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I've been thinking a lot about the value of cryptocurrency, the market caps, altcoins and the upcoming BCC fork. One thing that has been bugging me about the world of cryptocurrency is that it is very unclear what the actual value of crypto is, and where it comes from. The first point I would like to discuss is wether or not investing in Altcoins is different from investing in Bitcoin and wether market caps accurately reflect the amount of money in the currency At first it seems like you can choose to put your money into Bitcoin, or choose to invest it into an altcoin.
But is there really a difference? If Bitcoin is worth more, so will Dogecoin because the only way to buy them is with Bitcoin. This brings us to an interesting question: I would argue that it didn't, but Bitcoin did. But if that is so then investing in Dogecoin is basically the same as investing in Bitcoin, although the price of Doge might fluctuatue within the Bitcoin ecosphere as well of course. This line of thinking brought me to wonder about the market caps and total Cryptocurrency market caps.
Coin market cap would have us believe that there is about 90 billion of value floating around - When in reality this does NOT reflect at all the amount of money that went into cryptocurrencies. It was rather the price increase of Bitcoin that increased it's dollar value.
If this is right then the altcoin universe could be very overinflated beyond realistic proportions. If I am wrong feel free to point out my errors. This got me thinking more about the altcoin surge that followed Bitcoin's surge lately.
What if the confusion between US dollar value and BTC value of cryptocurrency is at the root of these surges? I would imagine to an outsider, who does his calculations in US dollars it would seem as if all altcoins were rising when in fact it was Bitcoin's surge that propelled their dollar values. This in turn would entice new investors to invest in altcoins to benefit off of the growth, which of course creates a self fulfilling prophecy of more growth and volatility. This may explain in part why everytime Bitcoin goes down, Altcoins go down more and when Bitcoin is up, Altcoins go up more.
The Value of Cryptocurrency It is a strange thing, to determine the value of cryptocurrency. Where does it come from? Is it because somebody paid for the energy to run mining equipment and simply won't sell their coins at a loss? Is it because of technological feats that make one currency more valuable than the other? I would argue those factors are all relatively unimportant.
What really matters is belief. I believe that belief in the value of a thing is the only reason why anything is worth anything at all. Gold is a rather lousy metal compared to many others, and it's value is mostly determined by it's rarity and the fact that people attribute value to it. Just like Bitcoin, if all the world stopped believing in gold and started panic selling it, the price would crash. What drives Bitcoin's value up is the belief that it is going to be worth more than it is today.
Wether this is a bubble or a revolution is really up to the world community as a whole. It could just as easily be tulip mania as it could be a currency revolution: There are of course many cryptocurrencies which are technologically identical or better, and the only reason they are 'worthless' is because people believe they are.
But belief is a shaky thing, as we have seen often times already. Panic selling is influenced by belief as well, of course. The implications of Belief of Value as a basis of Value makes the world of cryptocurrency an uncertain place however. If the main value of cryptocurrency comes from belief then what happens if belief switches to other cryptocurrencies?
Bitcoin remains king, because we all believe it is King. But will we keep believing that forever? Could a fork like Bitcoin Cash, or a "like Bitcoin" currency such as Dash one day become more mainstream and valuable than Bitcoin? Is investing in something like Bitcoin a temporary move, something you have to ditch when the 'next Bitcoin' will come along? Pyramid Scheme It's something most people in crypto have been exposed to: Most of us dismiss that idea, but should we?
I would like to reference to a market experiment that is going on in the Chaincoin scene right now. There is a group called the Chaincoinhodlers www. Instead of dumping, they are accumulating more and more and in doing so their intention is to drive the price up by simply buying and not selling.
It's simply market dynamics. If you don't sell, there will be less supply, therefore a higher price. Many people have called it a scam, but that is for another discussion. Once you have bought all the Chaincoins, you will be the bagholder, who will be left to buy your chaincoins? But really, on a much larger scale, it made me wonder if this is not exactly what has happened to Bitcoin. Are we not, collectively, just buying up all the Bitcoin and not selling it under a certain price and this is making the price go up.
It's going to continue on this path as long as more people join us and decide to buy in as well. It's a sort of pyramid scheme alright, where whoever owns the most bitcoins today stands to profit the most in the future by selling and rebuying and reselling the same bitcoins over and over to the market as more people buy in. Experienced cryptotraders know, of course, that the big whales are not accumulating dollars, but rather accumulating bitcoins during the crashes.
The more bitcoins they own and control, the more they control the supply and thus the price. So is cryptocurrency a pyramid scheme? It all depends on belief again. If Bitcoin fails and we all end up being bagholders of something worthless, then yes it will have turned out to be a pyramid scheme in some ways.
But if it doesn't fail, and does continue to keep growing, can you really call it a pyramid scheme when there are no real losers? A real pyramid scheme tops out at a certain point and then usually collapses. But perhaps this is rather the ultimate pyramid scheme: Will continued growth continuously draw new blood to the cryptoworld in an endless cycle until all other value in the world is swallowed up?
What do you believe is the right way of looking at Bitcoin and Altcoins? Do you believe they are seperate from eachother, or do you believe Altcoins are a subset of Bitcoin? Do you believe the market cap is representative of the value of altcoins, or do you think it is garbled and inflated up by the conversion through Bitcoin?
Will Bitcoin be around for a long time, or do you see it as a temporary phase that will be left behind in some years? I was about to start a similair discussion. Buy and hold for the upcoming 3 years and the blockchain market will find it's way. We do need more indept investment analysis. I really advice people to take a look at: I agree, I am long hold too!
I didn't know that site yet, thanks for the tip, I will check it out! Is investing in Altcoins different from Bitcoin, or is it the same? Back to the topics at hand What do you believe is the right way of looking at Bitcoin and Altcoins? Authors get paid when people like you upvote their post.
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