Dumb and Smart Money in Cryptocurrencies

What are your thoughts about the average cryptocurrency's investing attitude?

Look at the reddit forums for litecoin and bitcoin regarding the recent Ethereum hacks and one will see a plethora of arguments. While many cast reasonable doubt on Ethereum's security due to complexity of Solidity, others are based on unsubstantiated facts. "Investors" are eager to make bold unsupported claims but yet shoot down counterarguments illogically.

The term "FUD" is frequently thrown around when comments that aren't positive are made. This is sometimes the case even when the comment made is factually true. This fraction of investors on reddit, steemit or other forums seem to blindly defend their investment. If too large of the market cap comprises of such investors, a speculative bubble forms. A collapse then eventually occurs when the utility or purpose of the currency cannot justify its price.

Crux of the issue

The key question is, what fraction of the market cap do these overenthusiastic investors take up? Given that cryptocurrencies are a new economy, the proportion of retail investors is high. Yet, we cannot underestimate the stake of institutional money that will less likely overvalue the currency.

That said, even if cryptocurrencies are in a bubble, there is opportunity to speculate in the price swings. This is risky and we must look out for a possible eventual drawdowns.