My Long Awaited Altcoin Trading Article: STOP BUYING ALTCOINS THEY ARE IN A MASSIVE BUBBLE
Cryptocurrency writer and trader since 2014.
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And it’s no wonder, look at ICO Return On Investment data on sites like coinist (see their ICO ROI chart here) and you’ll see massive returns from the top performing coins.
After writing two articles on the ‘best altcoins to invest in’, which generated great returns for myself and anybody who followed my advice, I’ve been inundated with hundreds of comments and emails from people asking which coins to buy or wanting my assessment of an investment they are considering. I’ve even had eToro contacting me to explore the possibility of me writing a series of trading articles.
For a long time I’ve considered writing a new series of posts with the best altcoin picks, or sharing my analysis of the market to satisfy this clear demand. But I can’t do it. The reason for this is because my only advice on investing in or trading in altcoins right now can be expressed in a single sentence:
STOP BUYING ALTCOINS
I cannot tell you which ones are going to give you the best returns, so please stop asking me all the time, because they are almost all massively overvalued right now and there is a big bubble burst coming which is going to see a lot of people losing a lot of money.
Bitcoin itself may or may not be in a bubble right now. It really depends on the outcome of the UASF and other scaling efforts. But everything else in crypto right now is definitely in bubble territory.
I can’t tell you when the bubble will burst. It is entirely possible that it will go even higher as people flee Bitcoin temporarily out of fear of what will happen on August 1st. This may even see one or more coins overtaking Bitcoin in terms of marketcap. But I can tell you that I am pretty damn confident that it will burst at some point before too long.
The recent rise of cryptocurrencies other than Bitcoin has seen many people entering the market who don’t know what they are buying and in many cases really don’t care. They’ll buy anything, just because it may be the ‘next bitcoin’ which can make them rich. Unlike Bitcoin, very few people are actually using any of these coins. They are just rising on the back of a speculative bubble. Of course some speculation is natural, especially with an early stage technology that has a great deal of potential, but valuations of hundreds of millions and more on the back of 99.9% speculation – that isn’t sustainable.
Everybody and their dog who has some money to ‘invest’ is now talking about cryptocurrenies: another sure sign of a bubble. Even the gold bugs on YouTube seem to have mostly sold off their stash to buy up coins that some bagholder told them was going to the moon.
To further my point, here is my assessment of some of the top coins right now:
Ethereum
Ethereum has really been at the centre of the bubble, not just for its own token but also its role in ICOs. I love ICOs, I have participated in many, and I think they are here to stay. But when people are throwing $10 million minimum at anybody who holds an ICO, and when the ICO tokens usually don’t even reflect the full valuation of the company, and when people are buying just because its an Ethereum ICO regardless of the project itself: that’s bubble territory.
What’s more, I can’t think of a single project which has run an ICO on Ethereum which has had any success in actually getting users yet. Sure, some undoubtedly will; but most almost certainly won’t. In fact, I can’t think of any project using Ethereum in any way other than to run an ICO which have had any success at all. And while Ethereum is fairly new, its had a couple of years and an eyewatering number of developer hours thrown at it already and quite a few completed projects sitting their with only a handful of users (who are in any case only using it to show their support for Ethereum).
Yet Ethereum has a marketcap of nearly $30 billion at the time of writing. Why? I would suggest it’s because the market is heavily controlled by a small number of people who were in early, and who have been involved in many different ICOs, and who are manipulating and controlling the market.
And why do ICOs themselves raise so much money? It’s because it’s very hard to successfully participate in one, but yet there is a massive amount of new ‘dumb money’ chasing the next big opportunity to get 10x gains. So what happens is this: most of these people can’t get into the ICO and are therefore forced to buy on exchanges afterwards. They don’t know how much the token is worth, so they buy it at whatever price it is. A small number of people buy up the ICO, then knowing that the dumb money will buy at any price they pump the price as soon as it hits the exchange, making the ICO look very successful (5x in a few weeks, wow!) and drawing more and more gullible people into the bubble, whilst actual token prices are driven further and further away from any semblance of real value.
This is clearly bubble territory. If you are buying Ethereum ICO token to sell to greater fools after a week then good luck to you, you may well get rich. If you are buying these tokens on exchanges in the belief they will be worth anywhere near their current value in a year or two them I’m afraid you are going to have a rude awakening at some point soon.
In case you think I’m a Bitcoin maximalist or just and Ethereum hater: I bought into Ethereum’s own ICO and recommended it as one of the top coins to invest in for 2016 in a post I wrote in December 2015. I think the technology is amazing and will have a great impact in many areas. But that doesn’t mean I’ll buy Eth at any price. And I’m not the only one expressing these concerns either, for example see WhalePanda’s recent post ‘I was wrong about Ethereum’
Ripple
In the number three spot in marketcap is Ripple. Ripple has had a lot of success in getting banks and other financial institutions involved. Its great technology and I am very confident it has a great future. But unfortunately for people buying XRP, there is no reason why the XRP token should have any significant value even if every bank in the world starts using Ripple for all their inter-bank payments.
XRP is not a store of value, and the whole point in Ripple’s technology is that it can be used to transfer fiat currency. That’s why the banks use it. XRP is only needed in very small amounts for transaction fees.
