and other cryptocurrencies are now taking the lead.

There are several ongoing issues helping drive the bullish sentiment for Bitcoin, including the suspension of withdrawals on Chinese exchanges and the fact that the SEC is reviewing the Bitcoin ETF decision. That might be just speculation, but that’s what trading currencies is all about.

This Is Why Bitcoin Will Remain Bullish in 2017

The Bitcoin price forecast for 2017 remains bullish for a huge number of reasons. Like the broader stock market, which is at record levels, altcoins will remain bullish because investors are afraid of losing out and will simply chase momentum and technicals.

But there are other more fundamental reasons why the Bitcoin rally will continue in 2017.

While it can be difficult to put a value on a bitcoin, which started out at less than a penny, like all currencies, the value of a bitcoin will rise and fall on everything from geopolitical tensions, economic conditions, weather patterns, election outcomes…anything you can think of.

And right now, there is a lot to support current Bitcoin prices and 2017 Bitcoin price predictions of $2,000+.

Right now, the demand for cryptocurrencies is on the rise in economically savaged countries like Venezuela and Nigeria. Millions are on the streets in Venezuela protesting the current government, while Nigeria is struggling with political upheaval and a weak economy.

Six potential governorship candidates have been killed in the run-up to the Nigerian election. On top of that, 2016 was an economic disaster for the oil-rich country, which gets 70% of government revenue and more than 90% of exports from the sale of crude. Bitcoin looks very attractive when you live in an economy that has virtually no diversification. (Source: “Nigeria’s economy was a ‘disaster’ in 2016. Will this year be different?,” CNN, April 27, 2017.)

Bitcoin is also an attractive alternative for countries facing broader economic hardship, like we are seeing in Russia, China, Japan, and parts of the European Union. Bitcoin prices got a boost in June 2016 after it was announced that the United Kingdom had voted in favor of leaving the European Union. There was a snap election called in the U.K. for June 8, 2017, and results from that election could give Bitcoin and other cryptocurrencies a short-term boost.

Tensions are simmering in the Middle East and Asia. In early April, the U.S. unleashed 59 “Tomahawk” cruise missiles on the Shayrat Air Base in the central part of Syria. The attack was in retaliation to a deadly Sarin gas attack that killed at least 86 people. It was also seen as a warning to North Korea that Trump isn’t going to back down from military threats.

A week later, the U.S. dropped the largest non-nuclear bomb ever used in combat in Afghanistan, destroying a complex of tunnels and bunkers used by ISIS.

Global tensions are at critical levels and if they reach a boiling point, investors will protect their assets with cryptocurrencies like Bitcoin and Ethereum. Even if tensions stabilize and Bitcoin is consolidated, geopolitical uncertainties remain.

The stock market is at record levels and valuations are in nosebleed territory. According to the cyclically adjusted price-to-earnings (CAPE) ratio, which compares the current value of equities to inflation-adjusted earnings over the last 10 years, the stock market is overvalued by 83.5%. The ratio currently stands at 29.35; the long-term average is 16. The CAPE ratio has only been higher twice: in 1929, it was at 30, and in 1999, it was at 45. (Source: “Case Shiller?P/E Ratio,” Yale University, last accessed April 28, 2017.)

This does not mean the stock market is going to crash in the coming weeks; there is still too much optimism surrounding Donald Trump. But it’s important to keep one thing in mind, when valuations do get this high, it never ends well.

A stock market correction or stock market crash will most certainly send Bitcoin prices soaring.

Why are valuations so out-of-whack? Years of artificially low interest rates and financial engineering at Wall Street have sent share prices to unsustainable levels. Moreover, since the U.S. election, stocks have rallied on the untested belief that Trump’s economic policies will help kick-start the U.S. Economy.

Recall if you will, during Obama’s presidency, GDP averaged just two percent. In 2016, his last full year in office, U.S. GDP was 1.6%. Yet, during Obama’s presidency, shares surged to record levels.

On the campaign trail, Donald Trump called the current bull market a threat. In April 2016, Trump said it was a terrible time to invest. During the first presidential debate, he said the bull market was “in a big fat ugly bubble.” (Source: “In a revealing interview, Trump predicts a ‘massive recession’ but intends to eliminate the national debt in 8 years,” The Washington Post, April 2, 2016.)

If stocks were in a bubble then, stocks are in a bigger bubble now. In the first quarter of 2017, U.S. GDP was a paltry 0.7%. Despite consistently weak GDP growth and weak economic data, the broader markets continue to climb steadily higher. This trend is unsustainable.

Not even President Trump’s proposed tax cuts will be able to get U.S. GDP growth back to four percent, which is a problem. Trump’s proposed tax cuts and infrastructure spending are what helped get him into the White House.

Failing to live up to these promises will undermine corporate profits, erode consumer confidence, and could lead to a stock market crash. Investors are only willing to hold on to overvalued stocks for so long. Eventually they’ll want to see strong consistent earnings and revenue growth.

Whether it’s a stock market correction/crash in 2017, an actual war with North Korea or Syria, or trade war with China, Mexico, or any other major trade partner, investors can expect to see Bitcoin prices soar.

This doesn’t even factor in black swan events that will catch the stock market and currency markets off-guard.

Bitcoin versus Ethereum

Despite reaching a $1300 price level, Bitcoin’s dominance in the crypto market is diminishing with interest in altcoins rising rapidly.

Of the 800+ cryptocurrencies fighting for supremacy in the cryptocurrency universe, only 11 have a market cap over $100.0 million, which is still pretty tiny when it comes to any kind of currency.

Of those, only five have a market cap over $500.0 million. But when it comes right down to it, at this moment in time, the biggest battle is between Bitcoin vs Ethereum. Admittedly, that dynamic could change pretty quickly, but for 2017, the technicals and fundamentals point to Bitcoin and Ethereum as being the only two real competitors.

While Bitcoin prices increased 325% in the first four months of 2016, Ethereum prices have soared 775%.

Bitcoin Altcoin

Aside from price appreciation, there are big differences.

One of the biggest differences is the amount of time it takes to mint blocks. Bitcoin’s average block time is 10 minutes while Ethereum’s is 12 seconds. This difference has made Ethereum a much more attractive alternative to Bitcoin’s slow process.

Another big difference between Bitcoin and Ethereum is the supply in circulation and the amount that can be mined. There are 16.29 million bitcoins in circulation and the maximum supply ever will be 21 million.

There is no supply limit when it comes to Ethereum. There are over 91.1 million Ethereum coins out there right now. And this number will only grow. There are pros and cons to this strategy. First, an unlimited number of Ethereum coins is more appealing to many cryptocurrency traders than Bitcoin’s limited supply.

You can divide Bitcoin’s 21-million supply up into infinite pieces, but we’re a culture that likes our currencies that are divisible by tens. Who wants to carry and pay for things in tiny fractions? We may eventually get used to it, but no one is going to want to choose that over a round number. At the same time, because of the higher Ethereum mintage, it will never trade as high as Bitcoin on an absolute basis.

But for investors looking to make money on cryptocurrencies, there are catalysts that will propel each altcoin to new levels.

There are hundreds of reasons why Bitcoin will become a safe-haven asset in 2017 and why Bitcoin prices could soar by more than 50% in 2017 to around $2,000. As for Ethereum, it could be an even bigger surprise to the upside by the end of 2017.

Article By John Whitefoot

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