The cryptocurrency bear market that has defined 2018 has hit a new low. The price of Bitcoin has dipped below US$6,000 and the market cap for cryptocurrencies is under US$200 billion.
While this news is painful for investors who bought in at US$10,000, it is not overly important. Even at the height of the bubble, the biggest enthusiasts were screaming that crypto is a speculative investment — and a particularly volatile one at that.
The 2018 correction is simply the market behaving as it always had, albeit with more money than five years ago.
That being said, one statistic that should alarm the industry because it suggests that increasingly, the crypto space is being dominated by one player, which is, of course, Bitcoin.
According to CoinDesk, the market cap for Bitcoin is about US$105 billion, which means it represents more than 50 per cent of the entire cryptocurrency industry.
The result is that Bitcoin drives the success or failure of any relevant alt-coin.
Why is this an issue?
Take a look any cryptocurrency price chart, then compare it to Bitcoin. The prices do not just follow broad trends, they are a near mirror of whatever Bitcoin is doing.
For example, since I started writing this article, the price of Bitcoin ticked up a little bit. Within minutes, the price of Ethereum, Bitcoin Cash, Litecoin and Ripple followed the EXACT same trend.
Bitcoin is far from perfect, and alternative coins are built on improvements in distribution, technology and logical loopholes — such as the doomsday scenario whereby if one person or group owns 51 percent of Bitcoin they essentially become the all-powerful dictator of the currency.
Ripple gets a lot of hell from the crypto community, but a lot of people believe in a centralised financial system. Cryptocurrency has moved beyond its early days and for people who believe in BOTH a centralised financial system and the value of cryptocurrency, Ripple would be a nice investment.
However, this value judgement is muted because the success or failure of Ripple has nothing to do with building a utopian future of blockchain-fueled Federal Reserve. The success of Ripple is still entirely dependent on the success or failure of Bitcoin.
Beyond ideals, the best equity investors find inefficiencies in the market and exploit them for maximum profit. If the NYSE crashes for two days, there are still companies that will see gains on their own merits. It is the job of a decent trader to find these companies and park their client’s money while the storm passes.
At the moment, this does not happen in the crypto space. For example, given its use-cases for blockchain and that seemingly every ICO is built on Ethereum, the price of that coin should be consistently rising.
But it’s not, because the qualities of Ethereum are irrelevant to its price.
For crypto-enthusiasts everywhere, that should be a huge concern.