Of course the argument is made that people will use XRP for liquidity. They will, apparently, exchange USD > XRP > GBP, instead of going directly USD > GBP. It don’t buy it. Taking this extra step means unnecessary added expense and exposure to currency risk, and can only give any benefit in very small markets with no liquidity. What’s more, Ripple has been around long enough and seen enough use for this intuition of mine to be backed by real evidence, or rather a lack of any real evidence that anybody at all is using XRP for this purpose in significant quantities (despite the fact that Ripple has made a great deal of money available to bribe market makers into doing this).
Bitshares
This one is further down the list of top coins, but is the biggest recent gainer. It went from around $35 million in late April to nearly a $1 billion today. I have been unable to find anybody who can tell me why, other than that it was their turn to get pumped by market manipulators.
There has been no significant news or developments which could have driven this, and no appreciable increase in the number of users.
Bitshares has some great technology, and probably isn’t any more overvalued than many at its current valuation, but its 30x rise in two months for no reason at all is one of the clearest signs you can see that this is all one giant, horrible, bubble.
Please be careful people.
Thank you for another informative and thought provoking article. It is true that there are so many alt-coin out there and so many on the way that there is no way they can all hopld value especially when allot are copies of others with no real value added. I do believe bit coin and ethereum will hold most of there value especially bit coin since it has scarcity and a network established for the transfer of it and funds world wide. Personally I dont see it being a true currency any time real soon due to many reasons, with the transaction costs and time delays of course is an issue along with those makes it useless for small transactions especially microtransaction that its was the champion of, but no longer, in its current state. But I believe a sticking point is still ease of use and safety. People want currency that is easy to use, easy to spend and easy to save guard. Correct me if Im wrong but i believe it still has a pretty sharp learning curve to overcome befor ordinary people are going to start asking for it in place of fiat currencty for their paycheck. But it definately is a good substiutute or a companion to gold. Ether is definately over priced due to all the fuel being used to fund all the projects, but it woould seem that it should hold its value after a correction or once the bubbler pops if people come back to crypto afterward. Im still looking for the currency that is going to be a true currency people will use ,if you have any ideas please let me know. That currency will need to feature ease of use, about 10 % net transaction fees, ability to feel safe that you wont lose it to theft, misplacing or sending to wrong address. The dollar has all those because of physical ownership and because we are used to using it. Which bit coin may get some day if it survives but then again most people aren’t used to gold and its been around thousands of years. I think litecoin is closer than bitcoin now a days to being a currency or even dogecoin since they cost alot less and currently have fast transtimes though still need ease of use and ease of security. When the bubble breaks it will be interesting to see what lies awake and alive afterwards i hope no one that reads this article loses to much. And as you always remind people dont invest more than you can afford, just like life altcoin profits arent guareented. I for one havent invested a whole lot due to situations and family health issues that i deem to important to lose funds from. I will continue to read your articles and invest as i can and hope that you and your readers continue to make alot and have the wisdom to to seal your profits and exit at the most opportune moment.
Thank You for allowing me to comment and just want to say if any readers donrt agree abourt the doge and litecoin and they want to get rid of theres or just want top tip addresses are included if you believe they shouldnt be in my article you are welcome to delete them or leave as you deem fit hope that i didnt step over the bounds.
xcoinsamurai
doge:
DMaXouQVCyDcRn9rw3oygcQCP8RTro8uve
lite
LTuBFCt7E2dgyS4SkR6ZdyUNrTJKVbbmSm
Dean I think MAIDSAFE is the exit ticket from this horrible bubble. Thank you as always for sharing your point of view!!!
Does this mean you don’t believe in cryptocurrency anymore, is there no hope for the future?
I really thought this was a huge philosophical change taking place in the world, where the poor and hard working will take down the lazy and rich.
Of course it doesn’t mean that. I still believe in cryptocurrency and use it and have savings in Bitcoin and even some small amount in a few alts still – and there are other alts I still plan to use even though I wouldn’t hold any because they look over-valued. Anyway, the correction is hitting now it looks like, so many altcoins should find a more reasonable value to level out at over the next few days and weeks and then the good ones will hopefully go up over time. I think some will go up past their peak ath, but others won’t.
It’s just a lot of things got over-valued. What really concerned me was that everything was going up very quickly and often for little reason, suggesting a bubble. Most assets seem to have bubbles, its just part of the process it seems.
I probably over-reacted with the article too because it concerned me that the bubble could keep blowing up for months more and then the crash would be so epic it would destroy everyone’s confidence in everything, and I wrote it on a spur of the moment because I wanted to express my feelings. I’ve considered deleting this article. I may still do that.
Thank you, a very eye-opening piece. As a newcomer to crypto (and so potentially someone who needs saving!), I’m curious about something you wrote about Ripple. You wrote: “there is no reason why the XRP token should have any significant value even if every bank in the world starts using Ripple for all their inter-bank payments.”
I don’t understand how the use of token should be directly tied to its value in this way. Not that a token shouldn’t have a use, bur can they not also function perfectly well as simply means of investing in a company? Does XRP NEED to be used as an intermediary in currency exchanges in order for it to go up in price in a safe way?
Thanks again, and would be very interested to hear your thoughts on this.
My dear friend Dean, thanks for writing this article to place a sound of warning to your readers, though I think so many didn’t heed to this including myself.
But thank goodness the loss wasn’t much before I sold my bags.
You know, when I started seeing an ocean of blood on the streets of coinmarketcap, the first thing that kept coming to my mind was …” oh Dean said so”
My hats off for your foresight in this industry. This and your predicted top coins to invest in 2017 that was successful has now made you my go to resource for anything crypto.
Keep up the good work man!