From the beginning I have been a bitcoin doubter, and have been proven wrong every day since. I now see how powerful blockchain is and believe it will make big changes to industy. Yet I still do not understand why the token have monetary value.
I originally saw the main value of bitcoin being the finite supply of 21 million coins. However, we quickly saw litecoin and a variety of other alternative coins join the ranks. I understand that they are not all created equal, but present Ethereum, ripple, and several others do appear to be real players.
Looking at the overall market cap is the standard way that we value these coins. This makes sense, but what is interesting is that bitcoin is now only 45% of the total cryptocurrency world. In the early days I am sure it was well over 90%. Based on the addition of new coins with varying supply of coins, mean that bitcoin is not scarce at all?
Bitcoin was the first, has a proven history, and the most miners, developers, infrastructure ect. However, what is to stop Ethereum, Litecoin, Ripple, or any others from gaining muster and over taking it? Could there be several new coins 10 years in the future as good or better in features than the big three right now?
It just seems hard to believe bitcoin to be a good long term store of value under these circumstances. Right now there is huge interest and investment into the crypto currency market, so it makes sense the big players should all go up to an extend similar to how individual stocks in the S&P 500 rise more or less with the market overall.
I could see cryto coins being a better investment if an ETF held every single one of them in relation to the current market cap. However, there would still be risk in that 100 new coins could be created the following year adding more supply to the who market. This is similar to stocks issuing more shares and diluting existing shareholders.
With these coins the big risk I see is more and more coins coming online and diluting the value of the existing coins. As this happens, it will become not just about the general market of cryto currencies rising or falling, but token vs token. If bitcoin is 45% of the market cap now, but in 5 years we have 9 other coins equal to its characteristics, wouldn't each coin have to be around 10% of the market cap. This would be a large decline in bitcoin value from current prices, however if overal investment in the cryto market goes up, the price could stay the same or rise.
I don't believe that all this means bitcoin has to decline, but I see it similar to investing in individual stocks. You can make money in bear markets, and lose in bull markets if you pick right or wrong. But at least there are fundamental reports you can look at to determine cash flow and if it is a worthy investment. Stocks can trade way above and below true value, but there is a way to gauge it. I think it is very hard to judge the true value of the whole cryto currency market to begin with., but I do admit it could be much higher than it is today. The problem is, how can you judge the value of one cryto currency vs another and the expectations for the future.. This is where I see the coins as pure speculation only.
Please help me understand why I am wrong. It seems that people have bought into the scarcity of there only being 21 million bitcoins ever, when this does not equate to real scarcity. Despite these feelings, it has worked and bitcoin has been the most incredible investment iI have ever witnessed, and I wonder if it could go even higher.