By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street
A “collapse” isn’t when something edges down 1% in value or even 10% or 20%; it’s when something plunges 50% in a short time.
Ethereum has collapsed 52% in four weeks. The second largest cryptocurrency by market capitalization had surged from $0.95 at the end of 2015 to $8.21 by the end of 2016; a gain of 764% in one year. Then it surged to $400 by June 13, according to CoinMarketCap; a gain of nearly 5,000% in less than six month. Over the 18-month period, it multiplied by 421 times. That’s a 42,000% gain. No wonder hedge funds have piled into this madhouse. But in the four weeks since then, it has collapsed by 52% to $193.
And its market capitalization plunged from $37 billion to $18.2 billion. In other words, $18.8 billion, over half of that $37 billion in imaginary wealth, has been left behind in the imagination.
To be honest, a lot of “investments” these days are like this, but the dynamics here are on steroids, condensing the entire experience from years into weeks and days.
Ripple has collapsed 57% in seven weeks. The third largest crypto coin had surged from $0.006 on March 17 to $0.42 on May 17, to a market cap of $16.2 billion, having thus multiplied by a factor of 70. For percentage lovers, it skyrocketed by nearly 7,000% in just two months. Today it’s at $0.18. Down 57% in seven weeks! Its market cap has plunged to $7.1 billion – down $9 billion in seven weeks.
Bitcoin has plunged “only” 21% in one month. The granddaddy of crypto coins had soared to just about $3,000 by June 12, and a market cap of $48.5 billion. Since then, it has plunged 21% to $2,366 and a market cap of $38.9 billion. Another $9.5 billion down the drain in just a few weeks.
Between these top three crypto coins, about $35 billion in “wealth” has returned to the ether in two months.
However, Litecoin, the fourth largest crypto coin, is on a different schedule. Like Bitcoin, it already experienced a dizzying spike and subsequent collapse from October 2013 through May 2015, skyrocketing 2,500% in one month, from $1.90 to over $50 by November 28, 2013, only to collapse 99% to $1.40 by May 2015.
Then there was another spike, but smaller and briefer. And since March 2017, all heck has once again broken loose. This time, it soared from $3.80 on March 1 to just over $50 by June 20, then plunged, then recovered, then wobbled, and now is once again falling. Currently at $45.09, it’s down only 10% from its peak. Given how things went after the prior two spikes – total collapses toward nothingness – caution might be in order.
EOS collapses 70% in eight days. Another illustrative example further down the list, the 11th largest crypto coin by market cap came out of nowhere on July 1 via an “Initial Coin Offering” – similar to an IPO but without regulations, required disclosures, filings, etc. It’s a free-for-all. Unlike an IPO, an ICO offers no ownership of the company. The tokens are all you get.
Here’s a good analysis:
EOS is going to be one of the hottest ICOs on Ethereum network. Even though, Ethereum is just a place for EOS to fund (EOS will have its own blockchain like Omise Go), I expect Ether price will be supported because EOS will conduct its crowdsale for the whole year! Due to its crowdsale model, I expect that everyone who wants to buy tokens, will be able to do this. The most important promised feature of EOS is its scalability. The numbers are really amazing.
EOS shot up from $1 on July 1 to $5.40 on July 3. That day, there was this interesting analysis:
Block.one, the developer of EOS, has been great with marketing, as even Reuters and the New York Times wrote about the token. These factors have helped the cryptocurrency nearly become one of the top 10 biggest cryptocurrencies by market cap, as according to data from CoinMarketCap, EOS is currently number 9 with a $747 million market cap, each token being worth $4.68.
Now it’s at $1.61, a collapse of 70% in eight days.
The hope is that dip buyers will soon be piling into all these tokens and make current holders whole again.
These price movements are like those of numerous highly regulated and even more highly touted IPOs. It just doesn’t play out over months and years, but over a few days. It’s a very concentrated form of nerve-tingling addictive fun that gets people to check their apps furtively every few minutes during even important meetings – and some of them disappear to the bathroom to vomit.
But the company behind EOS raised $185 million in real money. That’s serious business. EOS was the largest ICO ever. Days later it was surpassed by Tezos ICO, which raised $200 million in four days and continues to raise money but hasn’t started trading yet.
Whatever the company might be doing, buyers of ICOs are not getting any ownership in it. They’re getting the tokens and the hope that those tokens will fund their retirement and that they don’t ever have to sit through another shitty meeting again. Meanwhile, the company gets their real money.
There are now 970 of these tokens – 812 “currencies” and 161 “assets” – according to CoinMarketCap. Over 100 of them have been added over the past two months, as everyone and his dog can do ICOs and issue new crypto coins for others to buy with their real money. Getting people to buy them is another story, as attested to by hundreds of now worthless or nearly worthless crypto coins in the pile.
But once the hype takes, particularly if you get some googly-eyed writers at the mainstream media to fawn over it, it’s a miracle to behold.
Given the rocket-like price appreciation when there is concentrated buying, hedge funds are now touting their crypto coin investments. Throwing a few million real dollars at one of the smaller crypto coins can produce price surges of thousands of percent. And a few hundred million thrown at larger crypto coins, along with the requisite hype, can unleash real fireworks.
But trying to get those millions or billions (?) of dollars out? Big players have a hard time selling these coins in large quantities for real money: there are no market makers, and liquidity evaporates when the selling starts. Just as large buys cause price surges, large sales – as these buyers are trying to get out – reverse those surges. Hence the enormous swings, where billions of dollars in “wealth” are created in just days that then evaporate nearly as quickly.
But those who got in early and get out in time walk away with huge gains, at the expense of the later arrivals whose money allowed the early comers to exit. In this too, these tokens aren’t all that different from other overhyped investments. It just happens in a much shorter time-frame with much higher percentages. Since the tokens trade all the time, the nerve-tingling fun is 24/7, so you can get your shot of adrenaline in the middle of the night. And when your tokens get crushed, there’s always the hope that next time you look, they’ll be back up.
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