Will Bitcoin be the Last Cryptocurrency Standing?
Cryptocurrencies are back. Glad that whole bear market thing is over.
Or not. Let’s slow down and see what’s really happening.
It’s true. Bitcoin, at $9,160, is up 38% off the recent lows at $6,602. Many alternative coins have fared even better. There has even been movement toward transparency, which is a good thing.
But investors should beware. The biggest rallies occur in bear markets. And this bear market has not reached the day of reckoning, in my view.
I understand that the case I’m about to make is not going to be popular among cryptocurrency bulls. In fairness, it will not make many bears happy, either. But there are two things most investors should know about cryptocurrency …
The first is that most digital coins are going to zero … as in zilch, nada. They are going to be completely worthless because there is no use case. Worse, they do not now — nor is it likely they will ever in the future — represent a store of value.
Keep in mind, many things can represent a store in value. Collectibles like art, baseball cards and signed memorabilia immediately come to mind. Cryptocurrencies, at least the vast majority of them, will never be that.
The second thing stems from the first. Some cryptocurrencies are going to be a store of value. The power of Bitcoin, for example, is its scarcity. That’s because, theoretically, it can’t be counterfeited or manipulated by a central authority.
Due to the way Bitcoin was structured, there are supposedly only going to be 21 million full units.
If a 1909 Honus Wagner baseball card is worth $2.8 million, it seems reasonable to believe the value of a scarce, digital currency, outside the control of central governments, and protected by cryptography, and a transparent Distributed Ledger System might also become dear.
A single cryptocurrency with these qualities might replace other stores of value, like gold.
Crypto bears are missing the investment value of Bitcoin. And they are wrong to do that.
This week, Bill Harris, a former chief executive officer at PayPal (PYPL), made headlines when he wrote at Recode; “OK, I’ll say it: Bitcoin is a scam.”
Harris makes the case that Bitcoin is a pump-and-dump scheme, where promoters push up the value of dubious investments with hype and relentless advocacy. As the price surges and enthusiasm is greatest, they dump everything — leaving unsuspecting investors holding worthless securities.
Admittedly, I have made this case about most alternative coins. Investing in an initial coin offering is like speculating in a highly promoted junior gold mining company where the prospect of finding actual gold is nil. There will be price volatility, but ultimately, the investment is worthless.
Harris is right about Bitcoin not being widely accepted, and the current extreme volatility making it unsuitable as a store of value. He is also right that the investor frenzy, coupled with a lack of transparency is a very bad thing.
But Harris is conflating Bitcoin, with alternative coins. That is a mistake, I believe.
Related story: Peter Thiel Struck Digital Gold with PayPal. Now He’s Betting on Bitcoin
I see the current state of cryptocurrency like the opening act of “Highlander,” a 1986 science fiction film about Connor McLeod, an immortal Scottish swordsman born in 1518, living in modern New York City.
McLeod learns that the only way he can be killed is decapitation by another immortal swordsman. It’s complicated, and a bit cheesy, but the basic premise is 15th-century immortals trying to decapitate each other.
In the end, there can be only one.
The problem with cryptocurrency is not the idea. It is a good concept, that takes power away from central authority. The problem is oversupply. Because crypto is open-source code, anyone can set up a digital coin.
The result is too many Initial Coin Offerings, and too many charlatans.
This will pass. The Securities and Exchange Commission will round up the fraudsters. Their fake investment premises, and empty promises, will lead to a great reckoning. Most ICOs will go to zero because they will be unable to pass the test of legitimate government oversight.
Related story: Regulators Lining up to Cage Cryptos
This should leave Bitcoin as the last coin standing. When that happens, my guess is Bitcoin will ultimately be much more valuable than it is today.
In the interim, I continue to encourage investors to buy shares in the companies that keep the cryptocurrency wheels moving. Nvidia (NVDA) makes powerful semiconductors that are highly sought after by Bitcoin miners. The stock has performed great and its prospects are terrific.
Best wishes,
Jon D. Markman
P.S. Nvidia shares have done very well for my subscribers. And its options offer an even-bigger profit punch. I recently revealed my 8-point strategy that allowed my readers to turn $10,000 into $248,000 — after taxes — since 2012. Watch my brand-new video here.
Editor’s note: Each editor’s opinions are strictly his or her own. They do not necessarily reflect the views or research of the publisher.
