Wednesday, 14 June 2017

The Rise of Ethereum and the Fall of Bitcoin, and My 1st Ether

 Spikes Big and Small 

I sold half of my Bitcoin to buy some Ether on Aug 2016 when it was priced around $10. (Actually, the reason why i bought my 1st Bitcoin was because i wanted to buy my 1st Ethereum. At that time, it was easier to buy Ether once i own a Bitcoin.  Ethereum is way too new to have its own exchange. This is described in my post Bought my 1st Bitcoin, The Halvening and Bitfinex Hacking, just go to the end of that post). I was thinking that in the early days of Bitcoin, its price could shoot up 10 times in a few months because its market cap and supply was tiny, and risks was huge. Such ten-bagging isn't possible in Bitcoin today.

While it's true that Bitcoin soared from $1300 to $3000 in less than 2 months (from April to June 2017) due to the Japanese legalization, but it did a massive moonshot from $100 to $1000 in less than 2 months (from Oct to Nov 2013) after the U.S. Congressional Hearing.

As stunning as the recent rise of more than double in Bitcoin price in less than 2 months this year, it's not even in the same league when comparing to the spike of 10 times in price in the mother of all spike in Bitcoin price that transpired in Dec 2013. This is because the market cap and supply no longer allows such ridiculous spike in price today.

What The Fork ! 

When i bought Ether at $10, i thought such spike like 10 times in price rise is still possible with Ethereum. After holding it for a few months, i started to lose patience as the price of Ether drifting from $10 to $8, and at the same time, Bitcoin price was soaring.

ethereum logo

But it wasn't just the price drop that caused me to lose patience, it was the whole hard fork business when Ethereum was split into 2 Ether coins. So i thought i just got out of Ethereum altogether and sit on the sideline and watched these 2 forks of Ethereum fighting it out and see which would emerge victoriously. Who know, i thought to myself, there were going to be another hard fork? And the same thing might happen to Bitcoin in the next few months.

 Bitcoin 2.0 

Ethereum has been coined Bitcoin 2.0. In many ways, Ethereum is the next generation of Bitcoin. When Bitcoin first started, the people who tried to pitch the virtues of Bitcoin by pointing out the blockchain technology. In fact, they screamed 'blockchain' as the greatest invention, and because Bitcoin is built on top of blockchain, Bitcoin must deserve the public's respect. In short, these early supporters tried to sell Bitcoin to the public by pitching the concept of blockchain.

Well, the blockchain technology has certainly won the world over. In fact, its widespread applications has far surpassed Bitcoin. So the people who tried so hard to sell the Bitcoin with blockchain technology is probably regretting it now, big time. Among other things, blockchain is also enabled the world to create other cryptocurrencies (among many other things), and the best crypto contender for Bitcoin is Ethereum.

In fact, it's entirely possible that one day Bitcoin would vanish from the world and blockchain will live on. I'm not saying Bitcoin will die. I don't know. Nobody knows (anyone who tells you they know about the future is lying to you). But i'm far more certain of blockchain's survival than Bitcoin's existence because blockchain has been taken up by every financial institution and their dogs.

You can think of blockchain as the engine of cryptocurrencies. And if blockchain is an engine, then cryptocurrency is a car, and Bitcoin is a brand of car. Ethereum is another (newer) brand of car. You can put an engine into a car, boat, train, plane, lawn mower, etc. Engine and blockchain is far more universal than any brand of car or cryptocurrency. And indeed, blockchain could be used for services that are totally unrelated to cryptocurrencies, just as engines could be put into machines other than cars.

Bitcoin and ethereum coins

Like Bitcoin, Ethereum is built on top of blockchain, but with extra bells and whistles like smart contract. Ethereum is a more versatile and more programmable version of Bitcoin. And naturally hold more promise than Bitcoin. This is why it receives the backing from large multinational companies the likes of Microsoft, Intel, J.P. Morgan, etc. This was what attracted me to Ethereum in the 1st place.

The early Bitcoin supporters should have kept their mouths shut about the blockchain technology (if it was possible). Perhaps, they thought that Bitcoin and blockchain was inseparable, and didn't realize that blockchain has such universal appeal and applications outside Bitcoin. No, Bitcoin has no monopoly on blockchain technology. In fact, with the blockchain technology, an upgrade like Ethereum (or something even better in the future) would one day come and replace Bitcoin. Would it? That would remain to be seen. Bitcoin is just the 1st cryptocurrency in a long line of evolution of cryptocurrency. One thing about technology is that is never standing still. Being the oldest and and the 1st isn't a good thing when it comes to technology. Think vacuum tubes, cassette tapes, diskettes, etc. Don't know what they're? Exactly! All these inventions have served their useful purposes, but technology moves on.

