Why we are on a Cyptocurrency Bubble about to burst explained in four facts and two charts

1. INTRODUCTION

Blockchain’s incremental technology is a huge deal. There is no doubt about it. There are different historical phases since the launch of Bitcoin and the Blockchain by Satoshi Nakamoto, back in 2008. Since then, we have witnessed a raising market that contemplates startups around the globe. A decentralized technology and a new path for Venture Capital democratization.

One year ago, the Total Market Capitalization of Cryptocurrencies was U$ 14,689,600,000 and by the time that I am writing down this article it is U$ 112,093,029,047. Which represents a raising of +663.08% in just one year. As mentioned on the Crunch Base’s article “What the hell is happening to cryptocurrency valuations”, “When an asset rises that fast it’s a near certainty that it will come back down. Markets are irrational, after all”.

Based on that, in the next paragraphs I will demonstrate some good reasons why investors should short the Crypto market right now.

2. FACTS THAT SHOWS THAT THE MARKET IS OVERPRICED

· Vitalik, the founder of the Ethereum’s Project sold 25% of all his ETH at U$ 7, the price hyped up to U$ 400 last week.

· Developers from Ethereum’s project said this week that the technology behind the proof of stake and the smart contracts is real, but it is just in the early stages and it will take some more years to be implemented and scaled. ETH was about U$ 12 in January, which represents a hype of nearly +3233.00% without any technological advancements. Although Ethereum enthusiasts are excited with the Ethereum Alliance, which is a group of huge enterprises that are embracing this new “Smart Contracts” technology, most of the Ethereum’s volume right now is from ICOs and most of them are priced just as internet companies were priced before the Internet Bubble in 2000. For another example about how the technology is just in the early stages, you can search for R3 project and see how Investment Banks from Wall Street are just validating their first’s prototypes with very simple templates, there is a very interesting video about how Barclay’s is developing a Smart Contract platform for operating derivatives.

· Initial Coin Offering (ICO) is a new way of going public in the early stages of a new startup. It sounds great on one point of view, which is the democratization of Venture Capital, but in the other hand it is a highly risky way to launch companies that don’t even have any kind of revenue and are just on a pre-seed stage. These ICOs are plunging the Ethreum’s price and people and getting very greedy. That is one of the signs of an imminent bubble burst.

· It is often said that history repeats itself and when it comes to Cryptocurrencies there is always a bubble pattern. But what we actually see is that many people are not afraid of this market anymore and think that they are going to be millionaires as we get into a “new paradigm”. As we know, greedy predates fear, and this pattern never fails.

3. SOME CHARTS THAT WILL SCARE THE SHIT OUT OF YOU

Figure one represents the classical “Bubble Chart” as you can see, and it is a classical expression of the Market behavior. When it comes to Intrinsic Valuation, there is no such a place for Cryptocurrencies. It happens that the Blockchain technology excites people as much as the Internet used to excite in the 1998’s. We are excited about decentralization, new business models, ICOs and how to become a millionaire just investing a few bucks.

Figure One — The Classical Bubble Chart

During the Tech Bubble in 2000, the Internet Market Cap was about U$ 3 trillion, which is 30 times larger than the Crypto market right now. So, we shouldn’t worry, right? But actually, at that time, the investor were really Venture Capitalists and the liquidity was much lower. Therefore, in that scenario, the reactions from the market are pretty faster and supposedly, the investors were more prepared.

In the last two months, it turned to be common to watch videos about people wondering which would be the hottest ICO or the next Bitcoin. But regular people are just trying figure out how the coin price, which sometimes is much less than a dollar, could multiply by ten or maybe one thousands times. This is a common mistake, because people forget to analyze the market cap that the coin represents and that is a way for creating the hype that make the bubble bursts.

It is possible to see the Bubble patterns just looking for the charts from different alt-coins at the coinmarketcap.com website. As you may see in the next two charts, the total market cap without Bitcoin is growing in a pace just like the first tail of the classical Bubble chart.

Chart from Coinmarketcap.com

“Be fearful when others are greedy and greedy when others are fearful” — Warren Buffet