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Monday, August 28, 2017

Why I'm bearish on holding cryptocurrencies

I think almost no one understands what the underlying value of cryptocurrencies is. If every cryptocurrency you can buy today turns out to have no value in 5 years, very few people would be legitimately surprised. But, that was my reason for not buying Bitcoin 6 years ago, which would have been very lucrative!

I've been arguing for years that "coins" in general (that is, the general currency version of them, not a "color coins" version linked to a contract or external asset) should not be considered to have significant intrinsic value because the function of one cryptocurrency is pretty easy to replicate.

In a way, that's happening now, where Bitcoin's share of the cryptocurrency market cap has fallen by 50% in the face of many new competitors. Of course, the overall value may grow faster than competitors can proliferate, but there is little reason any functional use of one currency can't be expanded to handle another.

Would someone in 2050 rather have 1 million Bitcoin or $1000 USD? I would bet on the latter, because Bitcoin will just be one cryptocurrency among many, many with the same usefulness--or much more.

I could be wrong, and what will happen in the short term is anyone's guess. But if I'm the least informed player at the table, I think it's very unlikely that I'll come out ahead. Maybe that's just my cautious philosophy, which sometimes is a great asset, but might sometimes keep me from seizing an ambiguous opportunity.

It's worth noting that the industry still hasn't come up with a good, popular, secure way to even maintain an account of these "coins". I've had friends get theirs hacked and stolen, and others be unable to get the companies who provide their "wallets" to let them transfer their coins out. It's the wild West over there.

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