Bitcoin peaked about a month ago, on December 17, at a peak of nearly $ 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.
Enter many hands and gnash teeth in the crypto-commentator. It’s neck and neck, but I think a lot of “I told you so” has an advantage over “excuses”.
Here’s the thing: if you haven’t just lost your shirt on bitcoins, it doesn’t matter at all. And chances are the “experts” you can see in the press aren’t telling you why.
In fact, the decline in bitcoin is wonderful … because it means we can all just stop thinking about cryptocurrencies.
Death of Bitcoin …
In about a year, people will no longer talk about bitcoins in line at the grocery store or on the bus, as they are 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. He needed to provide an independent, peer-to-peer payment system based on a virtual currency that could not be broken because there were a finite number of them.
That dream has long been thrown out in favor of raw speculation. Ironically, most 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 of electronic transaction – it’s painfully slow – the success of bitcoin as a speculative game has made it useless as a currency. Why would anyone spend it if they appreciate it so quickly? Who would accept one when it is quickly depreciated?
Bitcoin is also a major source of pollution. It takes 351 kilowatt-hours of electricity just to complete one transaction – 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 to date could power nearly 4 million U.S. households in a year.
Paradoxically, bitcoin’s success is old-fashioned speculative game – and not its intended libertarian use – attracted government action.
China, South Korea, Germany, Switzerland and France have applied or are considering bans or restrictions on bitcoin trading. Several intergovernmental organizations called for joint action to stop the obvious bubble. The U.S. Securities and Exchange Commission, which once seemed to approve bitcoin-based financial derivatives, now seems indecisive.
And according to Investing.com: “The European Union is applying 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. Getting over bitcoin allows us to see where the real value of crypto assets is. 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 wanted to use the subway more than you.
In fact, if subway tokens are in limited supply, a lively market could emerge for them. They may even trade for a lot 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 desired. They are not used as a general currency. They are only good within the platform for which they are designed.
If those platforms provide 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 essential value – because with them you can get something that people appreciate. This means that you can reliably expect a stream of revenue or services from owning such crypto-tokens. Critically, you can measure that flow of future returns against the price of a crypto token, just as we do when calculating the price-to-earnings (P / E) ratio of a stock.
In contrast, bitcoin has no intrinsic value. It has only a price – a price determined by supply and demand. It can’t create future revenue streams and you can’t measure anything like a P / E ratio for it.
One day it will be worthless because it brings you nothing real.
Ether and other crypto assets are the future
Crypto-token ether secure it seems like currency. It is traded on cryptocurrency exchanges under the code ETH. Its symbol is the Greek capital Xi sign. It is mined in a similar (but less energy intensive) process as bitcoin.
But ether is not a currency. Its designers describe it as “the fuel to manage 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’s so promising that big companies are falling over each other to develop practical uses 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 blown up and frothed like bitcoin in recent weeks.
But in the end, ether will return to a stable price based on the demand for computing services that it can “buy” for people. That price will represent actual value which can be appreciated in the future. For that, there will be a futures market and exchange traded funds (ETFs), because over time, everyone will have a way to estimate the base value. Just like we do with stocks.
What value will that be? I have no idea. But I know it will be a lot more than bitcoin.
My advice: Get rid of your bitcoin and buy ether at the next drop.