This isn't a "bitcoin is dead" hit piece. But investors in the biggest cryptocurrency out there think bitcoin prices might have peaked ... at least for now. For those out there fearing they've missed a shot at becoming filthy rich on crypto, there are at least a handful of smaller cryptocurrencies out there that don't cost the price of a new car. And have not peaked.
First, a look at where bitcoin has been, technically, from traders at ThinkMarkets in London.
Bitcoin prices fell 5.83% early Wednesday, but are still far above the lows reached in October when the Chinese banned bitcoin exchanges and initial coin offerings, a crowdfunding mechanism used to raise capital in cryptocurrencies. At the time, bitcoin lost about $1,000 worth of value but is up more than four times since. Most people think it's a bubble and argue that the cryptocurrency is a magnet for money laundering.
Regardless of popular opinion, the CME Group launched bitcoin futures recently. We have a bona fide, legally traded derivative.
On Tuesday, bitcoin futures were down nearly $1,000 to $17,210 for the January contract. Due to its size, it is the only cryptocurrency with a futures contract. Number two, ether, has one fifth the volume.
ThinkMarkets' chief market analyst and Forbes contributor Naeem Aslam hasn't any real conviction on ether. It can go either way at this point. The Russian-developed coin is down today but has outperformed bitcoin over the last several weeks because investors are looking for cheaper coins to buy.
Over the last several months, a handful of financial pundits, like James Altucher, have been shining a light on smaller cryptos. Litecoin is one of the brightest stars.
Because of bitcoin's popularity, and because it is so expensive, newcomers are discovering new coins. It's a shell game that hedge funds from Russia, China, the U.K. and the U.S. are willing to play.
According to Coin Market Cap, a website dedicated to the hundreds of cryptocurrencies startups have created over the last year to fund their projects, the total market cap of these things is $624.3 billion. Newly created cryptocurrencies have also created newly minted millionaires worldwide. That's got everybody looking at this market and trying to make a play, even if it means throwing money into a firepit. Investors putting money to work in cryptocurrencies must be prepared to lose their entire investment.
Interests is growing, despite the risks. Smaller cryptos are gaining on bitcoin in terms of headline space.
"I think there is a lot of value in some of the smaller tokens such as Dash, Ripple, and NEO," says Aslam in an emailed interview today.
Dash is a top 10 coin priced at $1,590 as of Wednesday and is up 32.8% today. Ripple is a top five coin based on market cap and is priced at $0.75, making it one of the cheaper cryptos with trading volume.
NEO was created by Chinese developers and is a spinoff of Ethereum, with proprietary technology. That one is down 6.4% on Wednesday and trades around $270 million coins per day, according to Coin Market Cap. One NEO costs $69.33.
Investors shouldn't just buy coins because they are cheap.
"They are very cheap, but their business ecosystem is really strong," says Aslam about dash, ripple and NEO. "Ether has been rising because of superior technology but some upcoming ICOs...have technology that can process cryptocurrency transactions even faster than Ethereum."
Bitcoin is destined to become a niche asset, ING financial analysts wrote in a report to clients on Dec. 18. The report alone shows how top-tier investors are feeling left behind on what many see as a cryptocurrency gold rush.
Bitcoin is up over 2,000% in the last 12 months. A thousand dollars pumped into bitcoin last December is now worth over $20,000.
(No wonder this Indian couple asked for bitcoin as a wedding gift instead of gold, an old standby for newly wedded couples there.)
ING thinks bitcoin has "little to offer" a wider audience and will likely return to being a niche product for a select group of enthusiasts. What cryptocurrency developers regard as key benefits may end up being impediments to wider adoption, report authors warned.
Bitcoin, ether, Litecoin, dash, and the hundreds of other coins out there are not normal investment assets. No one knows their true value. Most are based on the ideas of a startup company with no sales to speak of.
Comparing bitcoin to currencies is better than comparing it to a security like stocks and bonds, ING says. In that case, it stands to reason that if a large enough group of people decide a particular cryptocurrency isn't needed to buy or sell a service or product, then its usage plummets and the value goes to zero because there is nothing backing it.
"The risks are all around solvency and exchange," says Aslam. "We all know how an exchange can go down and your digital wallet — where you are holding your currency — can disappear. This is why clients need the regulatory support," he says, in order to protect investors from fraud.
