Bitcoin hit a high of nearly $20,000 about a month ago, on December 17th. As I write, the cryptocurrency is below $11,000…a loss of about 45%. It’s more than that 150,000 billion dollars lost market cap.
Cue lots of hand-wringing and gnashing of teeth in the crypto commentary. It’s neck and neck, but I think the “I told you so” crowd has an advantage over the “excuse makers”.
Here’s the thing: Unless you’ve lost your Bitcoin shirt, none of this matters at all. And chances are the “experts” you see in the press aren’t telling you why.
In fact, the bitcoin crash is wonderful… because it means we can all stop thinking about cryptocurrencies.
The death of Bitcoin…
In a year, people won’t be talking about bitcoin in the grocery store or on the bus like they are now. Here’s why.
Bitcoin is a product of justified frustration. Its designer explicitly said that the cryptocurrency was a reaction to the government’s abuse of fiat currencies like the dollar or the euro. It had to offer an independent and peer-to-peer payment system based on an immutable virtual currency, of which there was a limited amount.
That dream was long ago abandoned in favor of raw speculation. Ironically, most people care about bitcoin because it seems like an easy way to get more fiat currency! They don’t own it because they want to buy pizzas or gas with it.
In addition to being a terrible way to trade electronically – it’s incredibly slow – bitcoin’s success as a speculative game has rendered it useless as a currency. Why would someone spend it if they appreciate it so quickly? Who would accept one when it is rapidly depreciating?
Bitcoin is also a major source of pollution. It takes 351 kilowatt-hours of electricity to process a single transaction, which releases 172 kilograms of carbon dioxide into the atmosphere. That’s enough to power a US household for a year. The energy consumed by all bitcoin mining so far could power nearly 4 million US homes for a year.
Paradoxically, bitcoin’s success as obsolete speculative game – not the intended libertarian use – has attracted government repression.
China, South Korea, Germany, Switzerland and France have implemented or are considering bans or limits on bitcoin trading. Several intergovernmental organizations have called for joint action to stop the apparent bubble. The US Securities and Exchange Commission, which once seemed to approve bitcoin-based financial derivatives, is now doubtful.
And according to Investing.com: “The European Union is introducing stricter rules to prevent money laundering and terrorist financing on virtual currency platforms. It is also looking into the limits of cryptocurrency trading.”
We may someday see a functional and widely accepted cryptocurrency, but it won’t be bitcoin.
… But the Boost for Crypto Assets
good Overriding Bitcoin allows us to see where the true value of crypto-assets lies. Here’s how.
To use the New York subway system, you need tokens. You can’t use them to buy anything else…even if you do could sell them to someone who wanted to use the meter more than you.
Indeed, if metro tokens were in limited supply, a lively market for them could emerge. They may even trade for much more than they originally cost. It all depends on how many people want to use the metro.
That, in a nutshell, is the scenario for most promising “cryptocurrencies” other than bitcoin. They are not money, yes tokens – “crypto-tokens”, if you will. They are not used as a general currency. They are only good within the platform they were designed for.
If those platforms provide valuable services, people will want those crypto tokens and that will determine the price. In other words, crypto tokens will have value to the extent that people value the things you can get from their platform.
That will do them real goodswith intrinsic value – because they can be used to achieve something that people value. This means that you can reliably expect a stream of income or services from such crypto-token holders. Seriously, you can measure that stream of future returns against the price of the crypto token, just like we do when we calculate a stock’s price/earnings (P/E) ratio.
Bitcoin, on the other hand, has no intrinsic value. It has only one price – the price set by supply and demand. It can’t generate future earnings, and you can’t measure anything like a P/E ratio.
One day it will be worthless because it doesn’t get you anything real.
Ether and other crypto-assets are the future
Crypto-token ether for sure it seems like a currency Cryptocurrency is traded on exchanges under the code ETH. Its symbol is the Greek character Xi. It is mined in a process similar to Bitcoin (but with less energy consumption).
But ether is not a coin. Its designers describe “Ethereum as a fuel for running the distributed application platform. It is a form of payment that clients of the platform make to the machines that execute the requested operations.”
Ether tokens provide access to one of the most sophisticated distributed computing networks in the world. It’s so promising that big companies are falling over each other to develop practical, real-world uses for it.
Because most people trading it don’t understand or care about its true purpose, the price of ether has bubbled and frothed like bitcoin in recent weeks.
But eventually ether will return to a stable price based on the demand for computational services that people can “buy”. That price will replace it real value that may be the price in the future. There will be a futures market, and exchange-traded funds (ETFs), all of which will have a way of evaluating their underlying value over time. As we do with stocks.
What will that value be? I do not know. But I know it will be much more than bitcoin.
My advice: get rid of your bitcoin, and buy ether at the next jump.