On December 17, just over a month ago, Bitcoin reached a high of almost $20,000. The cryptocurrency is currently trading for less than $11,000… a loss of about 45%. That’s more than $150 billion in lost market cap.
The crypto-commentariat begins to wring its hands and grit its teeth. It’s neck-and-neck, but I think the “I-told-you-so” crowd has the edge over the “excuse-makers.”
The truth is that this is irrelevant unless you recently lost all of your money on bitcoin. And chances are, the “experts” you may see in the press aren’t telling you why.
Actually, it’s great that bitcoin prices crashed… because it means we can all just stop thinking about cryptocurrencies altogether.
Bitcoin’s Decline:.
In a year or so, people won’t be discussing bitcoin in the grocery line or on the bus like they do right now. Here’s why.
Bitcoin is the outcome of legitimate frustration. The cryptocurrency was created as a direct response to government abuse of fiat currencies like the dollar or the euro, according to its creator. It was intended to offer a decentralized, peer-to-peer payment system built on a virtual currency that couldn’t be devalued because there were only a limited number of them.
It’s been a long time since that fantasy was entertained in favor of unsupported conjecture. Ironically, most people are interested in bitcoin because it appears to be a simple way to acquire more fiat money. Because they want to use it to pay for pizza or gas, they don’t own it.
The success of bitcoin as a speculative play has rendered it useless as a form of payment in addition to being a terrible method of electronic commerce due to its agonizingly slow processing speed. Given how quickly it is increasing in value, why would anyone spend it? Who would accept one if it was rapidly losing value?
A significant source of pollution is bitcoin. Simply processing one transaction uses 351 kilowatt hours of electricity and emits 172 kg of carbon dioxide into the atmosphere. That will power one U.S. household for a year. Nearly 4 million U.S. homes could be powered with the energy used by all bitcoin mining to date. households for a year.
Paradoxically, bitcoin’s success as an old-fashioned speculative play – not its envisaged libertarian uses – has attracted government crackdown.
Bans or restrictions on bitcoin trading have been implemented or are being considered in China, South Korea, Germany, Switzerland, and France. For coordinated action to contain the obvious bubble, several intergovernmental organizations have made a call. In the past, it appeared that the U.S. Securities and Exchange Commission would be willing to approve financial derivatives based on bitcoin.
And according to Investing.com: “In order to stop money laundering and the funding of terrorism on platforms that use virtual currencies, the European Union is putting stricter regulations into place. It is also investigating trading restrictions for cryptocurrencies.”
However, it won’t be bitcoin. Instead, it might be a useful, widely used cryptocurrency.
… But a Boost for Crypto Assets
Good. Moving past bitcoin enables us to recognize the true worth of crypto assets. Here’s how.
You need tokens in order to use the New York subway system. They cannot be used to make any other purchases… although you could sell them to someone who wanted to use the subway more than you.
In fact, if there was a shortage of subway tokens, there might be a thriving market for them. Even more than what they originally cost, they might trade for. It all depends on how much people want to use the subway.
That, in a nutshell, is the scenario for the most promising “cryptocurrencies” other than bitcoin. They’re not money, they’re tokens – “crypto-tokens,” if you will. They are not accepted as common money. They excel only on the platform for which they were created.
People will want those crypto-tokens if those platforms offer worthwhile services, which will set their price. In other words, crypto-tokens will be valuable to the extent that people value the things you can buy for them from the platform that they are associated with.
That will make them real assets, with intrinsic value – because they can be used to obtain something that people value. This indicates that owning such crypto-tokens will provide you with a consistent stream of income or services. Critically, you can compare the price of the crypto-token to that stream of potential returns, just like we do when we determine a stock’s price to earnings ratio (P/E).
In contrast, Bitcoin has no inherent value. Only the price, which is determined by supply and demand, exists. It is incapable of generating future revenue streams and cannot be measured using a P/E ratio.
Because you don’t get anything real from it, one day it will be useless.
Ether and Other Crypto Assets Are the Future
The crypto-token ether sure seems like a currency. It trades under the symbol ETH on cryptocurrency exchanges. The Greek letter Xi, capitalized, serves as its emblem. Similar to how bitcoin is mined, but using less energy.
But ether is not a form of money. Its designers describe it as “a fuel for operating the distributed application platform Ethereum is a means of payment used by users of the platform to give money to the computers carrying out their requests.”
One of the most advanced distributed computational networks in the world is accessible to you thanks to ether tokens. Large corporations are swarming to find useful, practical applications for it because it holds so much promise.
The price of ether has risen and fallen like bitcoin recently because the majority of those who trade it don’t really know or care about what it’s actually for.
But eventually, ether will revert to a stable price based on the demand for the computational services it can “buy” for people. That price will represent real value that can be priced into the future. Due to the fact that everyone will have a way to evaluate its underlying value over time, there will be a futures market for it as well as exchange-traded funds (ETFs). similar to how we manage stocks.
What is the expected value? I don’t know, but I’m certain that it will cost much more than bitcoin.
My recommendation is to sell your bitcoin and purchase ether when it dips.