The Future of Cryptocurrency
Discussion about Cryptocurrency
I had a discussion with a friend of mine who spoke on the intrinsic value of cryptocurrencies and the long-term growth of the crypto market. Me, being an avid disbeliever in this asset class, thought I'd share his arguments and mine. I'd like to open the forum to a discussion on it.
Claim for Cryptocurrency
(1) The laws of supply and demand state that the increased convenience of a good will increase it's demand, and given how cryptocurrency supply is limited, the price will gradually increase to a new equilibrium over the next five years. Large payment platforms and financial institutions have allowed payment in bitcoin and e-wallet integration to invest in cryptocurrency. Thus, as more financial institutions further the adoption of cryptocurrency as another alternative asset, it will push the price higher.
(2) Just like in the stock market, there are bad companies and good companies with strong fundamentals. In the emerging crypto market, certain cryptocurrencies are being thought of as "meme currency" and they probably won't be around in 2-3 years. Some may make outlandish returns in the short-run, but the intrinsic value and the utility of the currency will catch up to them if no corporation decides to adopt the currency.
(3) With the push to digital currency, and less reliance on physical currency, there's a strong chance that society will move to a digital currency in the future. This may open the gateway to having a cryptocurrency equivalent of common currency as the new. Although this may not be realized, and may take several decades, the push to digital currency is apparent.
Claim against Cryptocurrency
(1) The laws of supply and demand don't always account for externalities. The demand for currency like bitcoin or dogecoin wasn't pushed on any intrinsic value, but the perceived value decided upon by momentum investors or traders with little understanding of the concept of bitcoin. There are also other momentum cryptos, most notably, Dogecoin. Although it's true e-wallets are on the rise, the intrinsic value of any given crypto is indiscernible given I could create my own cryptocurrency tomorrow called "FinesseCoin" and provide it a ratio of traditional currency to FinnesseCoin itself.
(2) The "fundamental" analysis is difficult to translate in full to the cryptocurrency market, a market in which there are no cashflows, or payments, the capital gains are decided at times at random, and even in several years, the it's not the survival of the most convenient, but most adopted. For instance, Dogecoin is on the rise, and institutions may allow for it to enter portfolios or use it as payment. However, fundamentally, the currency itself was created as a meme and was never meant to generate any significant returns.
(3) The push to digital currency could easily be done through the use of block chain technology, but not tied to any existing or future cryptocurrency. Specifically, my belief is that there will exist a platform where there is an agreed up universal currency of sorts that will be used at a global scale in 20-50 years. This currency will be a base medium of conversion between regional currencies and all regional or global trades will happen digitally. Obviously, this is conjecture, but the point stipulates that although cryptocurrency seems to be on the rise as an alternative asset, it may not and probably won't substitute physical currency (or current digital currency means).