Bitcoin peaked about a month ago, on December 17, at almost $ 20,000. As I write, the cryptocurrency is below $ 11,000 … a loss of about 45%. That’s more than $ 150 billion in lost market capitalization.
In the crypto-commentary, indicate a lot of splitting of hands and gnashing of teeth. It’s neck and neck, but I think I told you the crowd has an advantage over “speakers”.
Here’s the thing: unless you’ve just lost your T-shirt because of bitcoin, this doesn’t matter at all. And chances are good that the “experts” you can see in the press are not telling you why.
In fact, the collapse of bitcoin is wonderful … because it means we can all just stop thinking about cryptocurrencies altogether.
Death of bitcoin …
In a year or more, people will not talk about bitcoins in the store or on the bus, as they do now. Here’s why.
Bitcoin is a product of justified frustration. Its designer has explicitly said that cryptocurrency is a reaction to the government’s misuse of fiat currencies like the dollar or the euro. It was supposed to provide an independent, peer-to-peer payment system based on a virtual currency that cannot be debased, as there are a limited number of them.
That dream has long been discarded in favor of crude 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 pizza or gasoline with it.
Aside from being a horrible way to conduct transactions electronically – it’s terribly slow – the success of bitcoin as a speculative game has made it useless as a currency. Why would anyone spend it if it is appreciated so quickly? Who would accept that when he gets depressed quickly?
Bitcoin is also a major source of pollution. Just one transaction takes 351 kilowatt-hours of electricity – which also releases 172 kilograms of carbon dioxide into the atmosphere. That’s enough to power one American household for a year. The energy consumed by all bitcoin mining so far could power almost 4 million American households in a year.
Paradoxically, the success of bitcoin as old-fashioned speculative game – and not its intended libertarian use – provoked government repression.
China, South Korea, Germany, Switzerland and France have introduced or are considering banning or restricting bitcoin trading. Several intergovernmental organizations called for concerted action to curb the obvious bubble. The U.S. Securities and Exchange Commission, which once seemed to approve financial derivatives based on bitcoins, now seems undecided.
And according to Investing.com: “The European Union is enforcing stricter rules to prevent money laundering and terrorist financing on virtual currency platforms. It is also exploring restrictions on cryptocurrency trading.”
We may one day see a functional, widely accepted cryptocurrency, but it will not be bitcoin.
… But an incentive for crypto assets
Good. The dominance of 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 you could sell them to someone who wants to use the subway more than you.
In fact, if subway chips were in limited supply, a lively market could emerge for them. They may even be trading for much more than they originally cost. It all depends on how many people to want use the subway.
This is, in short, a scenario for the most promising “cryptocurrencies” other than bitcoin. They are not money, they are tokens – “crypto-tokens”, if you will. They are not used as a general currency. They are only good within the platform for which they are designed.
If those platforms deliver valuable services, people will want those crypto tokens and that will determine their price. In other words, crypto-tokens will have value to the extent that people appreciate the things you can get for them from their connected platform.
That will make them real property, with intrinsic value – because they can be used to get something that people value. This means that you can reliably expect a stream of revenue or services from owning such crypto-tokens. Most importantly, you can measure that future return flow against the crypto-token price, just as we do when calculating the price-to-earnings (P / E) ratio of a stock.
Bitcoin, by contrast, has no intrinsic value. It has only a price – a price determined by supply and demand. It cannot produce future revenue streams, and for it you cannot measure anything like the P / E ratio.
One day it will be worthless because it brings you nothing real.
Ether and other crypto assets are the future
Crypto-token ether for sure it seems as a currency. It is traded on cryptocurrency exchanges under the code ETH. Its symbol is the Greek capital letter Xi. It is mined on a similar (but less energy intensive) process as bitcoin.
But ether is not a currency. Its designers describe it as “fuel for the Ethereum distributed application platform. It is a form of payment that platform customers make to machines that perform the required operations.”
Ether tokens give you access to one of the most sophisticated distributed computer networks in the world. It is so promising that big companies are falling for each other to develop practical use in the real world.
Since most people who trade it don’t really understand or care about its true purpose, the price of ether has been circulating and foaming like bitcoin in recent weeks.
But in the end, the ether will return to a stable price based on the demand for computer services that it can “buy” for people. That price will represent actual value this can be appreciated in the future. For him, there will be a futures market and exchange traded funds (ETFs), because everyone will have a way to assess its core value over time. Just like we do with stocks.
What will that value be? I have no idea. But I know it will be much more than bitcoin.
My advice: get rid of your bitcoin and buy ether in the next step.