$25 Billion in 30 Days: Are Cryptocurrencies in a Bubble?

The combined market capitalization of all public cryptocurrencies has surged nearly 80% over the last month, as more than $20bn worth of new investment dollars has flooded the nascent market.

In roughly 30 days alone, the market cap for experimental blockchain-based cryptographic assets has ballooned from $27.8bn to $49.5bn, according to data from CoinMarketCap, with the strongest gains observed outside of the market's historical leader, bitcoin.

A closer look reveals the total market cap of so-called 'altcoins', cryptographic tokens that seek to serve alternative use cases to bitcoin, has surged to $23.5bn, up more than 600% from just over $3bn in early March.

Amid this sharp rally, some market observers have expressed concerns that the asset class may have entered a speculative bubble.

When supporting his argument, Jacob Eliosoff, a trader who runs a cryptocurrency fund, pointed to not only to the price gains, but also the fact that so many cryptocurrencies – including those that haven't seen technical or business progress – have risen in value.

Eliosoff told CoinDesk:

"I've been making the bubble argument for weeks. Doge, Dash, Litecoin, Stellar, Gnosis ... practically every coin has surged."

He further cautioned that this development is "a sign of unthinking buyers that will sell as soon as the tide turns."

Daniel Masters, director of the regulated investment vehicle Global Advisors Bitcoin Investment Fund (GABI), offered similar sentiment, emphasizing that even cryptocurrencies with smaller market caps – like litecoin, ether, namecoin and ripple – have all experienced strong gains over the last few months.

He told CoinDesk that he believes "sentiment [is] too strong," noting that between this and record prices for cryptocurrencies, a bubble may be forming.

More room to grow

While the aforementioned analysts provided cautious viewpoints, other market observers were more optimistic, asserting that cryptocurrency prices have significant room to appreciate despite current prices.

Harry Yeh, managing partner of Binary Financial, took a bullish slant, telling CoinDesk that "there's still quite a ways to move" as more investors take note of big gains in the sector.

Tim Enneking, chairman of Crypto Currency Fund, also spoke to the market's potential. "I would agree that prices have increased too far too fast, but I don't think it's a serious problem – more like a buying opportunity," he said.

He elaborated on this statement, pointing out that it is challenging to determine the "true value" of a cryptocurrency:

"I'm not sure I would label it a bubble, at least not yet. It's quite difficult to definitively state what the intrinsic value is or should be of an altcoin," he said, adding:

"Property is worth what people are willing to pay for it."

Rising OTC trading

One strong indicator of the bullish sentiment is robust trading. While transaction volume for many of the digital assets listed on Coinmarketcap has risen, over-the-counter (OTC) trading firms have also reported an increase in activity.

Martin Garcia, vice president of Genesis Global Trading, noted that his New York-based firm is experiencing such an improvement.

"Our new applications are up significantly, and old clients are circling back as well," Garcia said.

Ryan Rabaglia, head trader for Octagon Strategy, expressed similar sentiment.

"Our desk has had [a threefold] volume increase over the last few months and over the last few weeks we're onboarding new counterparties at a record rate," he said.

Finally, Rabaglia spoke to the changing demands of his customers, emphasizing that while bitcoin and ether are still the "hottest names," his trading desk has repeatedly received requests for trades involving lesser-known alternative cryptocurrencies such as ZEC, DASH, ETC and XRP.

Ultimately, he characterized the current market as one with abundant opportunities for his business.

He concluded:

"Up to this point we've dabbled in each and are considering dedicating more resources if the demand persists."

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Genesis Global Trading.

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