The Cryptocurrency Bubble: Not as Big as you Think

By | June 14, 2017

The total market cap of all cryptocurrencies is now more than $100 billion US. Bitcoin leads the way with a $45 billion cap, but Ethereum is coming up fast with a cap of $32 billion.  The one-year return on Ether is more than 1000%

The bubble must burst, the market must crash, we are overdue for a correction…. Pick your favorite catchphrase. In any case, “it” being the pullback should happen any moment. It should have happened last week.

But before we decide that the market cap of all cryptocurrencies is “too big,” let’s do some comparisons first:

  1. Market cap of all publicly-traded companies in the world: $64 Trillion
  2. Market cap of Publicly-traded companies in US: $27.3 Trillion
  3. Let’s go smaller, how about Germany: $1.7 Trillion
  4. Wait even smaller: Argentina which clocks in at $63 billion

Okay so you sniff, but those are companies that actually have intrinsic value. These are entities that produce stuff.

Very well, let’s then compare cryptocurrencies with other currencies of the world.

  1. The M1 supply of Canada’s currency was $929 billion in ($690 billion US) April 2017.
  2. M1 supply of Singapore was $175 billion ($126 billion US) in same month.
  3. Lastly the M1 supply of Estonia (I totally picked these countries at random) is 11 billion Euros ($12.3).

As a reminder, we must add that Estonia has a population of 3.12 million and a GDP of 40 billion.

Should Bitcoin have a higher currency floatation than the M1 currency of Estonia? Probably.  Should it be higher than Singapore, with a population of 5.35 million and a GDP of $508 billion? It’s debatable.

However, there is one last comparison we can make to gain another perspective on the cryptocurrency craze: How much speculative capital is there available to throw into the froth?

  1. Total value of Greater Vancouver real estate grew from $546.7 billion in 2015 to $636.2 billion in 2016, an increase of $90 billion dollars (CAD or $67 billion US)
  2. How about hundred of billions of dollars worth of art stored in “freeports” in Europe. This is a great article from the Economist on all the valuable art collections stored in tax-free warehouses whose sole purpose is to be another wealth repository for the rich.
  3. How about sneakers? Yes there are actually sneakers that increase in value. The sneaker market is estimated to be $55 billion in 2016. That’s not footwear, or even running shoes. We are talking about sneakers.

So what would it take to puncture the cryptocurrency bubble? Well it has popped before, what with the infamous Mt.Gox hack and cover up. But there have been no serious exchange hacks for years. Another bubble-popping event could be a general 2007-2008 crash in the global financial markets. However the hypothetical game is easy to play, but looking at today, the biggest problem is that unprecedented demand is causing even major exchanges to go temporarily off-line.

Can a bubble inflate forever? Ask a homeowner in Vancouver, where real estate prices have risen since 2001. Better yet, ask that question to a resident of Manhattan.