Analysts can’t agree about the future of cryptocurrencies
Boom coming? Bust already happening? It depends on who you ask.
OPINION: The long-term value of cryptocurrencies is something traders are keen to get a handle on. Are we merely seeing a bubble with a massive all or total collapse on the horizon? Or are the price fluctuations we're seeing now merely the "birthing pains" of a new technology that is finding its place. The reality is that no-one really know, as two recent reports from experts highlight.
Yesterday, we saw the price of Bitcoin rebound, gaining 40% in some cases, after dropping 30% just a day or two before. That bounce is the kind of market volatility that makes people a little nervous.
After noting the correlation in price movements between different coins is a worry, Goldman Sachs expert Steve Strongin has said that all but a few of the cryptocurrencies on the market today will disappear. "Most, if not all, will never see their recent peaks again". That's bad news if you picked up some bitcoin at US$12,000 or more a few weeks ago.
Conversely, Jamie Burke, CEO at Outlier Ventures, Europe’s first blockchain-based incubator, told CNBC: "We believe after February the market will likely go on a bull run comparative if not greater than last year potentially reaching the trillion-dollar mark before a proper crypto winter sets in where the market becomes more focused on proper market fundamentals".
And, at least one expert has predicted Bitcoin will reach $50,000 before the year is out.
Where many views agree is that we will see cryptocurrency markets and trading settle down in future with today's volatility disappearing. That's expected economic behaviour. New markets open in a flourish, as new entrants see opportunities. It's like a gold rush. Lots of people want to strike it rich but once the easy pickings are gleaned, only the wealthiest can afford to continue mining as the rewards diminish.
We'll also see a consolidation in the number of different coins. Just as in a gold rush less productive mines close down, we can expect coins that don't perform as well or are poorly managed (think of unsafe mines in the gold rush) close down and disappear. Such a consolidation is common in new markets.
Where does this leave traders? We have a relatively immature market that is still finding its feet. The short history of cryptocurrency trading means there are no real experts with long-term experience. Institutional investors have lots of experience in existing markets and make assumptions based on what they've seen before. Whether that experience translates to cryptocurrency markets remains to be seen.
People new to trading, who see the opportunity in cryptocurrencies, don't always have lots of experience in how financial markets work and make assumptions based on their observations and expectations.
In other words, there are no real experts in how cryptocurrency markets work. And that means we will continue to see conflicting advice and predictions until the markets mature.