 Ethereum Today: The Bitcoin of 2014 

Ethereum wasn't launched until mid 2015. In term of stage of development /evolution, the present Ethereum is equivalent to the Bitcoin in 2014. I.e. it just had a huge price spike after its 1st official recognition. Something akin to the U.S. Congressional Hearing for Bitcoin.

I knew about the backing of Ethereum by U.S. multinationals, but i didn't realize that when i bought my 1st Ether in Aug 2016, the EEA (Enterprise Ethereum Alliance) hadn't been formally announced until March 2017. So when i gave up on Ethereum a few months after my 1st purchase, i took my eyes off the Ethereum radar. And when i checked it a few months later, the ETH price went from $8 to today's price of $370 from March to June 2017. Just when i was out of it for a few months, it rose more than 45 times in price without me. I expected this massive spike to appear in Ethereum, and yet, i still managed to miss it. Things are happening at breakneck velocity in the digital world in general, and cryptocurrencies in particular, and i blinked. Perhaps, the better explanation was that i was impatient. I just needed to put it in the bottom draw, and forgot about it for another 4 or 5 months. This impatience is my biggest bane. What can i say? D'oh! I supposed.

Don't forget to kick yourself as well for blinking...

No point crying over spilled milk or missed opportunity of 45 times increase in value of my 1st Ethereum holding. If i think today's Ethereum is in the same development stage of Bitcoin in early 2014, i should expect far higher price rises than Bitcoin going forward.

Remember too that Ethereum is backed by Fortune 500 companies while Bitcoin isn't. Of course, Bitcoin wasn't associated with any company or government, and that is its strength and weakness (depending how you look at it). While Ethereum is backed by a consortium of large companies, that is also its strength and weakness. You could argue that Bitcoin is an ideological cryptocurrency while Ethereum is a commercial cryptocurrency.

 Switching Wagon 

Today (13 June 2017), i decide to sell 80% of my Bitcoin and took the proceeds to buy Ethereum. This is not only because the price of Ethereum can grow faster than Bitcoin, but Bitcoin starts to look tired as it reaches $3000. There will be a sizable correction in Bitcoin price coming.

The following chart showing all signs that pointing to a down turn in prices in the short term. The tops are getting closer, suggesting it's losing momentum. The technical indicators are showing bearish divergence. And its prices are getting too far from the averages. The few pullbacks in the last 2 months are outweighed by more price rises, it needs to have to deeper correction to have a healthy chart. Also, i think the coming scaling business would cause higher volatility (most likely to the downside). I expect Bitcoin price to have a healthy correction to $2200 to $2500 in the short term.

Bitcoin price chart

I suspect many would jump onto the Ethereum wagon either to benefit to its higher growth trajectory, or to shelter from the price drop in Bitcoin, or simply being viewed as the next Bitcoin, or to diversify their cryptocurrency holding.

In term of ETH price growth's projection, many already believe its market cap will surpass Bitcoin's market cap by the end of 2017. The Ethereum community (Ethereumian or Etherer?) even give this event a name, 'The Flippening' (remember The 'Halvening' for Bitcoin ?).

This anticipation of the Flippening by the end of year isn't entirely ludicrous. When i bought my 1st ETH in August 2016, the Ethereum to Bitcoin market cap ratio was about 1:10 (about 1 and 10 billion respectively). Today, the ratio is about 8:10. Bitcoin is only ahead of Ethereum market cap by a nose. So, the Flippening will occur soon. End of year isn't at all a bold call.

Bitcoin and Ethereum market caps as of 13 June 2017
Bitcoin and Ethereum market caps as of 13 June 2017

I'm interested in the development of Ethereum as much as Bitcoin. With this purchase, it's forced me to pay as closer attention to Ethereum as i have for Bitcoin.

Could ETH price repeat the BTC's 50 - 60% price drop in Dec 2013? Certainly. But then, i tend to think that history doesn't repeat exactly, especially if the situation isn't identical. For one thing, cryoptocurrency (in this case, Bitcoin) wasn't anywhere as well known or as we widely accepted as it's today. Secondly, the ETH chart looks better than BTC chart. Lastly, Ethereum isn't as widely known as Bitcoin. As i said before, Ethereum is like Bitcoin in 2014, nowhere near as well known as Bitcoin today.

Short term (days, weeks), ETH is just as overvalued as BTC, but medium term (months) ETH is better. As for long term (years), nobody knows. Clearly, i switch to ETH for the medium outlook.

Short term, sitting in fiat currencies is the best option. But i'm just not that smart, and i wish to cultivate a bit more patience.

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