My Long Awaited Altcoin Trading Article: STOP BUYING ALTCOINS THEY ARE IN A MASSIVE BUBBLE
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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 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’
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).
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.