Category Archives: ethereum

Recently the price of Bitcoin has increased to a market cap above one trillion dollars. This had generated tremendous excitement both for, and against, the continued increase in the crypto currency.

For those hoping that Bitcoin will increase in price, achieving a market capitalization of $1 trillion is a testament to the future viability of crypto currencies.  Meanwhile, for those in disbelief of the value of cryptocurrencies, the $1 trillion level highlights the extreme that the bubble has managed to attain.

Because we only follow the price, we were struck by a point made by Charlie Munger of Berkshire Hathaway in 2018:

The question has arisen, “When will ‘they’ create more Bitcoin?”  As, Charlie Munger has said, if you have the incentive, new coins will emerge.  In our view, that creation of more Bitcoins has already taken place in the form of the thousands of “alt coins” that are free-riding on the concept but have zero value.  Some of the alt coins, ranked in the range from 451-500 (by market cap), have a combined market capitalization of over $2 billion dollars.  Does anyone believe that the coin ranked 499th will amount to anything down the road?  We don’t.

When we run down the numbers for the total value of all the coins with market caps ranked from 3-1,000, which excludes Bitcoin and Ethereum, the total market cap is approximately $484 billion dollars.

As with all new innovations in their early stage, there will be hundreds of competitors lining up to become number one.  However, as the cycle for cryptocurrency evolves from the start up phase to the growth stage (can you believe it, we’re only in the start up phase), there will be many “currencies” that will die along the way.

There is a stock market investing theory that says that if you buy and sell only the two leading stocks in a specific industry you will be able make a considerable amount of money.  The thinking behind this theory is that the industry will generally do as well or bad as the leaders.  Therefore, by using the two leading stocks to confirm a rising or declining trend, you will have the stocks that will thrive in the good time and not die off in the bad times.  Almost all the other participants will be gone or become absorbed in the process.

As with most mature industries, there are 5-6 companies that have a meaningful impact on the direction of the business.  We don’t have a clue about the other 3-4 crypto currencies that will emerge as the leaders.  However, for now, the top two in terms of market capitalization, Bitcoin and Ethereum, are the contenders to be around if central banks don’t take over the concept.

The potential $400 billion (and growing) waiting to be destroyed by willing participants, who either hope the ride will continue or are unaware of the probabilities, will suffer greatly from this creative destruction. The Bitcoin saturation point is here, however, it isn’t in Bitcoin and Ethereum, instead, it is the alt coins.

See Also:

• Bitcoin Archive (our price analysis since 2013)
• Bitcoin Cycles, 2010-2021
• Ethereum, (price analysis/references)

On January 17, 2018, we concluded our analysis with the following remarks:

“Anyone willing to participate in Bitcoin should be willing to accept that the price could easily decline –70%, as has been the average of all previous Bitcoin busts (found here).  Anyone who participates in anything other than Bitcoin should expect a minimum –90% to –99% decline if, at the same time, Bitcoin declines –70% or more.”

From the peak in the price of Bitcoin at $19,343.04, the decline in Bitcoin that followed was –83%.  This falls in alignment with our longstanding view that a drop of –70% is the average decline after a parabolic peak. In addition, the decline in Ethereum was –93%, confirming our work that a drop of –90% or more was possible.

As Bitcoin has increased from the low (so far), we have updated our upside and downside targets below.

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On February 5 , 2018, when Ethereum was trading at $699, we said the following of the cryptocurrency:

“In addition to the conservative downside target, we have indicated the level Ethereum would be at if it lost –93% (red line) as Bitcoin did in the period from June 2011 to November 2011 (yeah, it took only five months).  Such a decline in Ethereum would bring the price to $96.95.  We don’t expect this but must be realistic about the prospects regardless of our own personal expectations.

“Finally, we have included our own worst case scenario (green line) based on one half the difference between Gould’s extreme downside target at $461 and the –93% experienced by Bitcoin in 2011.  This would bring the price of Ethereum to $279.31.  Although this seems like a dire call for Ethereum, in reality it is not unusual to see an –80% decline in price from such extreme parabolic moves.”

As we write, Ethereum has declined to $266, just slightly below our worst case scenario target of $279.31.  Below we have included our technical assessment of ETH at the current price.

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On February 16, 2018, we said the following of Ethereum:

Failure of the price of Ethereum to achieve the $1,040.05 by a substantial amount ($1,111 or more) would be an indication that the price will retest the $695.08 level.  A retest of the $695.08 level without falling below the level would be constructive for a new bull market. It would be a second failure to decline below the $692.99 level.  According to Dow Theory, this would one of the most constructive bullish indications going forward. Alternatively, if Ethereum fell below $692.99 then the expectation is that $617.09 is the minimum downside target.

Unfortunately, Ethereum was unable to exceed $1,040.05 and has met our expectation of $617.09 as the minimum downside target.  As of April 2, 2018, Ethereum is now trading around $384.