Cryptocurrency Market Broke $50 Billion, What Have We Learned So Far?

Journalist:
May 13, 2017

As of May 12, the cryptocurrency market cap is at $53.9 billion, with bitcoin leading the market with a staggering $30 billion market cap and other alternative cryptocurrencies or altcoins such as Ethereum, Ripple and Litecoin maintaining their upward momentum.

Ethereum in particular has seen a rapid growth in its market cap ever since the launch of the Enterprise Ethereum Alliance, an Ethereum consortia wherein leading conglomerates such as Microsoft and JPMorgan are actively investigating into the potential of Ethereum and building decentralized applications on top of the protocol.

In fact, Ethereum and Ripple, the second and third largest cryptocurrencies or digital assets, have respectively seen 8.95x and 33x increase in their market cap year-to-date, pushing the global cryptocurrency market to new highs.

Since mid-2015, Bitcoin has sustained its appeal to a wide range of investors as digital gold and settlement network. Transactions are quite expensive and there are occasional delays but as a store of value and safe haven asset, bitcoin has demonstrated its potential over the past few years. In relatively short period of time, emerging markets such as Japan established their dominance over the global bitcoin exchange market and institutional investors began to show interest in bitcoin as a long-term investment.

Emphasizing the important role of the Japanese bitcoin exchange market in the recent price surge of bitcoin, BKCM CEO and CNBC analyst Brian Kelly stated:

“There’s a tremendous amount of bitcoin influx in Japan. It’s one of the most popular currencies in Japan. These developments have made Japan the dominate player in the bitcoin trading market. According to data compiled by Crypto Compare, the Japanese Yen is the most popular fiat currency used to buy bitcoin. Over 50% of the daily fiat to bitcoin trading volume is in Japanese Yen.”

More importantly, Kelly noted that institutional investors are driving bitcoin price to new highs especially in Japan. To supplement such rapid rise in demand, some of Japan’s largest multi-billion dollar corporations began to establish bitcoin and digital currency exchanges.

“The biggest driver right now is you’re starting to see institutional investors take a keen interest in the entire sector. I don’t think this is hot money. This is real money that’s going to sit around and build the new internet,” Kelly added.

Bitcoin’s value as explained above can be justified in various ways. Its recent price surge to $1,800 is attributable to the explosive growth of the Japanese bitcoin exchange market and Australia’s legalization of bitcoin. However, it is difficult to justify the value of other altcoins in the market solely because the origin of the demand toward altcoins is speculation.

If Ethereum is taken as an example, the Ethereum network is a wildly successful blockchain network in the sense that it is being utilized and experimented by some of the world’s largest companies. But, Ethereum still hasn’t seen the debut of a practical decentralized application that has an active user base. Currently, Ethereum is valued at around $9 billion due to the demand from institutional investors and corporations and thus, until a real-life application of Ethereum is introduced and an actual user base is formed, the value of Ethereum is speculative.

A similar point can be brought up with Ripple. The development team behind Ripple has marketed the blockchain network around its partnership with leading banks such as BBVA. But, it is not clear whether Ripple is a large component of major banks such as BBVA’s vision and settlement layer.

Lastly, initial coin offerings (ICOs) are evidently overvalued at this point, and a bubble is forming in the ICO market. Blockchain projects and startups that haven’t even carried out alpha and beta testing are raising multi-million dollar investments at a hundred million dollar valuation.

The cryptocurrency market is growing at a rapid pace. The value of some altcoins and ICOs can be justified and the rest are simply seeing an increase in value due to the rising demand in bitcoin and the entire cryptocurrency market.

Featured image from Shutterstock.

Joseph Young @iamjosephyoung

Hong Kong-Based Finance Analyst. Contributing regularly to CCN and Hacked. Providing unique insights into the fintech space since 2012.