9 months later. Cryptomarket transformation continues.

Disclaimer: I am NOT a financial advisor, and nothing below should be taken as investment advice. It might be I’m just a lucky guy who gets it right from time to time.

At the beginning of this year we talked about why the cryptocurrency market will grow. And it did — in fact it overshot our most optimistic expectations.

In this article, let’s see what has changed during the last 9 months, and speculate on what might come next.

Remember, we have many risks in crypto. Learn about some of them here.

What has changed…

At this point in the year, some are seeing 10x average profits (those who got into crypto at the beginning of 2017). Not bad. This performance has been inspiring and motivating enough to attract more “gold diggers”. With this new mass inflow of participants, we have a much bigger crowd now. In what environment do they now make decisions?

• First, there are still no rules in the crypto market. The strongest survive.
• Second, the crypto markets are highly emotional and volatile. We are going from excitement to fear and back to excitement almost every week (hello Jamie Dimon, Chinese and Korean regulators, and predictions of BTC going to $5000 then down to $3000 and up to $5000 again).
• Third, emotions are deceiving at times. That’s why traders/investors get caught “buying the tops and selling the bottoms”

At the moment of this writing, BTC is breaking its ATH (all time high). Is it a top? And what is happening to the once (just months ago) beloved “altcoin” tokens, and the platforms on which you can create them?

The weather has turned for alts/ICOs

As expected in January, money has been flowing intensively into token-creation platforms during the last 9 months:

• ETH: 40x ($10 → $400)
• NEO: 3000x ($0.15 → $48)
• WAVES: 30x ($0.22 → $6)

During the last month or so, however, these platforms have begun to stagnate (in terms of price). One explanation is that regulators are coming. You can’t easily run an ICO for “decentralize + tokenize everything” and hope that the issued token will be tradable on a liquid exchange (and no one goes to jail). Without this liquidity, investors are stuck. They can’t get the “expected” 2–5x fast flip and reinvest it again to continue the cycle.

So, the investing-profiting-reinvesting cycle has slowed down — and it will keep slowing down for some time. The market hasn’t fully realized it yet, but “alt coins” are in the crypto equivalent of a recession. Probably, right in the middle of it.

Then is everything bad for alts/ICOs?

Not entirely. Long-term regulations are good for opening the gates to an even wider public (think institutional investors, fund managers, etc). Besides… and this is a unique quality of crypto… the community has an organic desire to organize and regulate itself.

We at Santiment just launched a Project Transparency initiative, joining with many other key crypto projects who want to maintain their independence — and transparency to their investors — through self-accountability. ConsenSys (probably the strongest player in Ethereum community) is gearing up in this direction as well with a tokens accounting project. And ICO Governance is pursuing a similar effort.

This shows signs that the crypto community has what it takes to make it to the next level of maturity. It can bring in wider participation — we simply answer to ourselves, not a third party. We’re optimistic that this movement will increase confidence in the crypto markets longer term, from both investors and governments.

Remember though…

The markets are still irrational, often overshooting any reasonable expectations in either direction (first on the way up, then on the way down).

Just look at the NEO chart below (btw, we published a warning for the NEO top on the 14-th of August).

I met the NEO founders back in February in Shanghai, and was impressed with their professional and dedicated approach. Honestly (in my opinion), if any “token-creation” platform will ever exist in China — it is most likely to be NEO. Ethereum has little to no chance (unfortunately), and BTC is way too decentralized for the taste of Chinese regulators.

So, why isn’t the price of NEO able to grow?

First, as we said — markets are irrational (based on humans emotions, less on reasoning).

Second —the revival of BTC.

What might be coming next

In light of struggling token markets and constant fear that more regulations will come, BTC attracts more and more attention.

Let’s see it clearly. Regulations are mostly irrelevant for BTC. There are enough countries where it is legal and widely supported (take Japan alone). Unless the US decides to announce holding BTC illegal (as it did with gold back in 1933), BTC is doing fine in the US too. And, btw, this criminalization of BTC would only happen if there is a real threat to the US dollar, combined with a deep recession. Are we there now? Surely not.

And here we are today. Remember, greed is firmly established in crypto. It always comes paired with fear. You can’t easily get profit from ICOs anymore. So, the money flows into BTC (at the moment). “Free money” with the new fork, right?

Based on these dynamics, we are waiting for two things to happen:

1. Crowd excitement to be formed in BTC (top in BTC). This will mark the top of the current bull trend.
2. Depression with some taste of panic, accusations of scammy ICOs and “tokens + ICOs are useless” sentiment to be formed in “token land”. This mood will possibly spread to non-BTC alt coins in general. (bottom in tokens + ICO platforms)

These are the things which are important to observe now. Make sure you don’t miss these two extremes. They could provide one of the best trading/investing decision in crypto.

Maksim Balashevich is the founder of santiment.net.

He has more than 15 years experience building and leading international teams, and more than 10 years experience in financial markets analysis.

Lately he has focused solely on Elliott Waves Theory, sentiment analysis and crowd psychology in crypto markets.

He also draws upon his unique background in a yogic way of life to foster a human-focused, balanced approach to building teams, communities and decentralized platforms. He believes it is especially important in an area like finance to promote trust and transparency from the beginning and on every level, to create a better society for all people.