Vinny Lingham is a fixture of sorts on Crypto Twitter. As the founder of Civic (CVC) and an early adopter of Bitcoin, he’s spent a long time watching the cryptocurrency markets, which is why his prediction that the current Bitcoin rally won’t last has attracted some negative attention.
His argument is relatively simple — when the market moves en masse, the move must not be based on fundamentals. That means the move is speculation, and speculative price increases are not sustainable long term.
Evidence Says So
Lingham’s argument seems cogent. A quick glance at the top-20 cryptocurrencies shows his theory is at least based in some fact. As the price of Bitcoin (BTC) rose, nearly every other altcoin followed. This, in spite of the fact that many of those coins still do not have functional platforms or products.
As the rally has stalled in recent trading, the altcoin market has again followed suit. Bitcoin is testing support at $5,000, but many altcoins have lost as much as half of the gains they experienced during the rally.
This all adds up to speculative trading. As Bitcoin surges (regardless of what is driving that increase), smaller investors fear missing out on the gains and quickly move funds into Bitcoin as well as altcoins. The result is that the entire market (with few exceptions) jumps, regardless of the actual value in any single platform.
Arguments to the Contrary
However, while Lingham’s suggestion may hold water, there are many reasons as to why the markets would function in this way that are not quite so gloomy. In fact, the market’s movement may actually indicate an overall positive trajectory built on fundamentals.
First, this sort of emotion-driven investing is common in non-cryptocurrency markets as well. For example, in the technology sector, gains and losses from the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) can often move the entire technology market.
The reason is relatively simple. Growth in these markets will likely result in increasing demand from smaller cap stocks. That increasing demand causes investors to try to buy positions in those stocks that will be affected, resulting in short term pumps.
Second, the cryptocurrency market is built on blockchain technology. This means that the market is tied together intrinsically. Of course, a jump in Bitcoin doesn’t necessarily mean that some small-cap altcoin with no viable platform will gain users. However, as the adoption of cryptocurrencies generally increases, the result will be growth for blockchain, and therefore some widespread adoption.
A Maximalist Perspective?
Of course, a Bitcoin maximalist would argue that this only proves that Bitcoin is the only truly viable cryptocurrency. Eventually, in this argument, all altcoins will be worthless, subsumed by the superior Bitcoin.
This would then indicate why Bitcoin so strongly dominates the market. Altcoins, with little or no viable use cases, simply follow the one dominant coin and prove Lingham’s theory. Eventually, the market will eliminate these non-viable intruders, leaving Bitcoin dominant. This is ironic, however, given Lingham’s own involvement with other altcoins.
Ultimately, the answer may be a bit of both. While Lingham’s theory may be relatively true, the proof will be in the pudding. Bitcoin’s current price stability above $5,000 will be a good test of whether the market rise was legitimate or just speculation.
Do you think Lingham is right and this current increase is simply speculative or is the bull market back for Bitcoin? Let us know your thoughts in the comments below!