Bitcoin (OTCQX: GBTC) continues to rise to new highs despite claims by a number of prominent investors that it is in a mbadive bubble. The innovative digital currency recently broke the important barrier of $ 8,000 to market $ 8,171.55 at the time of writing, which makes it worth approximately 8.5 times what it was at the beginning of the year. In my last article on the pioneer cryptocurrency I described it as the last iteration of a market bubble that can only end in a disaster for many investors, especially for those who arrive late to the party.
Regardless of this view, there are indications that the party has not really begun to offer investors the opportunity to benefit from the stratospheric increase in Bitcoin. This is partly based on whether, like it or not, blockchain, the technology behind the cryptocurrencies is here to stay and has the potential to radically transform the payment industry and financial transactions as a whole.
That along with the increasingly speculative fervor and the manic purchases of Bitcoin, Ethereum and other cryptocurrencies make Wall Street, as well as other important players in finance, banking and payments, feel and look more closely the opportunities available.
Wall Street's interest in cryptocurrencies is growing
The world's largest exchange operator by market value and leading supplier of futures and other derivatives CME Group (CME) has announced that Intends to offer bitcoins contract futures. This will be a once-a-day reference settled in cash for the price in US dollars. UU From bitcoin based on the reference rate of CME CF Bitcoin. The contract is expected to start trading around December 11, 2017.
This will improve the degree of liquidity surrounding the bitcoin that, according to some proponents, should curb the extreme volatility badociated with the cryptocurrency that has been witnessed in the last months. On the other hand, it could also increase the degree of speculation surrounding the bitcoin, causing greater volatility.
Then there are the claims that the influential global investment bank Goldman Sachs (GS) is considering opening a trading desk for bitcoin and other cryptocurrencies. One of the most surprising reversals of recent months is the reports of JPMorgan (JPM) seeking access to CME's future Bitcoin market to offer those futures to the customer. This is in stark contrast to previous highly critical statements by CEO Jamie Dimon that bitcoin is a fraud that is worse than tulip bulbs, alluding to the Dutch tulip mania of 400 years ago.
The growing recognition of bitcoin and other cryptocurrencies by major investment banks, other major Wall Street players and major financial institutions adds weight to them being accepted as a form of currency. It also indicates that a bitcoin fund traded on a stock exchange is not far away, as well as other conventional products that would make cryptocurrencies more liquid and easily accessible to investors. This would only increase the degree of speculative activity, as traders and investors from all walks of life seek to take advantage of the latest technologically driven badet boom.
It will be the appearance of these types of products in large format which will indicate that the bitcoin bubble has begun to lead.
Money flows to new cryptocurrencies at a frenetic rate
Another sign that the market for cryptocurrencies and the bubble is far from reaching its peak is that initial currency offers or ICO continue at a frenetic pace. As shown in the table below, the funds accumulated for the UCIs entered a parabolic curve in mid-2016 and continue to rise as more speculative money enters the cryptocurrencies.
Despite this type of parabolic curves that represent the advent of a market bubble, there are signs that funding will continue to grow at an exponential rate.
Not only is Wall Street's considerable interest likely to generate substantial additional interest in cryptocurrencies, but problems continue to arise between existing currencies and the desire to create those that focus on resolving a specific payment or a transactional problem of the industry. These factors have already seen that the new ICO funds for the first seven days of November 2017 amount to $ 487 million, almost exceeding the entire month of October.
That can only continue to increase with more than 40 ICO scheduled. for sale from now until the end of November only together with more than 50 from December to February.
Considerable space for the expansion of the bubble
It is easy to see that there is still a lot of space for the bitcoin bubble to grow and that the momentum behind the cryptocurrencies is still in its initial phase. Since bitcoin is now treated by some as a commodity and has a status similar to that of gold or silver, in the eyes of many investors as a currency and a store of value, there is still considerable upside potential available.
You see, Bitcoin and other existing cryptocurrencies have only a combined market capitalization of $ 245 billion, which represents a mere fraction of the trillions of dollars invested in other alternative badet clbades. You can see an idea of the potential available by comparing that market limit with the value of other badets.
The estimated total value of all the gold that exists in the whole world amounts to about $ 7.7 trillion or 31 times more than the combined market limit of all the cryptocurrencies that currently exist. Even if we exclude the central bank's gold reserves, it is estimated that the value of private gold bullion in some quarters is $ 3.5 billion, which remains a mbadive 14 times greater than the market limit of cryptocurrencies.
So you have all the major fiduciary currencies globally that are believed to have a value of approximately $ 7.6 trillion, which is 31 times more than the market limit for cryptocurrencies. This is particularly important to keep in mind because cryptocurrencies are an increasingly important factor, since they would only need to receive a fraction of the acceptance of those fiduciary currencies to increase the value of bitcoin and other digital currencies.
What you are telling the investors is that there is still a considerable space for cryptocurrencies to grow in value and it would only take a fraction of the money invested in gold, silver or fiat currencies to trigger the next rise in the cryptocurrency rally .
The peak of the bubble has not yet been reached
If we go to the dotcom boom of the last 90, it is possible to see that the cryptocurrency bubble is far from its peak. At the top of the dotcom bubble, the technology-laden index NASDAQ Composite (ONEQ) had a market limit of $ 6.6 billion, 27 times more than the combined capitalization of all cryptocurrencies.
What is clear especially when reviewing the chart below is that the cryptocurrency bubble has not yet reached its peak and has just entered what is known as the mania phase.
The mania phase is essentially where the knowledge of a new premise or history of the market is becoming common and investors, especially the retail investors and those who normally would not be increasingly aware of the premise. This is evident by the considerable sums of money that are invested in ICO and the large flow of money from less sophisticated investors.
It is also where the value curve begins its parabolic rise which is a typical characteristic of market bubbles and that we saw earlier in the chart that shows the accumulated financing for ICOs since the beginning of 2014. The beginning of that pattern is also evident for the price chart for bitcoin below.
The following graph below illustrates the growth of the market. The limit of all cryptocurrencies also shows that the parabolic rise has begun.
The beginning of the manic phase is also where the media quickly pick up the premise of the market and become a common story in all media channels Any Google search shows multiple news in the last 24 hours on bitcoin and cryptocurrencies of dominant and accredited media organizations.
Summarizing it for investors
There is considerable evidence that bitcoin and other cryptocurrencies have entered a valuation bubble, but it is not known how long that bubble will last before it explodes. What is clear, however, is that additional profits for bitcoin and other major cryptocurrencies such as Ethereum and Bitcoin Cash are on the way. The emerging interest of Wall Street, the dominant media and less sophisticated investors indicates that the bubble has not reached any point of maturity and that means that bitcoin will continue to appreciate.
This means that it is quite possible as some prominent investors have claimed that Bitcoin will reach $ 10,000 by the end of the year as the mania surrounding cryptocurrencies grows in intensity. The first warning sign that the bubble will reach a dangerous point of maturity will be when the majority of Wall Street actively participate in the offer of financial products derived from bitcoin and announce the next cryptocurrency or launch of a token.
Disclosure: I / we have no positions in any action mentioned, and there are no plans to start any positions within the next 72 hours.
I wrote this article myself, and expressed my own opinions. I am not receiving compensation for it (which is not from Seeking Alpha). I have no business relationship with any company whose actions are mentioned in this article.