Cryptocurrency Insanity Has Come and Gone, But It Isn’t Time to Invest Yet
The cryptocurrency hype which swept over the markets in 2017 has now largely disappeared.
Everything cryptocurrency related peaked in late 2017. At that point in time, bitcoin prices were around $19,000. Ethereum prices were around $1,400. Ripple prices were around $3. Bitcoin cash was priced around $3,700. And litecoin was trading around $360.
Now, bitcoin prices have dropped 60% to $7,700. Ethereum has dropped 60% to $600. Ripple has dropped more than 75% to below $0.70. Bitcoin cash has dropped 70% to $1,100. And litecoin has dropped more than 65% to $120.
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Those are pretty big drops.
And some people think now is the time to buy the dip. Indeed, I said during the peak of this cryptocurrency hype cycle that buying opportunities in certain blockchain stocks would present themselves once the bubble popped.
But from where I’m sitting, I don’t see any buying opportunities in cyrptocurrencies yet.
Why? Because while I believe that decentralization is the future, I’m not so sure that decentralization is best applied to currencies.
Here’s a deeper look.
Bitcoin Looks Weak From Every Perspective
No matter how you look at bitcoin, the investment thesis looks weak.
If you are a chart trader, there really isn’t much to like about bitcoin or any other cryptocurrency. They’ve essentially all been stuck in a down-trend since late 2017. Any and all rallies have been short-circuited by regulation, bearish talk from big time investors, or questions regarding long-term value.
With respect to bitcoin specifically, $7,000 does seem to be a floor which this currency bounces off of every time, but upside from that level is unclear.
Meanwhile, if you trade on sentiment, there also isn’t much to like about cryptos. The whole mindset surrounding cryptos has dramatically shifted since late 2017. Back then, cryptos were positioned to take over the world. They were a mega-trend that couldn’t be stopped, bears sounded like short-sighted pundits, and bitcoin prices were hovering around $20,000.
Now, cryptos are hardly talked about anymore, relative to discussion volume in late 2017. They are no longer a mega-trend. Bulls now sound like desperate speculators hoping for another rally to exit. And if bitcoin prices jumped to just $10,000, that’d be a huge miracle.
If you trade on fundamentals, maybe you have a long-term vision about why decentralized currencies are the future. But in the near term at least, prices keep being driven down by regulation concerns and bearish talk from big-time investors like Warren Buffet, Charlie Munger and David Siegel. This bleeding isn’t showing any signs of stopping any time soon.
Overall, then, the chart says don’t buy yet. Sentiment says don’t buy yet. And fundamentals say don’t buy yet.
So don’t buy yet.
Long-Term Value of Cryptocurrency Is a Big Question Mark
Longer term, I’m skeptical on the value of bitcoin and other cryptocurrencies.
I am a big believer in decentralization. Decentralization is the future, as taking the power from the few and giving it to the masses in a structured way most often results in enhanced efficiency and more positive social and financial outcomes for the consumer.
Take Uber for example. It broke apart the transportation world by saying that anyone with a car can transport people to and fro. The result is the ride-sharing economy, which has allowed people to travel to and fro with very little hassle and at low costs.
Airbnb is doing the same thing in the accommodations world. YouTube and Netflix, Inc. (NASDAQ:NFLX) are doing the same thing in the entertainment world. GrubHub Inc (NYSE:GRUB) and DoorDash are doing the same thing in the food delivery world. Shopify Inc (NYSE:SHOP) is doing the same thing in the e-commerce world.
But in each of those aforementioned cases, decentralization is a mechanism for delivering positive outcomes for the consumer.
I don’t see that same endgame with cryptocurrencies. Bitcoin and others take power away from governments and give it to whom? Consumers? More than that, what positive outcome do consumers receive as a result of a decentralized currency? No government corruption? Is that really that large of a positive outcome to catalyze a global movement?
The answers to these questions remain largely unclear at this point. As a result, while I’m bullish on decentralization, I’m skeptical with respect to the long-term value of bitcoin.
Bottom Line on Cryptos
Don’t buy the dip just yet. Instead, look for decentralization stocks to buy, like Shopify, GrubHub, Netflix and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG).
As of this writing, Luke Lango was long SHOP and GOOG.
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