It’s easy to look at the price action of Bitcoin and other cryptocurrencies over the course of 2018 and think that the whole thing has just blown up and the “fad” is over.
However, looking at the price alone is deceptive. A lot of the massive runup over the last half of 2017 was created by naïve retail investors jumping on what the media had painted as “the next big thing”. Many were badly burned as the same money poured out at the start of the year. Understandably, these investors need some time to heal before they start buying cryptocurrencies again.
A lot of the hype of last year was driven by wild speculation on Bitcoin alternatives. These competing cryptocurrencies all share many attributes with Bitcoin but differ in the crucial one – decentralization. The combined clout of computer systems securing the Bitcoin blockchain is considerably more powerful than any other network on the planet. This creates an unrivalled level of censorship resistance.
The price of Bitcoin has suffered a 70% drop this year and now settled at $5,300 or so at almost every exchange website. The percentage losses of some altcoins is closer to 90%.
Will the Demand for Bitcoin Decline?
As an asset, Bitcoin is truly unique. It makes an ideal form of hard money to back other currencies in much the same way gold was doing for much of the history.
Our current monetary system is outdated. We cede immense power to a handful of private companies around the world and trust them to not entirely debase our life savings. Historically, this is an anomaly. For much of the human history, gold backed the currency and societies prospered.
In living memory, we’ve already seen the disastrous effects of central banking many times. Zimbabwe, Greece, Venezuela, and Turkey are just some of the examples of countries where currencies have become entirely worthless because they are backed by nothing but trust in a central private institution.
Bitcoin offers something new. It was created almost ten years ago and launched as an experimental alternative to centrally managed currencies. As an asset, it resembles gold most. It is limited in supply, incredibly difficult to create, and is mined at a known rate. However, unlike gold, Bitcoin can be transacted globally with greater security than any legacy system can offer, at a lower price than current wire transfer services, and faster than any company could possibly manage.
Bitcoin also differs from gold in that it is not tangible. This gives it another immensely powerful property – it cannot be confiscated. As gold can be picked up and transported elsewhere, it is a constant security risk. People spend big money making sure their gold is safe, though they can do nothing to protect from governments. Bitcoin, on the other hand, can be stored by memorizing 24 words. Your wealth can travel across borders as freely as you can. No one can stop you using the network to transact value either.
For what it is best suited to achieve, there is simply no space for competitors. A global reserve currency is pointless if it is provided by two competing currencies. Bitcoin is well-positioned to continue serving as a viable option for those wishing to opt out of national economies. As more national currencies reach the end of the line and more people learn about what Bitcoin actually is, the demand can only increase.
Will the Demand for Altcoins Decline?
Altcoins, on the other hand, are an entirely different matter. Gone are the days of the hundred-million-dollar ICOs. Most tokens that have been launched since the mania grabbed hold last summer now trade below the price they debuted on exchanges at.
However, altcoins are attractive because they either propose to do what Bitcoin does but better, or they offer an entirely different value proposition. For example, there are plenty of currencies that operate public blockchains that could step up to serve as a tool for everyday payments. Projects such as Litecoin and DASH make obvious choices here. However, with advancements coming to Bitcoin, such as Lightning Network (offering both privacy and micropayment functionality), it remains to be seen if such coins will be needed in the future.
Then there are networks such as Ethereum that offer far different use cases. Building smart contracts on a global open-source supercomputer is certainly an interesting idea. Ethereum runs a number of decentralized applications that can be used to facilitate various industries and bring more freedom to consumers.
All that said, it’s unlikely that full cryptocurrency mania is over. It’s highly probable that many useful altcoins will see the kind of epic gains like those observed in 2017. However, in the best-case scenario, this bull run will be triggered not by the fear of missing out, but the clear understanding of how this tokens might help in building a new decentralized future we were promised long ago.