Currently, the cryptocurrency market seems to be reminiscent of the bull market on stock exchanges in 2006-2007, i.e. just before the crisis, whose greatest effects we could observe in 2008.
In 2006-2007, an investment in almost all stocks, indexes or funds was translated into profit. The bull market was very wide and only a few companies were losing their value during that time. Those were the years, when making money on the stock market seemed to be trivial - whatever you bought, became more expensive. It seems that currently a similar situation may be taking place on the cryptocurrencies market – their prices seem to be systematically increasing.
Only since the beginning of the year, the price of bitcoin expressed in US dollars has increased by almost 80 percent, today beating another record of nearly 53 thousand USD. The ETH/USD exchange rate is up 165 percent since the beginning of the year, and litecoin is up 85 percent, all in less than three months of 2021. Of course, there are other projects on the crypto market with returns in the thousands of percent. There are also some that are losing value by more than 90 percent. Nevertheless, broadly looking at the cryptocurrency market through the lens of its capitalization, we see an increase to $1.6 trillion from $155 billion near the March 2020 low. This is a 10x increase, indicating a huge bull market in the broad market.
With such gigantic increases and demand for cryptocurrencies, it is very difficult to estimate where the peak of this madness might fall. The difficulty here also lies in the lack of a fundamental benchmark, as could be the case with stocks, where we have revenues, earnings, etc. and it's fairly easy to determine if the current stock price adequately reflects what's going on in the company. If the current upswing in the cryptocurrency market is to be similar to the 2006-2007 bull market in the stock market, the question is if and when 2008 will come?
One threat seems to be the ongoing trial of Tether Limited by the New York Attorney General. Tether is the most popular stablecoin whose value is pegged to the U.S. dollar in a nearly 1:1 relationship. The company declares that there is a USD behind every USDT and all tethers are backed by the dollar (such a modern day gold standard). USDT's capitalization has grown from $4 billion since the beginning of 2020 to 33 billion today. Tether is also responsible for the largest volume of exchanges for other cryptocurrencies.
For example, in the last 24 hours, the tides between USDT and BTC were worth over $15 billion. In contrast, the tide between BTC and USDT was only $3 billion. It is probably unnecessary to mention what would happen to the listing if it turned out that irregularities were detected in the company Tether Limited. This case seems to be one of the more serious risks of the entire cryptocurrency market. Will it take on the dimensions of the collapse of Lehman Brothers in the great financial crisis…
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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