The crypto selloff, now what?
Its been a merciless selloff in the crypto space, especially in Ethereum. Let’s take a look at the factors contributing to this and what may be next.
In Ethereum especially the hype, which I detailed in previous posts, led to a large infusion of interest at levels over $300 in ETH/USD. There was a collective feeling that it was going to $1000 and missing out was a painful prospect. I saw numerous posts making the case for $3000 to $5000 in a few years. The second factor may have been its use as a wealth transfer vehicle, in China specifically. I can’t be sure of that but I think a good case can be made. Third, we have this huge rush into ETH based ICOs at silly valuation levels. Soon after many of these companies were wise to quickly get back to dollars which created a massive supply overhang in ETH/USD. We then had the Vitalik Buterin fake death story and then came a sensationalist headline of him saying “Ethereum scalability sucks.” The issues have always existed and been talked about but they started getting more press as the declines accelerated. The media loves to get everyone excited at the tops and pessimistic at the bottoms.
It wasn’t just Ethereum news that pressured the space. The Bitcoin user activated fork issue (looming Aug 1st) has been a dark cloud and is adding to the uncertainty. I will note as of today it seems as if Segwit2x is gaining momentum and I think helping the space rally. Bitcoin is the crypto world reserve currency, much like the USD is in fiat. An issue with Bitcoin is an issue for the entire space. The resolution of this event will be good for the space no matter what happens because it will clear the uncertainty. Much like a human being, the market doesn’t do well with the unknown. A bad event is better than an unknown and I think we’ve priced in a lot of that bad news.
This gets me back to scalability which is something you hear about all the time. It’s not that Bitcoin has scaling issues and the others don’t because Bitcoin is flawed (maybe some truth to that) but it’s more the case that Bitcoin is the first to have a large adoption and with that comes an inevitable scaling issue. Any blockchain technology that gains massive adoption is going to run into this issue. We’re seeing the same thing with Ethereum, as the ICO rush came the fees went up and the network slowed down. It’s going to take more time, creative thinking, and technological advancements to tackle these issues. It’s going to get tackled but not at the speed at which the expectations are being set by the parabolic moves seen in some of these crypto coins.
So do we buy? In short yes I’m buying again (177 ETH/USD). I pared back into the eurphoria and now I’ve been deploying that money over the last few days. Looking down the road the risks seem priced into the market to an extent that I’m comfortable with. We’ve come off over 60% in ETH/USD and I think the issues are more aligned with the price than they were a few weeks ago. I don’t expect to see the kinds of moves that shot us from 8 to 400 in a few months but I do think that the worst may be over. I’m also going to use this time to build a more diversified portfolio within the space.
The race to see who becomes the next digital cash is another topic I’m interested in. Can Bitcoin evolve beyond a store of value? Is it better suited for large or public transactions where privacy doesn’t matter as much? Do Zcash, Dash, or Monero take a lead in this race or does something get built that we haven’t seen yet? I’d be interested to hear from people on that. I’ve been researching all of this myself but I don’t have a definitive choice as of yet. I still like Ethereum as my largest holding.