When Your Friends Are Unsure About Investing In Crypto Since December Flash Crash

TL;DR: If you only look at Bitcoin prices, you might think cryptocurrencies are in flux right now. If you look at the whole market, though, it's very obviously fully recovered and quickly growing. I bet everything I'm willing to lose, and not an iota more or less -- but none of it is riding on Bitcoin.

For anyone who is interested in cryptocurrencies, from the most seasoned trader to the person saying "What's that thing called that so-and-so keeps talking about?" this website has a lot to offer you.

https://coinmarketcap.com/charts/#dominance-percentage

This particular link has three graphs:

1. the total market capitalization (total value at current prices) of all the cryptocurrencies being traded actively right now,
2. The total market capitalization of all the cryptocurrencies not counting Bitcoin
3. The proportionate share of the total market cap held by each of the top coins or "others" across time.

I call your attention to the top graph. Note, you can zoom to any time period you want by moving the little framing bars on the time scale. Look from 2017 onward.

Some things that stand out to me: Obviously, the cryptocurrency market has had a big year this year, to put it mildly. From 18 billion to 766 billion. Yeesh. All previous years combined are minuscule by comparison.
Did I say last year? I meant the last two months. About three quarters of the growth actually occurred since October 31st. (Flat growth. Proportionately, much more before then).

What happened on October 31st, you ask? The largest Futures exchange in the world took a leap of faith and announced the first futures contracts for Bitcoin (to begin mid-December). This occurred in conjunction with a highly anticipated hard fork (software update) for bitcoin which was expected to result in a chain split (creation of a new coin, distributed proportionately to all holders of Bitcoin).

This combination of major news items, right after Bitcoin had already started making headlines again by recovering after several weeks to its all-time high after a 40% flash crash, resulted in a speculative explosion of the price in Bitcoin. Many people rushed either to get some before the hard fork, or before the first Wall St. traders showed up at CME with money bags in hand.

The hype went on until CME actually launched its contracts on the 18th of December. By that time, prices had already tripled. So, instead of an explosion in price as new money entered, we saw a downward correction in price as the hype proved to be greater than the event. The bubble was popped, as they say.

In the space of four days, bitcoin's price fell from a fleeting moment at $19,800 all the way down to $10,500 before rebounding immediately to $12,000. Since then, it has bounced up and down in the range from 12k to 16k. If you are just looking at bitcoin, you might reasonably conclude that the market has not recovered, and that the next big move could be a very big move down.

I don't think that is the most likely yet, although I don't have the omniscience to tell you that it won't. However, I will tell you why I think as I do. Allow me to call your attention back to that top graph. Look at December 18-22. See that little dip? That's bitcoin's 50% collapse. Yes, that was it. No, really! Doesn't look like 50%? Because it wasn't. This is a graph of the whole crypto market, not just bitcoin. That dip is, as you can see, about a third. But, as you can also see, the crypto market as a whole has ascended 20% higher than its peak when bitcoin was at its $19,800 peak.

So, whereas Bitcoin has been staying in the 12k to 16k range, everything else has been growing wildly. Why would this be?

Remember all that big news that Bitcoin had coming its way? Now I want you to look down at the bottom chart. This shows you what percentages of the market each coin holds. Zoom in on 2017. Notice how in the first year, bitcoin's dominance starts at nearly 100%, then drops precipitously as Ethereum and Ripple, and a host of other clones, challenge it. The thing about Ripple and Ethereum is that they are practically and technically superior, so even though they were coming from behind, they quickly started making up ground.

Then, Bitcoin responded by promising major software upgrades to increase its competitiveness, and it started to regain dominance. Then CME made its announcement, and Bitcoin gained even more ground back.

But, that hard fork never actually happened. The developers scrapped it, citing concerns about splitting the network of miners. So bitcoin didn't get the upgrades it had promised, and it remains ridiculously slow and expensive to use as a method of payment. Meanwhile, the futures exchanges opened, and they didn't send Bitcoin's price to the moon. So, every crypto trader who had traded all their other coins for more bitcoin because of the news then started moving it all back into other coins after the climax.

This is borne out in both the dominance chart and the total market capitalization graph.

So, the point of all this was that if you're waiting on the sidelines to see where bitcoin is going, don't. Look at an index of many coins, and when you buy, don't just buy bitcoin. Buy a spread of coins. Bitcoin has only been the leader because it was always already the leader. Barring major software updates, its obliteration is inevitable. Probably this year, maybe as soon as this month.

But, don't assume that means the dollar is safe. In fact, the dollar and bitcoin will probably die together, as something truly and obviously superior in every way will eventually kill them both. At present growth rates, it will be Ripple that does them both in, because it's cheaper than and as fast as a credit card, and is already being used by large corporate banks in South East Asia to facilitate international payments. (Just an FYI in case you were wondering what suddenly brought Ripple within striking distance of replacing Bitcoin as the market leader.)

I personally am holding about 20 different coins, and when I have Bitcoin, it's only as an intermediary. If you don't know what to get and don't have time to figure it out, just divide your investment equally among the top 10, or top 20, or whatever. It's hard to pick a loser when the market is in the bull phase -- picking 10 is statistically impossible.