After three sequels, we continue with a detailed insight into understanding crypto-market rotations.
Towards the end of the last cycle of the crypto market (H2 2017), money was rotating from traditional cryptocurrencies (Bitcoin, Litecoin, XRP, Dash, etc.) to new sectors as excitement and hype grew. The most significant inflows in 2017 were into the smart contract sector as the ICO craze was a phenomenon based on Ethereum and buzzword sectors.
Since the launch of the bear market in early 2018, stable coins have exploded in number and quantity and have taken a large share of the currency sector in trading, serving as a safe harbor.
The range and liquidity of the intangible IoT sector and the payment platform, have suffered a major drop in liquidity from the bull run a couple of months previously. When manias take hold in markets prices and liquidty across all assets briefly go forward, but this liquidity does not last very long.
Utility token prices hit the hardest of all assets in the late stages of this "recession", and also the hardest to offload, with many dubbed 'futility' tokens as they have little and no chance of collecting future value. These include coins to pay for platform services that have yet to deliver a product, let alone find customers: decentralized storage, decentralized computing, file sharing, Internet of Things, etc.
So how do we know which asset classes to invest in for the next crypto cycle? Although we cannot say for sure, we can consider what is happening in the stock market and broader economic cycles and how investors rotate from some sectors to others during different economic environments.
In the cryptocurrency markets, stablecoins have been outperformed during the last phase of the two-year recession, with more than a dozen now trying to hold a peg to fiat by various mechanisms (fiat-backed, crypto-backed and algorithmic) and the race to create a winning formula will more than likely continue in the first quarter of this year.
Tomorrow, in a new insight, read the fourth sequel on understanding crypto-market rotations.