By Sid Rothchild
On December 17, just over a month ago, Bitcoin reached a high of about $20,000. The cryptocurrency is currently down to about $11,000, or about 45%, as I write. That represents a market cap loss of more than $150 billion.
The crypto-commentariat begins to wring their hands and grit their teeth. Although it's close, I believe the “I told you so” crowd has an advantage over the “excuse-makers.”
The truth is that this is irrelevant unless you have lost all of your money on bitcoin. And it's likely that the “experts” you may read about in the media aren't explaining why.
In reality, the collapse of bitcoin is great because it allows us to all to stop caring about cryptocurrencies altogether.
When Will Bitcoin Die?
People won't be discussing bitcoin in the grocery queue or on the bus in a year or so, as they do now. This is why.
Bitcoin is the result of legitimately frustrated people. The cryptocurrency was created as a direct response to government exploitation of fiat currencies like the dollar or the euro, according to its creator. It was designed to offer a decentralized, peer-to-peer payment system based on a virtual money that was limited in supply and hence could not be devalued.
That fantasy was long abandoned in favor of unsupported conjecture. Ironically, most people are interested in bitcoin because it appears to be a simple means to acquire additional fiat money. They don't own it since they intend to use it to pay for pizza or gas.
Bitcoin's popularity as a speculative bet has rendered it useless as a form of money in addition to being a lousy method of conducting electronic transactions because it is so painfully slow. When something is increasing so quickly, why would anyone spend it? Who would accept one if it was rapidly losing value?
A significant cause of pollution is also bitcoin. Just one transaction requires 351 kilowatt-hours of electricity, adding 172 pounds of carbon dioxide to the atmosphere. One American household could use that much of energy for a year. The energy used up by all bitcoin mining operations up to this point could supply nearly 4 million US households for a whole year.
Ironically, government crackdown has been sparked by bitcoin's success as an antiquated form of speculation rather than its intended libertarian purposes.
Bans or restrictions on bitcoin trading have been enacted or are being considered in China, South Korea, Germany, Switzerland, and France. To contain the evident bubble, a number of multilateral groups have advocated for coordinated action. Before, it appeared that the U.S. Securities and Exchange Commission would be willing to authorize financial derivatives based on bitcoin.
Additionally, Investing.com reports: “To stop money laundering and the financing of terrorism on platforms using virtual currencies, the European Union is enforcing stronger regulations. It is also investigating trading restrictions for cryptocurrencies.”
Someday, a useful cryptocurrency that is widely used may appear, but it won't be bitcoin.
But a Gain for Cryptocurrency Assets
Good. We can understand where the true value of crypto assets lies once we move past bitcoin. How? Read on.
Tokens are required in order to use the New York subway system. They are useless for purchasing anything else, but you may sell them to someone who commutes by subway more frequently than you do.
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 swap for. Everything relies on how frequently commuters wish to use the subway.
The scenario for the most promising “cryptocurrencies” besides bitcoin can be summed up in that manner. They are tokens, or “crypto-tokens,” if you prefer. They are not money. They aren't accepted as common money. They only function properly on the platform for which they were created.
People will demand those crypto-tokens if those platforms offer worthwhile services, which will set their price. In other words, the value of crypto-tokens will depend on how much people value the goods and services that can be obtained through the platform that they are linked to.
Because they may be used to acquire items that people value, this will turn them into true assets with inherent value. This means that possessing such crypto-tokens will essentially guarantee you a steady supply of income or services. Importantly, you can compare the value of that stream of potential returns to the cost of the cryptocurrency token, just like we do when we determine a stock's price to earnings ratio (P/E).
Bitcoin, on the other hand, has no inherent worth. There is just one price, which is determined by supply and demand. It cannot generate future revenue streams, nor can it be measured using a P/E ratio.
It won't buy you anything real one day, thus it won't be worth anything.
The future is with ether and other cryptocurrencies.
Ether, a cryptocurrency token, certainly appears to be money. It trades under the symbol ETH on cryptocurrency exchanges. The Greek letter Xi in uppercase serves as its emblem. It is mined using a method similar to bitcoin's (but less energy-intensive).
But ether is not a form of money. According to its creators, it is “a source of energy for the Ethereum distributed application platform. It is a method of compensation given by platform users to the devices carrying out their orders.”
You can have access to one of the most advanced distributed computational networks in the world with ether tokens. Large corporations are scrambling to find useful, real-world applications for it because it is so promising.
The price of ether has recently risen and fallen like the price of bitcoin since the majority of those who trade it don't actually know or care about its fundamental purpose.
However, over time, the price of ether will stabilize based on the demand for the computing services that it can “purchase” for users. Real value that can be priced into the future will be represented by that price. Since everyone will have a method of determining its underlying value over time, there will be a futures market for it as well as exchange-traded funds (ETFs). similar to how we handle stocks.
Which value will it have? I am clueless. But I'm aware that it'll include far more than just bitcoin.
My recommendation is to sell your bitcoin and purchase ether when it dips.