Trading on the cryptocurrency market is extremely volatile and losing initial investment is highly likely. What keeps people coming back for more is not only the promise of decentralization across the internet, but that this high volatility can lead to unprecedented wealth in a short time span. It's important to point out that you should never risk more than you can afford to lose. The same is true for any market based on speculation. There are public stories of individuals who have become "Lambros" and many more untold stories of those that have lost everything. If you are looking for steady gains and lower risk bets, the cryptocurrency market is currently not the place to be. If you are open to higher risk, higher volatility and a much faster game, this piece is potentially for you. I'm going to talk about some of the rising indicators I have noticed during the maturing of the cryptocurrency market and some of the moves I watch for when trading. Do not take this article as financial advice, you enter this market at your own risk! My opinions may not reflect the actual activity of the market!
Different Cryptocurrency Type, Different Market Behavior
A general misconception about cryptocurrencies, such as Bitcoin, is that all coins behave similarly on the market. This can be seen when Bitcoin rises or falls, and the market follows with it. This phenomenon can be demonstrated on the Stock market, where the market sentiment for FAANG stocks cause shifts in the general trade.
I call this a misconception since that thought operates on the assumption that all cryptocurrencies have the same properties, comparable to how all stocks are ownership shares. Cryptocurrecies today can be classified into three categories, all of which will mature into various market behaviors.
Cryptocurrency
Utility Tokens
Tokenized Securities
Basics of Cryptocurrency And Potential Market Sentiment
Bitcoin is a cryptocurrency. It is used as a general substitute to complete a multitude of transactions anonymously. Bitcoin has no owner, and hodlers do not own a share in any company that is providing Bitcoin. This digitized currency is most similar to fiat currencies and differs from utility or security based on its ability to operate within various networks that agree by consensus. This consensus being that Bitcoin is a legitimate asset for everyday transaction.
If the crowd recognizes that Bitcoin is a pure digital currency, than it will rival similar market sentiment for fiat currencies. Much like Bitcoin, fiat currencies are widely accepted and distributed, and their price fluctuates based on general market expectation, trade policies, government rulings ETC. In the future, we may see Bitcoin not competing with other cryptos such as Ethereum, but with other state administered fiat currencies that have been converted to 100% digital assets. This would create a more evolved forex market.
Basics of Utility Tokens And Potential Market Sentiment
Utility tokens can be referred to as credit coins, app tokens, service currency, use fee ETC. This form of crypto stands out from tokenized securities and cryptocurrencies due to its operations within a decentralized app (Dapp). Rather than owning a share in a company, or a coin for everyday functions, utility tokens are specifically assigned as a unit of entry and activation of a particular service created by a business or organization. Utility tokens are comparable to sending a service fee to a business, like you would a monthly payment or installments. This type of digital currency is also reminiscent of tokens released by a triple A video game. For example, if Fortnite (an extremely popular video game) were to make "V-Bucks" (their in game currency) trade able, it could potentially have similar properties to typical utility tokens.
Ethereum is the best example thus far of a utility token, where creating and hosting a live ERC 20 token for an ICO requires the use of ETH to activate a smart contract. While these ICO's operate independently, they still require Ethereum technology, which means they are using a service through a token contribution.
As the digital currency market matures and token archetypes are further acknowledged, we will begin to see more conservative corporations alternate from cash driven service fees or credits to utility token offerings. These are called token generation events (TGE's). The rise in token generation events can be seen when an ICO performs a two phase release. For example, an ICO may release their security token that complies with SEC regulation, then release a second token for free on the basis that it will grow inter-community services.
The most realistic example of fully operation utility tokens will arrive from fortune 500 companies that will transfer any gift card style points into trade able tokens. We may soon get a discount on coffee when using Starbucks utility coins. This could potentially cause a viral moment for utility tokens that will coincide with high growth on the market. This will be proceeded by a market correction. Nonetheless, utility tokens will be critical to the cryptocurrency ecosystem.
Basics of Tokenized Securities And Potential Market Sentiment
Tokenized securities are the most familiar of the decentralized assets to a typical investor. Much like a conventional stock or share, tokenized securities represent the ownership of a specific organization or company on the cryptocurrency market. The significant difference between the traditional share and a tokenized security derives from its ability to be traded over decentralized exchanges and used for transactions. Typical shares are administered through a brokerage and are traded when cashing out or transitioning to another share, not for the use of products and services.
There are many examples of tokenized securities and 99% of released ICO's can be designated as a crypto security offering.
Whereas utility tokens will grow based on variety of services, tokenized securities will form individual sentiment based on activity from a specific operation. This type of token asset will rival the stock market, with companies of all sorts continually growing or shrinking based on consumer desires and company management.
The Rise Of New Crypto Analysis
Today's crypto trade is driven by the market leader, Bitcoin. When Bitcoin grows, all other assets grow…and when Bitcoin falls, all other assets fall with it. This may be how the market behaves today, but the market of tomorrow will analyze sentiment through the differentiated type of tokens and how their individual patterns evolve separate from Bitcoin. For this to happen, cryptocurrency will need to work on four problems…
reduction of destructive hacks through cryptography breakthroughs
the creation of everyday consumer Dapps
the development of better e-wallets/hard wallets
the birth of a protocol that is secure, yet not energy intensive
Whatever your opinion, cryptocurrency is here to stay. There will be many roadblocks and many more hacks, but in retrospect, cryptocurrency on a global scale is only ten years old. The stock market has had four hundred years to grow…
