This year, cryptocurrencies have been among the best-performing asset classes in the world.
YTD the main cryptocurrencies like Bitcoin, Litecoin, and Ethereum have gained by 26%, 128%, and 3% respectively as shown below. Therefore, the question among investors is on whether the rally in the currencies will continue.
To answer this question, we need to understand why the currencies have been rallying this year. First, there are investors who bought the currencies early this year with the belief that they will gain after the large sell-off last year. Second, there are expectations that the Securities and Exchange Commission (SEC) will accept the ETF proposals made by a number of companies such as VanEck. Third, a number of crypto-related projects have been announced this year, which have brought more attention to the industry. For example, early this year, JP Morgan announced that it will launch its own cryptocurrency. This is after Facebook announced that it will create its own currency.
While it is difficult to predict how the currencies will perform this year, the reality is that the reasons mentioned do not support the recent rallies.
Four consideration about Cryptocurrencies’s rallies
First, even if the SEC accepts the Bitcoin ETF, I doubt that it will bring more volumes in the industry. This is because the sentiment among large investors in the industry has been relatively low. Indeed, a few weeks ago, CBOE announced that it was halting the Bitcoin futures it launched in 2017. This is because these futures did not attract the volumes it intended.
Second, while the future of blockchain will be bright, it is difficult to see how the current cryptocurrencies will be used. For example, while Bitcoin is the best-known cryptocurrency, it is not accepted by most retailers. It is difficult to see a retailer that accepts the currency. Similarly, while a lot has been written about how Ripple can be used in money transfer, it’s technology is not used by any large funds transfer companies like Moneygram and Western Union. These companies have been running trials but nothing has materialized so far. The same is true with Ethereum. To date, the so-called smart contracting industry has not achieved anything. Some have even questioned its value. Therefore, if there is no use for the currencies, it is difficult to see how their price will grow.
Third, while the price of the major currencies has grown, the accompanying volumes has been relatively small. This is evidenced by the amount of currencies that are being transferred and traded every day. Another evidence is in the futures market, where only a b. In finance, when price gains is not supported by volume, it is usually an indication that the rally is not very strong. It is could also be a sign of manipulation in the industry.
Fourth, the fundamental questions about the cryptocurrencies have not been answered. For example, if Bitcoin will be a real currency, how will people afford it when one costs more than $5,000. Another question is on how the industry can create confidence if it is so unknown around the world. What about the numerous cases of cybercrime in the industry that has led to the loss of bill.