Big cryptocurrencies bounce back, but smaller rivals lie in wait


For users and proponents of cryptocurrencies, the stamp of approval from online auction giant eBay set the seal on a powerful comeback during this year so far.

Bitcoin and some other selected cryptocurrencies are to be accepted as a form of payment by eBay.

This doesn’t only greatly expand the “network effect” by which a piece of technology becomes increasingly useful as more and more people use it (think of a world where only one person owned a telephone), but it also lends the credibility of eBay – an early and spectacular new-tech success story – to the sometimes-controversial world of cyber-money.

A significant comeback

True, there may be a sting in the tail of eBay’s decision as far as the established cryptocurrencies are concerned, in that it is reported to be considering launching its own virtual money. This forms part of a background of increasing competition, especially for Bitcoin.

First, the resurgence of cybercurrencies after the horrors of 2018. Some price numbers tell the story.Back on 20 May 2018, Bitcoin was changing hands at $8,516.86. In the 12 months since, it hit a low of $3,195.71 on 14 December.

At the time of writing, it trades at about $8,074. Not a full crypto recovery, in other words, but a significant comeback.

Rival currency Ethereum was worth $706.08 on 15 May 2018, sliding to a low of $83.74 on 16 December. It is currently trading at more than $230.

Litecoin, another of the more established “second division” cryptocurrencies, was worth $135 on 19 May 2018, before declining to a low of $23.97 on 10 December 2018. It is now changing hands at more than $94.

Comparable with Ethereum and Litecoin is Ripple, worth $0.6972 on 16 May 2018, falling to $0.2702 on 13 September and currently trading at more than $0.4300.

Threat from within

Smaller fry are, by definition, less representative of the market. Members of their user groups may have specific characteristics drawing them to the currency in question, rather like “affinity” credit cards for favoured causes. That said, there is a similar pattern of a big price tumble followed by a limited but significant 2019 recovery.

TRON traded at $0.0724 on 15 May 2018, reaching a trough of $0.0016 on 27 November and is currently trading at around $0.0287. NEO was worth $67.98 on 15 May 2018, falling to $5.65 on 14 December and is currently trading at nearly $12.Stella was valued at $0.3691 on 15 May 2018, skidded to $0.0772 on 8 February and now trades at $0.1136. Finally, EOS was selling for $14.16 on 15 May 2018, dropped to $1.72 by 7 December and is currently worth nearly $6.

No single factor explains the cryptocurrency rally any more than a single factor lay behind the spectacular fall from favour seen last year. Increasing regulatory interest on both sides of the Atlantic took some of the bloom off what had been seen, in 2017, as the payment system of the future.

The prospect of higher interest rates made cryptocurrencies less attractive in relation to “real money”. And the reluctance of some cryptocurrency promoters, notably “Satoshi Nakamoto” – supposedly the founder of Bitcoin – to make themselves known emboldened commentators to suggest cyber money was, in part or in whole, an enormous fraud.

Initiatives such as eBay’s acceptance of cryptocurrency in payment have helped dispel such suggestions, while the U-turn on higher interest rates from the US central bank, the Federal Reserve, has stalled the expected rise in the attraction of dollar assets.

The third factor, regulatory interest, has not been reversed, as we shall see shortly. But an equal threat to the cryptocurrency revival comes from within the industry itself.

Until recently, it was assumed that the number of cryptocurrencies – estimated at about 1,600 worldwide last year – would shrink as the type of consolidation seen in every other once-new industry, from car manufacturers to consumer electronics, took hold. But if anything, the trend has been the other way, and Reuters estimates the total number of “altcoins”, or ‘alternative to Bitcoin’, currencies at 2,000.

Call for a ban

In an article on 15 May, the news service reported: “Bitcoin now accounts for around 60% of the $240 billion crypto market, down from nearly 90% just over two years ago. That fading dominance reflects tough times for the original cryptocurrency since its late 2017 apex.”Reuters added that, despite the recent rally, Bitcoin lost three-quarters of its value last year. “That volatility has put off mainstream investors, from pension funds to asset managers, who are seen as crucial to Bitcoin’s growth from speculative token to established asset.”

A second force behind the increase in alternative currencies is that some offer to iron out flaws in the Bitcoin system, such as slow transaction times and high costs.

A third is, quite simply, that some of the alternative cryptocurrencies offer different features, such as greatly enhanced privacy. They are, if you like, Twitter to Bitcoin’s Facebook.

It should be pointed out that Bitcoin remains easily the most liquid and acceptable of the cryptocurrencies and that many of the 2,000-odd rivals are barely used at all.

Furthermore, consolidation and rationalisation, while postponed, will come at some point. After all, how many cryptocurrencies does the world need?None is the answer from Brad Sherman, a US Congressman for California. He has called on his fellow legislators to consider prohibiting cryptocurrencies as a threat to the financial system that needs to be nipped in the bud.

Less drastic proposals may emerge as regulators and central banks get to grips with what remains a relatively recent phenomenon. The more they get to understand the workings of cryptocurrencies, the more detailed are likely to be the regulations they impose.

Whether this will trigger a stampede from Bitcoin and other more mainstream operators towards ultra-private currencies such as Monero will be but one issue driving trading opportunities in this fascinating market during the year ahead.

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