Bloomberg’s recent analysis of the cryptocurrency written by Leonid Bershidsky is an interesting one. In the last three months, the movement of all the top cryptocurrencies have been strongly synced, with all of them moving up and down together. This would make one conclude that people who have been calling the cryptocurrency boom a bubble must be right.
However, there are signs that the cryptocurrency market is finally developing. In the last one month, if we see beyond the spectacular drop in Bitcoin prices, that synchronicity seems to be breaking apart.
The author did a correlation analysis, specifically on market capitalization, of Bitcoin prices and the other next 10 altcoins. The correlation was strongest – over a 3 month period as well as the last 30 days – between 3 types of altcoins. These were Bitcoin Cash, Litecoin and IOTA. The first two are cryptocurrencies that were created by forks in Bitcoin and are designed for the same purpose – payments and storage. IOTA is a cryptocurrency that enables machine-to-machine payments – a kind of “Bitcoin for robots”, then. However, its basic purpose is also the same – payments and storage.
Through the analysis, another two groups of cryptocurrencies emerged. The group that had platforms dealing with Smart Contracts and ICOs and consisted of the cryptocurrencies Ethereum, NEO, EOS and NEM. And the group that “minted” their cryptocurrencies from inception; this group consisted of Ripple and Cardano. Stellar kind of does both, so straddled both groups.
The analysis shows that these three groups are not moving in unison with each other, but there is synchronicity within each of these groups. Thus, the data analyzed showed that all the smart contract cryptos were moving up and down in unison, but not with the Bitcoin group.
The cryptocurrency market is really new. Newer even than the technology it is resting on. And it really is like the old Wild West right now. Speculators and gamblers are having a field day, regulations are not in place to stabilize or anchor the markets properly and it seems like it’s each to his own right now. However, if you look beneath the surface froth, you can see the beginnings of strong foundations being created.
It is absolutely fine to not believe that cryptocurrencies could be the future of money. Those are what Bitcoin, Bitcoin Cash, Litecoin and other cryptos meant for payments and storage are aiming to do. But that is just one small aspect of what blockchain and other distributed ledger technologies (DLTs) are capable of doing.
Right now, most investors in the cryptocurrency market are speculators (read: gamblers) who are out to make a quick buck on the cryptocurrency boom. They are the chaff of the market and will get washed away as the market matures. And then there are the smart investors who are truly interested in investing in the technology of the future.
With DLT and blockchain’s applications being so many, the long shots are what will count. So investors look at what interests them, or what they believe will be hot in the future, and then they bet long. So, if you believe that there is, in fact, the chance that cryptocurrencies like Bitcoin and its progeny will become the currency of the future, invest there. If, on the other hand, you believe that smart contracts are going to change the face of the financial world, then bet on Ethereum and its ilk.
By the way, the Ethereum Alliance is actually a consortium of some of the biggest companies in the world that are working together to explore what blockchain technology can do.