Crypto Bubbles: Why Traders Believe Altcoins Are Overpriced

The cryptocurrency community is no stranger to accusations of crypto being a bubble. As far back as 2014, media pundits were referring to the bursting of the Bitcoin (BTC) bubble, with a Financial Times article from September of that year even containing the ill-fated prediction, "We’re going to stick our neck out at this stage and call this the end of Bitcoin."

Well, Bitcoin certainly didn't end in 2014, but this hasn't stopped other experts and commentators from throwing the word “bubble” around with gleeful abandon in the half-decade since the cryptocurrency's prematurely reported demise. However, while certain mainstream observers simply regard the entire cryptocurrency market as one giant balloon, other individuals have been offering more nuanced claims recently, assertions that revolve around a distinction between Bitcoin and the vast majority of altcoins.

More specifically, veteran trader and author Peter Brandt recently compared the altcoin market to the dot-com bubble, claiming that Bitcoin's recent strong rallies won't be replicated by other cryptocurrencies. Similarly, ShapeShift CEO Erik Voorhees argued last year that Bitcoin and altcoins form two separate markets, while on July 1, crypto-Twitter personality Lil Bubble published a parody music video that perfectly encapsulated the current plight of altcoins, which have been slightly flagging behind Bitcoin as it increases its market dominance to 62.2% (as of writing).

Related: The Burst of the Bitcoin Bubble: An Autopsy

But even if it is true that Bitcoin's price has increased by around 128% over the last three months (compared to “only” 81% for Ether), there's no real indication or evidence that the majority of altcoins will tumble to virtually nothing while the original cryptocurrency remains strong. This is because, if you take the matter of market price out of the equation, it still remains just as arguable that certain altcoins have at least as much to offer in terms of functionality as does the bitcoin.

Bitcoin vs. altcoins

But try telling that to Peter Brandt. Not only did the author and founder of Factor LLC compare altcoins with the dot-com bubble in a tweet at the end of June, but in speaking with Cointelegraph, he doubled down on his comparison, predicting that the vast majority of altcoins will disappear in the not-too-distant future:

"I believe that the advance in late 2017 and early 2018 in altcoins will prove to be bubbles. I am of the firm belief that 95% of alt-coins will eventually be worthless and that BTC will occupy 80% to 90% of the total market cap of cryptocurrencies. No doubt several of the altcoins and macro-cap coins will find utility in specialized niches. It remains to be seen which coins these will be."

These are strong views, but aside from the fact that Bitcoin has been rising in value more quickly than its rivals, it finds support in a number of quarters. For one, American broadcaster and Bitcoin cheerleader Max Keiser recently predicted during a CNBC interview that altcoins won't enjoy the same kind of rally that BTC is currently witnessing, and that most will fall away:

"Look, the dominance index is at 60% again, and it's going back to 80% or 90%. Because that's the only logical place for anyone who wants to be in crypto to be. But the short answer is, in my view, the altcoin phenomenon is finished."

In fact, Keiser's views don't stop there. He told Cointelegraph that there's a big gulf between Bitcoin and other assets, particularly in terms of whether they've hit their “true” market value. Keiser wrote via email: 

"Bitcoin is virtually the only financial asset ‘not’ in a bubble. Sovereign bonds are in multi-hundred year bubbles. The USD and various fiat money are in historic bubbles. Stock markets are in bubbles. Most property is also in a bubble. Gold and gold mining stocks are undervalued and good places to invest, but their upside is limited as compared to Bitcoin."

In his interview with CNBC, Keiser offered some arguments to support his strong pro-Bitcoin view, such as that the top cryptocurrency has been improving its scalability with SegWit and the Lightning Network, and that it offers the most secure chain by quite a large margin. On top of this, he told Cointelegraph: 

"Bitcoin’s hashrate, hitting new highs of 70 quintillion hashes per second (10x the estimated grains of sand on Earth), will continue to explode higher, taking BTC’s price exponentially higher and no alt-coin can compete. Like seedlings struggling under the canopy of a giant oak, they will wither and die."

However, while other crypto traders would concur that Bitcoin is likely to increase its market dominance in the coming months, they wouldn't go so far as agreeing that altcoins are going to be wiped out. This is the position taken by Josh Rager, a trader who told C