In 2013 to 2014 the price of numerous cryptocurrencies exploded for the first time followed by a rapid correction of the market. But already in 2017, the next hype was to follow, this bubble also burst and the prices of all cryptocurrencies corrected over the following years. Flash forward to 2020 and the broad crypto market has been in an uptrend up to this day. Will the history of the past years repeat itself, like many market observers expect it to be a bubble this time as well?
There are real parallels to the previous years up to a certain point: let's analyse, how different and yet the same the current uprising is.
Easy access and improved infrastructure opens for new market participants
It has never been easier to start investing into the crypto market. There are more and more custodial solutions on the market, which play a supporting role, especially for larger investors. In addition, it is expected that there will be a corresponding licensing of BaFin in the near future.
At the same time, there are simply more trading partners in the market. Banks are starting to place themselves as brokers and thus play a role in the trading of cryptocurrencies. Established providers, also offer their own trading platforms for cryptocurrencies.
However, the development in the area of financial products is even clearer. In the past, there were only financial derivatives and futures contracts, but this business area is also undergoing a fundamental change. Thus, there are more and more exchange traded products (ETPs), certificates and funds, which focus on cryptocurrencies.
The structural development of the market does not end here by any means.
Just two days ago, I told you about PayPal and the possibility to buy Bitcoin with the service is expected to launch worldwide before the end of the first quarter of 2021.
Overall, the development in the areas is really impressive. Above all, easy access to the market is highly relevant for new market participants.
Security in the crypto market thanks to new created legal framework
To this point the crypto ecosystem has developed enormously in recent years, but the legal situation is also clearer than ever before.
I told you about the block chain law in the Swiss Confederation a few days ago.
Other countries are also preparing internationally applicable standards and developments for the private and business sectors.
However, a lot has also happened in the US market in recent years. the largest share of crypto investors comes from the U.S., for example, the SEC, the US financial regulator, has already legitimized important coins such as Bitcoin and Ethereum.
From a legal perspective, the growing interest of central banks in digital currencies should also be highlighted. The The European Central Bank (ECB) is currently looking into the development of a digital euro and the People's Bank of China is also working on a corresponding currency. The increasing adoption of cryptocurrencies should also result in more certainty on a legal level.
Longevity and a more steady value of the important coins
In the last 2 "bubbles" the leading crypto currencies were able to maintain the record highs they reached for short periods of time the last two times. The highs could usually only hold for a few hours, in a few cases even a few days. Bitcoin is currently trading at a record high of more than $49.000 and was able to maintain the last few highs for a comparatively long period of time, even expanding it last week.
That doesn't mean, it will stay this high forever, but it's one of most important differences compared to the first two bubbles.
Investment by private and institutional investors on the rise
Private investors have always been responsible for the high price movements. The are responsible for the highs, but also for the fast fall of some currencies. However, institutional investors have now become involved in cryptocurrencies and most of them stay longer with their capital, which means a steady money pool will stay and increase the value of Bitcoin and other cryptocurrencies.
In addition, more and more VCs are also deciding to provide block chain business models with capital. In 2020 crypto exchange BitPanda was able to realize a new record value in planned stock market movement.
In summary, cryptocurrencies have been able to establish themselves as an asset class in their own right. If you want to know more about this, just read my last article BTC + stock market: hidden (love) story.
Conclusion
If we look at the previous points, we can see a clear trend in the crypto market and its surrounding: uncertainty is being replaced by a regulated market with a developed infrastructure. These factors also condition an increasing interest at the institutional level. The more professional a market is overall, the lower the price fluctuations will be. These reasons mean that we see a sustainable development in the current market trend, that will not end in the bursting of another bubble.
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I'm not so sure about that.