The story today is more about alt-coins, those lesser known cryptos, than Bitcoin and Ethereum, the famous digital currencies investors are worried about.
You still have those optimists that believe or willing to speculate that Bitcoin will reach anywhere between $20,000 and $25,000 in 2018, but many are not convinced, and for good reasons.
What’s the Alt-coin price revival about?
Bear market ending
According to Bloomberg, the bear market for smaller cryptocurrencies known as alt-coins is over, quoting Fundstrat Global Advisors.
It warned that the rally won’t take place just yet.
The firm’s measure of alt-coins shows a 75% decline in the group over the past 64 days, after a 62-day rally pushed them to unprecedented heights.
“Based on the trajectories of three previous alt-coin bear markets, where the selloffs lasted roughly as long as the surges that preceded them, Fundstrat says the likelihood that the current drop has ended is high,” according to Bloomberg.
In prior cycles, Alt-coins tend to consolidate for periods that last 70 to 231 days and until then, investors should stay in larger cryptocurrencies, like Bitcoin, according to Fundstrat.
“We believe the current purgatory period will last for 150-175 days, implying a bull market for alt-coins really starts mid-August to mid-September,” according to the report.
“The reason for this longer duration is the current dark clouds overhanging crypto.”
The cryptocurrency market has been under pressure this year as regulators globally have cracked down on digital assets trading and initial coin offerings (ICOs).
According to industry site Coindesk, the US Securities and Exchange Commission (SEC) has taken a tougher stance on cryptocurrencies in recent weeks, issuing dozens of subpoenas and calling for some digital asset exchanges to register with the agency.
Also, the U.S. National Security Agency (NSA) has been reportedly monitoring the bitcoin blockchain with an eye on identifying users on the distributed network.
According to Coindesk, the news comes at a time when the U.S government has voiced concerns via lawmakers and law enforcement agencies over the illicit use of cryptocurrencies in terrorism financing and money laundering.
The value of all cryptocurrencies excluding Bitcoin has roughly halved from $376 billion in late December to $193 billion Tuesday, according to CoinMarketCap.
Bitcoin’s bubble path
Prominent investment firm Morgan and Stanley said the cryptocurrency’s price chart is largely mirroring that of the Nasdaq composite index during the dot-com bubble.
“Only this time, things are moving 15 times faster than they did in the mid-90s and early 2000s,” it said as reported by Fortune.
The dotcom bubble occurred in the late 1990s and was characterized by a rapid rise in equity markets fueled by investments in Internet-based companies, according to Investopedia.
Right at the market’s peak, several of the leading high-tech companies, such as Dell and Cisco placed huge sell orders on their stocks, sparking panic selling among investors.
Within a few weeks, the stock market lost 10% of its value.
Dotcom companies that had reached market capitalization in the hundreds of millions of dollars became worthless within a matter of months.
Fortune said that since its creation, Bitcoin has seen four bear waves, where prices have dropped 45-50%, typically rebounding an average of 47% afterward.
Nasdaq, starting in 2000, had five of those waves, averaging 44% declines, followed by 40% rebounds.
“Trading volume patterns are also eerily similar,” it said.