While the remarkable rise of Bitcoin (CCC:BTC-USD) and other cryptocurrencies has generated life-changing profits for many investors, the rally also served another purpose: to legitimize not only the blockchain but its underlying digital reward tokens. The burgeoning mainstream adoption of Bitcoin has subsequently gifted alternative cryptocurrencies, or altcoins, like Cardano (CCC:ADA-USD) with their own renaissance.
Sure, BTC gets most of the glory and who would argue against that? Very few assets in the global markets have a per-unit price tag of more than $60,000. But in terms of percentage profitability, Bitcoin is hardly on the leaderboard. For instance, over the trailing month, Cardano is up nearly 37%. In the same timeframe, BTC is up a relatively pedestrian 10%.
Spread out the time comparisons and the contrast becomes even starker. Psychologically as well, Cardano levers a significant advantage. Currently priced at $1.43 — and keep in mind that by the time you read this, ADA could be wildly different — it’s multiple dimensions away from the BTC price.
Moreover, other popular altcoins are getting quite rich, nominally speaking. I remember a time when Ethereum (CCC:ETH-USD), the Mike Pence of cryptocurrencies, was trading hands at a few dollars a pop. Oh, if only I had a DeLorean armed with a flux capacitor. Anyway, ETH breached the $2,500 level recently until it settled around the $2,400 mark.
For a lot of folks, that’s just too much. But with the price of one Ethereum coin, you can purchase over 1,700 Cardano tokens. In this emotionally charged market environment, that’s not something you can ignore.
Also, as several media reports stated, celebrities have gotten involved with not only Bitcoin but specifically Cardano. Perhaps the most famous among them is legendary rocker Gene Simmons, who bought $300,000 worth of ADA.
So, good times are coming, right? You might want to think this through carefully before proceeding.
Cardano Tied to Maturing Market
Over the long run, I believe cryptocurrencies have a bright future. But at the moment, I’m very concerned about the unadulterated enthusiasm we’re seeing in the digital markets. Seemingly, everything and anything related to cryptos have enjoyed unprecedented bullish sentiment.
What really gets me about Cardano and the rest of the crowd is that combined, the global crypto sector has a market capitalization of $2.22 trillion. Based on World Bank data, if cryptos were a nation, the digital “state” would have the world’s eighth biggest economy, behind France with its GDP of $2.58 trillion.
Just Cardano alone, with a current market cap of over $45 billion, would rank among some of the most innovative publicly traded companies. While metrics like these feed into the momentum, they also raise sustainability concerns.
For me, I’m worried that Bitcoin has already matured or is nearing a maturation point. From here, further upside may be a stretch. And the evidence plays this out. Going back to 2010, I charted the biggest price records in BTC:
- In July 2010, BTC hit approximately 39 cents.
- 322 days later in June 2011, BTC hit $23.92.
- 906 days later in late November 2013, BTC hit nearly $1,155.
- 1,478 days later in December 2017, BTC breached $19,000.
- 1,215 days later, in the current month, BTC exceeded $64,000.
Source: Chart by Josh Enomoto
During this time, Bitcoin increased by 61.3x, 48.3x, 16.6x and 3.4x. Granted, we still don’t know where BTC will end up as this rally hasn’t ended. But generally speaking, we’re seeing Bitcoin take longer to accrue smaller profits. We have both the law of large numbers and the law of diminishing returns at play.
Combined, these two mathematical dynamics have printed an S-chart for Bitcoin. That may be problematic for Cardano because, let’s face it, almost all of these altcoins have some significant correlation to the original crypto coin. Therefore, continued upside is not guaranteed.
Be Careful How You Approach ADA
This isn’t meant to discourage you from buying Cardano. Because of the enormous sentiment, it’s possible that institutional investors could continue climbing aboard the crypto space. If so, you’d expect the law of small numbers to greatly benefit ADA.
At the same time, all things virtual currency are likely tied to Bitcoin. I don’t foresee a situation where BTC languishes in a bear market while other altcoins are in a bull market. Even the craziness that is Dogecoin (CCC:DOGE-USD) will eventually fade at some point. They always do.
If you can accept that you’re taking a serious gamble with Cardano – especially at this juncture – you’ll be better off than most. Just make sure that if you are going to take the plunge, do so with money you can afford to lose.
On the date of publication, Josh Enomoto is long ADA, BTC, ETH and DOGE.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.