Cryptocurrencies represent legitimate disruptive technology. However they’re currently in a speculative bubble since the real transaction volume across the network isn’t that high, and most people are buying it for speculative purposes rather than functional purposes.
Bubbles do not die of old age and it’s possible to make a lot of money if one can get out in time.
So the key thing to look for is negative catalysts in bitcoin price in particular.
I think the main negative catalysts are another cryptocurrency overtaking bitcoin in speculative hype and when the market gets mature enough that you have a motivated group of Crypto-Bears with the technical tools to make a lot of money on the short side — either through shorting the new CME futures contracts or when a mainstream option chain is rolled out.
After motivated short sellers win their first battle that dip will be voraciously bought. But the 2nd and 3rd time they seize the momentum a panic may ensue, as there will be many new retail investors in the cryptospace who bought for purely speculative reasons who are now losing significant amounts of money. Other new-ish uneducated crypto investors may exit too — really anyone who invested for speculative purposes who does not understand the fundamental technology.
Overall I expect cryptocurrencies to follow the Gartner Hype Cycle:
And currently we are maybe 60-70% up the peak.
We will get fully up the peak when all the institutional and retail money can easily participate via futures contracts and ETFs.
One friend commented that Bitcoin has already been thru multiple Hype Cycles of which I would add:
That the Gartner Hype Cycle is fractal and applies to each segment in the life cycle adoption curve.
So the Bitcoin Innovators and Early Adopters experienced the Hype and Disillusionment, but the new Early Majority coming into the market since May of 2017 haven’t gone through that cycle yet and I suspect they will, due to a short selling dynamic like I described above.
I’m curious what other people’s thoughts on this thesis are who are following the day to day cryptomarket and cryptonews much closer than I am.