With the VIX currently hovering at record lows, there isn't much volatility or movement in the stock markets right now. Frankly, the kind of movements we're seeing these days in the cryptocurrency markets are astonishing and are some of the biggest seen in any market since the beginning of time.
I mean, we could talk about President Trump firing the FBI director but really that would just be beating a dead horse. Besides, I've made a conscious decision not to let President Trump dictate what I write about and I'm pretty sure you're tired of reading it by now.
Poor Mark Carney though. The Governor of the Bank of England said some really interesting things yesterday and managed to move the Pound Sterling by about 30 pips. It's just that during the time frame of that announcement Bitcoin moved more than $50 a coin.
- How we got here
- Why this is happening
- Where is it going
Please note: All data, figures & graphs below are valid as of May 12th. All trading carries risk. Only risk capital you can afford to lose.
What's going on?
Well, the ride up was really nice. From a low of $1141, a coin on April 13th to a high yesterday of $1905 represents a move of more than $750 a coin (about 40%) in less than a month. This is a high-risk market though and is prone to rapid fluctuations.
The $150 pullback that we saw last night somehow seems like a normal retracement but it did manage to trigger a few stop losses.
The Scalability Issue
One issue that is on the minds of investors this morning is the issue of scalability. As the network grows, the bitcoin blockchain is finding it harder and harder to process transactions.
There have been some amazing updates from countries like Japan, India, Australia, and even Russia that indicate bitcoin and other digital currencies will be much more widely accepted in the future.
However, all this excitement is putting some serious strain on the system. At the time of this writing, there are over 160,000 transactions stuck in the backlog and pending confirmation by blockchain miners. Meaning, that it's taking a long time to process payments right now.
To put it in context, I personally tried to send a bitcoin payment last night before going to bed and as of this morning, 10 hours later, it still has not been processed.
So certainly the prospect of everyday use increasing rapidly is extremely exciting but if it takes 10 hours to make a payment it's not a very useful system.
So What's Next?
The rate of growth for all cryptocurrencies seems to be slowing down but has not stopped. On Monday, we celebrated the market cap of all cryptocurrencies passing $50 Billion for the first time. At the moment, the number stands at about $54 Billion. So the growth this week is a bit less than $1 Billion per day on average.
The seven-day chart shows a steady incline but it's nothing near the $5 Billion days we saw last week.
The market cap of bitcoin peaked yesterday at $30.5 Billion but since then has lost about $1 Billion. So where did that money go?
For the most part, it seems to have been redistributed to other cryptocurrencies. During the same period, the Ethereum network grew by $200 Million and Ripple's value has gone up by almost $700 Million.
So, for the most part, at least for the time being, it seems that in light of the overcrowded bitcoin blockchain, cryptotraders are reallocating their funds to other networks, ones that are faster and don't have the same issues.
On the other side of the coin, the move from last night could also be just a temporary pullback. There are some very large players entering the market at the moment. Players who have a lot invested and want to see the price up to $5,000 or $10,000 a coin. For them, a $150 pullback in the price is nothing but an opportunity and even if we do see $1200 again it will only be a chance to get more at a better price.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.
Past performance is not an indication of future results. All trading carries risk. Only risk capital you're prepared to lose.