Is the bubble ready to burst?
"Double, triple, quadruple bubble... watch the stock market approach danger..." - Garth Nix
The popularity of trading cryptocurrencies, especially Ethereum, has spread like wildfire in recent months. Since January, Ethereum coins have risen approximately 4,000%, with many still wanting to invest in it for fear of missing out on gains in the “next Bitcoin.” However, market prices and dynamics are looking increasingly alarming for several reasons, from the increasing rate of influx of naive investors to pressure from coins previously invested in various ICOs. Thus, now is the time to consider taking profits off the table and waiting for a correction before entering. Blockchain technology and Ethereum have great long-term potential, but are now facing short-term headwinds. Why wait and try to hold a position during significant pullbacks when you can sell now and buy back in panic sales?
Big Picture: Lake and Streams
As an analogy, imagine the Ethereum ecosystem (Ethereum plus all the alt coins on top of it, such as Augur, Golem or Gnosis) as a lake. Since January, a huge amount of funds have flowed into this lake, which has led to a sharp increase in the price of Ether and the achievement of extremely high water levels in the lake. The reality was that there simply weren't enough reliable locations for water from this lake; People preferred to keep their capital in Ether as it has historically grown faster than any other altcoin's sister coin.
Introducing ICO
These Initial Coin Offerings (ICOs) have provided many new investment opportunities for Ether holders. Similar to IPOs during the dot-com boom, Ethereum investors have sought to invest their ether in startup companies created on the Ethereum network. In exchange for their ether, they received tokens. Once the tokens hit the exchanges for public trading, early investors could profit speculatively from the surge in hype, or continue to believe in future increases in token prices as companies grew and developed.
These altcoins are like rivers flowing into a “lake” that absorb capital in ether. Without a continuous influx of capital from fiat investors into the Ethereum ecosystem, the “lake” will experience a shortage of “water” and the value of the Ether coin will stagnate or fall.
Meanwhile, investors who continue to hold ether are eagerly waiting for Ethereum's capitalization to overtake Bitcoin's, thereby dethroning the latter from its dominant role. What they don't realize is that this has already happened: they should be comparing Bitcoin's market cap to that of the entire Ethereum ecosystem, which includes all of its tokens. If you look at the top crypto asset capitalizations, you will see that 7 of the 10 largest are based on Ethereum. Those expecting another rapid price doubling may not get it as funds flow into ever newer Ethereum-based tokens.
WHATTONEWS
Ethereum (ETH) is the second-largest cryptocurrency by market capitalization after Bitcoin and a favorite of many investors, traders and developers. In 2020 and 2020, it was twice surpassed by Ripple’s XRP coin in the CoinMarketCap capitalization ranking, but so far ETH remains firmly in second place.
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