Price Discovery in a Crypto World
Price Discovery
Price discovery is when buyers and sellers of an asset determine a common price for said asset through coming to a mutually agreed price between the value a buyer puts on an asset and the value a seller is seeking for that asset. In the stock market this is generally focused on buying equity shares in companies that supply physical products, services, software, entertainment, transportation, etc.
In the crypto market, Bitcoin and Litecoin are seen as speculative assets (similar to options in the stock market), whereas crypto currencies like Ethereum and Solana provide smart contracts in the Web3 space which are seen as a tangible asset. There are an increasing number altcoin use cases for new and upcoming industries in the areas of money transfers, data storage, the metaverse (The Sandbox), real estate, A.I., virtual reality, gaming and many more. It is very likely that most industries currently represented in the stock market will also be tokenized (turned into an asset that is held and transferred over the blockchain) once the blockchain industry reaches close to full maturity between 2030 – 2040..
Market Cycle and Bitcoin Halving
Every four years, Bitcoin experiences the Bitcoin halving in which Bitcoin miners see their mining rewards cut in half; in 2024 this is expected to occur in April. Due to the reduction in the supply of Bitcoin, this is leading to major buying pressure from retail investors, which in turn, leads to a rapid increase in prices.
In the context of this article, price discovery is when the buying pressure of Bitcoin, and other crypto assets, surpasses the all time highs of the previous bull market cycle, and we begin to reach (discover) new all time highs. This first happens with Bitcoin, then with large cap altcoins (market caps of over 1 billion USD or more), then smaller cap altcoins (market caps of less than 1 billion USD) in a trickle down effect.
Bitcoin Dominance
Bitcoin dominance is a phrase in the crypto industry that describes the percentage of total crypto market cap that Bitcoin holds at any given time. At the time of writing, Bitcoin dominance is sitting at 53.24%; as we approach, and eventually complete, the Bitcoin halving, Bitcoin dominance will begin to decrease, as investors take profits, and begin to invest in smaller cap altcoins.
External Catalysts
The difference between the current market cycle and the previous ones, is the introduction of Bitcoin ETFs. For the first time in the four year crypto cycle, it is not just retail investors and “crypto bros“ investing in crypto assets, but also many of the most powerful banking institutions in the world are getting in on the action, too! The approval of Etherum ETFs in May will really begin to heat things up as it will open the flood gates to many other crypto assets following suit. Many speculate that the top 20 cryptocurrencies by market cap could eventually all successfully apply for ETFs.
Yearly highs vs. Cycle highs
As the bull run progresses and we begin to enter price discovery, we will see new all time highs in the crypto space in 2024. However, we will see a crypto bull run cycle high when the price hits its peak (likely in 2025), and then begins to retract and enter a bear market.
Bonus Material:
@DelCrxpto on February 21st asserted that “$BTC is certain to cross $100k & $ETH is certain to cross $5000 in this coming bull run.” Stay tuned…
Topic inspired by Jude Somefun.
This piece should not serve as financial advice.
Authors:
Mike S. Reyes is the founder and CEO of Pernimed. His experience includes corporate training, and teaching in China; and tech sales and political canvassing/lobbying in the United States. In addition to being a TedX series speaker, he has been invited as a guest to speak on Fox News, CNN podcasts and ABC news; and has been featured in articles in the New York Post, Al Jazeera and NY1. A member of various private clubs, his interests include political activism, following all New England sports teams and playing amateur rugby.
Alexandra Black has spent over ten years in the finance industry working with institutional investors on a wide variety of investment strategies. She has held fundraising and investor relations positions in venture capital, private equity, private debt, real estate, hedge funds and traditional capital markets strategies. She graduated from the Questrom School of Business at Boston University with a B.S./B.A. in Business Management with concentrations in finance and marketing.