In 2017, we’ve seen Bitcoin and eventually other cryptocurrencies explode onto the scene and become mainstream. Now, some are wondering if the digital currencies have entered “the next stage”, especially now that more and more investors are paying attention to initial coin offerings (ICO) and placing big money on cryptocurrency.
Now the question is, has this market finally matured such that it warrants a more serious look from investors and even governments to give it a similar treatment as the equity market?
Resemblance To The Dot-Com Bubble
One characteristic that makes cryptocurrency really difficult to gauge is that it is highly volatile. Every day we hear about digital coins losing or gaining in value in thousands of percentage points, and sometimes this happens in a matter of mere seconds.
Most of the time these up-and-down movements are inexplicable; cryptocurrencies do not react to news or economic outlook like the stock market usually does, so they often act randomly.
The biggest fear regarding cryptocurrency right now is that it could well become another dot-com boom of the late 1990s. Some skeptics and media have also dubbed cryptocurrency to be bigger than the tulip mania of the early 17th century. We all know how those events transpired, and as long as cryptocurrency prices continue to undergo huge swings, there will always be concerns regarding this market.
Where Cryptocurrency Is Currently At
It is certainly arguable what point of its cycle cryptocurrency is currently at. Looking at the dot-com era as a comparison, it took approximately three years for the Nasdaq Composite Index to reach its peak. Though the concepts behind cryptocurrency existed back in the 1980s and Bitcoin first became known to us in 2014, it’s safe to assume that the cryptocurrency craze and the excitement surrounding the blockchain technology properly began in the second half of 2017.
So, here’s one scenario that could happen: it could take up to three years for cryptocurrency to die down even if this is just another bubble, even with such a high price volatility. Right now, the industry has left its early stage of development and is marching up.
Signs Of Maturation
Heading into 2018, we are seeing this market move towards maturation based on various developments that have occurred worldwide.
First, governments and regulators are starting to embrace the potential of cryptocurrency. Japan has already recognized Bitcoin as a legal method of payment, Venezuela has created a huge buzz surrounding its oil-backed coin, and the U.S. exchanges have begun offering Bitcoin futures. These have cemented cryptocurrency — at least major ones like Bitcoin — as a legitimate asset that can be used as a storage of value.
Second, businesses are now using the blockchain technology — the mastermind behind cryptocurrency — to create their own applications and even their own cryptocurrencies, such as the tZero ICO by Overstock (NASDAQ:OSTK). Also, most companies are still relying on Ethereum’s ERC-20 protocol and smart contracts to build new applications.
The third and last indication is that blockchain is strongly considered to be deployed in the banking industry. In fact, it is poised to revolutionize the whole thing because of the potential it could have in ensuring secure transactions, which is an important facet of the financial sector. If blockchain eventually does take off as the next transformative technology of mankind, then cryptocurrency could be here to stay for a while.
Of course, a crash could always happen to flush out the underperformers, but remember, the same could be said of the stock market. In 2018, we can safely agree that cryptocurrency is much bigger than it was a year ago, not just in terms of value but also application.
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