Bitcoin peaked about a month ago, on December 17, with a high of almost $20,000. As I write, the cryptocurrency is below $11,000… a loss of around 45%. that’s more than $150 billion in lost market capitalization.

Cue a lot of hand wringing and tooth gnashing on the crypto-commentator. It’s neck to neck, but I think the “I told you so” crowd has the edge over the “excuse makers.”

Here’s the thing: unless you’ve lost your shirt in bitcoin, this doesn’t matter at all. And most likely the “experts” he may see in the press won’t tell him why.

In fact, the fall of bitcoin is wonderful…because it means we can all stop thinking about cryptocurrencies altogether.

The death of Bitcoin…

In a year or so, people won’t be talking about bitcoin in line at the supermarket or on the bus like they are now. This is why.

Bitcoin is the product of justified frustration. Its designer explicitly said that the cryptocurrency was a reaction to the government’s 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 downgraded as there were a finite number of them.

That dream has long since been discarded in favor of pure 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.

In addition to being a terrible way to transact electronically (it’s terribly slow), bitcoin’s success as a speculative game has rendered it useless as a currency. Why would anyone spend it if it’s appreciating so fast? Who would accept one when it is rapidly depreciating?

Bitcoin is also a major source of contamination. 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 power an American home for a year. The energy consumed by all bitcoin mining to date could power nearly 4 million American homes for a year.

Paradoxically, the success of old-fashioned bitcoin 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 limitations on bitcoin trading. Various intergovernmental organizations have called for concerted action to curb the obvious bubble. The US Securities and Exchange Commission, which previously seemed likely to approve bitcoin-based financial derivatives, now appears hesitant.

And according to “The European Union is implementing stricter rules to prevent money laundering and terrorist financing on virtual currency platforms. It is also investigating limits on cryptocurrency trading.”

We may one day see a widely accepted and functional cryptocurrency, but it will not be bitcoin.

… But a Boost for Crypto Assets

Good. Overtaking bitcoin allows us to see where the real value of crypto assets lies. That is how.

To use the New York subway system, you need tokens. You can’t use them to buy anything else… though could sell them to someone who would like to use the subway more than you.

In fact, if subway tokens were in limited supply, a lively market for them could emerge. They could even be traded for much more than they originally cost. It all depends on how many people want to use the subway.

That, in a nutshell, is the setting for the most promising “cryptocurrencies” other than bitcoin. They are not money, they are records – “crypto-tokens”, so to speak. They are not used as general currency. They are only good within the platform they were designed for.

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 value the things you can get for them from your associated platform.

that will make them real assetswith intrinsic value – because they can be used to obtain something that people value. That means you can reliably expect a stream of income or services by owning such crypto tokens. Critically, you can measure that stream of future returns against the price of the crypto token, just like we do when calculating a stock’s price/earnings (P/E) ratio.

Bitcoin, by contrast, has no intrinsic value. It only has one price: the price set by supply and demand. It can’t produce future streams of income, and you can’t measure anything like a P/E ratio for it.

One day it will be useless because it brings you nothing real.

Ether and other crypto assets are the future

The secure ether crypto-token It seems like a coin. It is traded on cryptocurrency exchanges under the code ETH. Its symbol is the Greek character Xi in uppercase. It is mined in a similar (but less energy intensive) process to bitcoin.

But ether is not a currency. Its designers describe it as “a fuel to operate the Ethereum distributed application platform. It is a form of payment made by the clients of the platform to the machines that execute the requested operations.”

Ether tokens give you access to one of the most sophisticated distributed computing networks in the world. It’s so promising that big companies are fighting each other to develop practical real-world uses for it.

Because most people who trade it don’t really understand or care about its true purpose, the price of ether has skyrocketed and skyrocketed like bitcoin in recent weeks.

But eventually, ether will once again have a stable price based on demand for the computing services it can “buy” for people. That price will represent real value that can be quoted in the future. There will be a futures market for it and exchange-traded funds (ETFs), because they will all have a way to assess their underlying value over time. Just like we do with stocks.

What will that value be? I have no idea. But I know that it will be much more than bitcoin.

My advice: dump your bitcoin and buy ether in the next dip.

Leave a Reply

Your email address will not be published. Required fields are marked *