Bitcoin is a cryptocurrency at a crossroads
Rivals are eroding its market share
Bitcoin bounced back after hitting its lowest level in more than two months amid the equity market carnage earlier this week, but the world’s largest cryptocurrency by market capitalization is nonetheless at a crossroads.
Digital currency holders are grappling with the decision of whether or not to abandon bitcoin, which earlier this month fell below US$ 6,000 for the first time since mid- November, before rallying Wednesday to around US$8,400.
Bitcoin could r emain dominant because of i ts first- mover advantage, and the potential for it to be optimized for regions where capital controls are tight and governments are dysfunctional. But it could also become a footnote in cryptocurrency history, as competitors prove themselves to be more functional in transactions and better stores of value.
Things move quickly in the world of digital currencies, but regardless of where investors stand on the topic of their usefulness and legitimacy, there are some important points about bitcoin to be aware of.
BITCOIN IS LOSING GROUND
After accounting for 87 per cent of the market cap of cryptocurrencies at the start of 2017, bitcoin’s share of the pie had shrunk to 38.5 per cent by the beginning of 2018.
Now that number is below 36 per cent, according to Coinmarketcap.com.
“The possibility that it will be dominated by other cryptocurrencies is less remote than even a couple of weeks ago,” said Steven Englander, head of research and strategy at Hong Kong-based Rafiki Capital Management.
CRYPTOCURRENCY SUPPLY APPEARS VERY ELASTIC
There were 617 cryptocurrencies at the beginning of 2017, a figure that soared to 1,335 by the end of the year. As of Feb. 5, 2018, that number had climbed even higher to 1,513 on Coinmarket.
Englander wouldn’t be surprised if the number of cryptocurrencies doubles in 2018, but that may be good reason for caution.
“The economics of creating a cryptocurrency, keeping a bunch of coins for yourself and selling the rest look pretty good for the issuer,” he said.
“But discussing valuation based on their finite supply looks like a tired proposition.”
THE USEFULNESS IS IN DOUBT
Consumers should expect to pay for the convenience of using a credit card, but they don’t want to be forced to buy shares in the credit card company to do so.
“If I use the blockchain to transact, record, or hold assets in custody, I would expect to pay for these services,” Englander said.
“However, it is more efficient to pay for these services rather than have some token of fluctuating value attached.”
In other words, the cost of providing the service has little to do with the value of the coin or token.