Bitcoin peaked about a month ago, on December 17, with a high of nearly $ 20,000. As I write, the cryptocurrency is below $ 11,000 … a 45% loss. This is more than $ 150 billion in lost market capitalization.
Aim your hands a lot and gnash your teeth at the crypto-comment. It’s neck and neck, but I think the crowd of “I told you so” has an edge over “excuse makers”.
Here’s the thing: unless you’ve just lost your bitcoin t-shirt, that doesn’t matter at all. And the “experts” you can see in the press probably won’t tell you why.
In fact, the fall of bitcoin is wonderful … because it means we can all stop thinking about cryptocurrencies.
The death of Bitcoin …
In a year or so, people won’t talk about bitcoins in a row at the grocery store or on the bus, like now. Here’s why.
Bitcoin is the product of a justified frustration. Its designer explicitly said that cryptocurrency was a reaction to government abuse of fiat currencies such as the dollar or the euro. It was supposed to provide an independent, peer-to-peer payment system based on a virtual currency that could not be degraded, as there were a finite number of them.
This dream has long been rejected in favor of raw speculation. Ironically, most people worry about bitcoin because it seems like an easy way to get more fiat currency! They don’t have them because they want to buy pizzas or gasoline there.
In addition to being a terrible way to trade electronically – it’s agonizingly 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 one when it is depreciating rapidly?
Bitcoin is also a major source of pollution. It takes 351 kilowatt-hours of electricity just to process a transaction, which also releases 172 kilograms of carbon dioxide into the atmosphere. That’s enough to feed a U.S. home for a year. The energy consumed by all bitcoin mining so far could power nearly 4 million U.S. homes in a year.
Paradoxically, the success of bitcoin as a thing of the past speculative game -not its intended libertarian uses- has attracted government repression.
China, South Korea, Germany, Switzerland and France have implemented, or are considering, bans or restrictions on bitcoin trading. Several intergovernmental organizations have called for concerted action to curb the obvious bubble. The U.S. Securities and Exchange Commission, which previously seemed likely to approve bitcoin-based financial derivatives, now seems hesitant.
And according to Investing.com: “The European Union is implementing stricter rules to prevent money laundering and terrorist financing on virtual currency platforms. It is also investigating the limits to cryptocurrency trading.”
We may see a functional and widely accepted cryptocurrency someday, but it won’t be bitcoin.
… But a boost for cryptographic assets
Well. Overcoming bitcoin allows us to see where the real value of cryptographic 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 I could sell them to someone who wants to use the subway more than you.
In fact, if subway tokens had a limited supply, a lively market could emerge for them. They could even trade for much more than they originally cost. It all depends on how many people to want to use the subway.
This, in a nutshell, is the scene of the most promising “cryptocurrencies” other than bitcoin. It’s not money, yes tokens – “crypto-tokens”, if you will. They are not used as a general currency. They are only good within the platform for which they were designed.
If these platforms offer valuable services, people will want these crypto-tokens and this will determine their price. In other words, cryptocurrencies will have value to the extent that people value the things you can get for them from their associated platform.
That will make them real assets, 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 having these cryptocurrencies. Critically, you can measure this flow of future returns with the price of the crypto-token, in the same way we do when we calculate the price / earnings (P / E) ratio of a stock.
Bitcoin, on the other hand, has no intrinsic value. It has only one price: the price set by supply and demand. It cannot produce future revenue streams and you cannot measure anything as a P / E ratio.
One day it will be worthless because it doesn’t get you anything real.
Ether and other cryptographic assets are the future
Secure crypto-token ether looks like like a coin. It is traded in cryptocurrency exchanges with the code ETH. Its symbol is the Greek character Xi in capital letters. It is extracted in a process similar (but consuming less energy) to bitcoin.
But ether is not a currency. Its designers describe it as “a fuel to operate the Ethereum distributed application platform. It’s a form of payment that platform customers make to the machines running the requested operations.”
Ether tokens give you access to one of the most sophisticated distributed computing networks in the world. It is so promising that large companies are falling on top of each other to develop practical and real uses.
Because most people who market it don’t understand or care about its true purpose, the price of ether has bubbled and skimmed like bitcoin in recent weeks.
But eventually, ether will return to a stable price based on the demand for computer services that it can “buy” for people. This price will represent real value which can be valued in the future. There will be a futures and exchange traded funds (ETF) market, because everyone will have a way to assess their underlying value over time. Just like we do with actions.
What will this value 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 on the next download.