The Great Reckoning for Alt Coins

Published 02/04/2014

By ProfitOfTheGods, writer and part-time alt coin trader.

A Prediction for the Future Value of Alt Coins

I am of the firm opinion that, at some point in around 6 -18 months time, we will see a 'great reckoning' in the alt coin market, when the metaphorical wheat will be separated from the chaff. This event, which will probably occur over the course of a few months rather than as a single event, will see some alternative digital currencies soar in value, whilst others will flounder and fail. As a (very small time) investor in alt coins as well as a day trader, it is this great reckoning I am looking towards to make a real profit.

There are two reasons why I am predicted that this great reckoning will occur around this point in time. The first is simply because the ecosystems of services surrounding them, and the communities themselves which surround and support these currencies, and which are necessary for their survival, will have had a chance to mature by then. Although new currencies are being created all of the time, and some will still be quite new at this point and may not be part of this market movement, a large number of coins will have been around long enough by this time for people to expect them to have done something to prove themselves. Even newer coins should benefit from technologies and services built up by the predecessors, allowing them to enjoy a faster growth phase and catch up somewhat with older coins. Whilst many coins are today being given the benefit of the doubt – they are being given a chance because we just don't know what they will be able to do or how they will develop – this will not always be the case. By the end of 2014 and the first half of 2015 I predict that the differences in the size of active communities, and the number and breadth of services surrounding these coins, will be more obvious than they are today. Successful coins will have started to build up a solid range of services and an active community of users, whereas other coins will have clearly failed to do this. This will lead regular users, developers and investors to start abandoning the less successful coins in favour of the more successful.

The second reason I think that this will happen, and why I think it will happen so soon, is because many alt coins have seen their growth in supply as a result of mining massively outstrip their actual growth as a usable service. I would like to illustrate this with an example, and to do this I will use the case of FedoraCoin TIPS, which is one of my personal favourite alt coins. FedoraCoin is one of the newer alt coins, but yet at the time of writing 41.5% of the total supply has already been mined, and this has been growing by 0.1% per day. For a coin which is still at the early stages of even its initial growth phase, the amount of mining which has taken place has raced far ahead of the growth of supporting services and the actual uptake of the currency – in fact it has raced far ahead of what the real growth could possibly have been, almost no matter how successful the coin was. This is because large numbers of commercial miners have built up substantial facilities of specialist equipment mining Bitcoin and the earlier alt coins, which were then turned towards the mining of FedoraCoin.

This is not unique to FedoraCoin; it is something that many different alt coins have experienced. When they were created many of these coins just didn't seem to sufficiently take into account things like multipools and improved hardware (or perhaps they were and this was all part of the plan). At the current rate and growth rate of mining, even taking into consideration the increasing difficult levels (which in any case will be partially off-set by the next generation of specialist ASIC miners and other improved hardware being released soon), it seems likely to me that within 18 months many of the current crop of alt coins will start to reach a level where a sizeable majority of the total supply has already been released onto the market. At this point commercial mining by people who are just dumping their newly minted coins onto the market to pay for new equipment and take their profit will inevitably start to decline. As I have put it before in conversations on forums, the 'mining boom' will be over. Difficulty levels for mining will have risen substantially, whilst potential future rewards will be dwindling towards the vanishing point.

At this point the current dynamic in which supply usually outstrips demand will be reversed. Two things will happen. As the supply of new coins onto the market starts to fall, it will be overtaken by demand and prices will rise. At least that is what I predict will happen for the successful coins. Others may find themselves struggling to find enough miners left to maintain the network, whilst others will find that without the promotional efforts of miners seeking a profit they have little left to drive demand.

This combination of improving utility through supporting services, growing communities of users, and constrictions in supply could well lead to some pretty amazing levels of growth for the successful alt coins. The less successful will, in my opinion, see their value crash and their users jumping ship.

Of course all of this relates mainly to the value of alt coins in comparison to Bitcoin. Alt coins are primarily priced in BTC and their value is tied to BTC, so the value of these coins in fiat money will be largely dependent on the price of Bitcoin – unless they can become successful enough in their own right to 'de-couple' from the Bitcoin price.

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