I know millions of speculators across the world don’t want to hear this, but there are some solid reasons to believe why the bitcoin run-up won’t last and will continue to recede.
It’s not just about speculating on computer code and the fact that Bitcoin isn’t really universal legal tender like a Euro or Dollar. You can’t buy a cup of coffee with it in most places and pull it out of your wallet.
The most fundamental reasons have more to do with blockchain, the technology behind bitcoin: The cryptocurrency has a lot of competition. Here are three powerful reasons why Bitcoin may not lead the pack of cryptos:
1) The Competition Is Fierce And Numerous. Remember when the first cellphone emerged? It was the size of a brick, very limited and mostly made by Motorola (at first).
Now hundreds of companies are in the business and those relatively late to the game (like Apple and Samsung) grabbed dominant market shares with savvy marketing and better technology.
There are more than 1,400 cryptos and they are all jockeying for market share. Who will produce the iPhone of cryptos? That’s hard to say. It’s still early in the game.
In the history of mass-produced electricity during the 2nd Industrial Revolution, the giant in field — Thomas Edison — advocated the widespread use of Direct Current generation, which proved to be the Betamax of the power industry. Tesla-Westinghouse alternating current became the operating system of the 20th century.
The same thing that happens to every new technology will happen to cryptocurrencies. Countries may adopt their own cryptocurrency (like Bulgaria). Or companies that have a big stake in payment processing will start their own. Central banks may even get into the crypto market.
2) A Strong Brand Name Isn’t Enough. Sure, bitcoin grabbed most of the headlines in 2017, but it wasn’t the best performing, nor was it the most promising in terms of desirable technology.
Other cryptocurrencies are gaining market share and attention; they will continue to gain as institutional investors and governments study the market and choose winners. Thousands of companies are entering the field.
“Most people are looking at market cap to get a good idea to see how well a cryptocurrency is doing,” notes BlockExplorer News. “Another good thing to look at is the number of commits to the project, as this shows developer activity and that the cryptocurrency is being improved, which could theoretically lead to further development and market gains.”
3) The Bottom Line Is Performance. By performance, I don’t mean daily or annual returns. I’m referring to the efficiency and speed of a transaction.
At the moment, the average credit card transaction is much faster than a bitcoin buy. If the real story behind cryptos is their ability to move information safely and quickly, then the winners will be those with the most efficient systems — and the best numeric returns.
“However, truth be told,” writes Sean Williams in the Motley Fool, “bitcoin was actually an underperformer last year. It took a backseat to many up-and-coming coins and blockchain players — blockchain is the infrastructure that virtual coins are built on, and it is responsible for logging all transaction data in a digital ledger — which wound up gaining a whole lot more on a percentage basis.
Halfway into this year, the story is no longer focused on bitcoin. It’s about which platform will make blockchain technology work on a large scale. The cryptocurrency story will continue to evolve, but practical case uses of blockchain will rule the day.
If you’re trying to pick a winner from this crowded field, good luck. A lot of people will pick losers and stay invested. I wish I could recommend a low-cost index fund of cryptos, but it doesn’t exist — yet.
For the time being, be skeptical about the hottest cryptos. Their flames may dim quite a bit by the end of the year.