Utility Value in Cryptocurrencies
A common theme we hear a lot from those new to Cryptocurrencies is the lack of understanding the value that they bring. As a result we felt a brief post on this topic was in order.
Hopefully, that’s pretty much the end of this post. Cryptocurrencies meet the clean definition of money. If you are concerned about who is “backing” them, ask yourself who is backing the USD, GBP and EUR — all of these are backed not by Government but by the collective agreement on the value of the people who use them. Its the same with cryptocurrencies — it’s now a ~$100B market — and at that level, it’s difficult to argue that there is now a collective agreement on value. Because now we can talk about the issues that are sure to drive the price of Ethereum and Bitcoin higher.
If you think long and hard you will realize that Cryptocurrencies currently are a unique form of digital money that allows nearly anonymous transactions to occur, across borders, currently without government regulation (yes, that is changing, but it will be a slow process). The utility value of a medium of exchange that is frictionless, anonymous, liquid and fast is hard to argue with — there is going to be a lot of demand for this as time goes forward.
Let’s take the narco trade, some estimates have it as a $400B-$600B business in annual turnover. The entire market capitalization of all meaningful cryptocurrencies is only been between $110B-50B since the beginning of 2017. If just 10% of this one industry moves into Cryptocurrencies the results on the demand side will be enormous — Ethereum and Bitcoin are mostly mined currencies and their derivatives are “sometimes:” fixed pools (we will discuss these risks later). Then let’s talk about capital flight from just one country — China, which Goldman estimated was over $1tr in a 12-month period.
No sir, there are endless sources of places for demand to come from — and these are just the controversial places — imagine the large sources of wealth that seek safe harbor for their money. Volatility vs fiat remains a problem, but time will fix that; nevertheless, it is not something to worry about because the long term upward price trend will stay in place for sometime.
Prices now seem to be stabilizing. Hopefully, the cooling in the ICO market will help digest recent sales — but one way or another the utility value in cryptocurrencies is here to stay and the limited supply model created by the founders is sure to cause prices to rise as soon as the short term supply demand situation normalizes again. I am a big long term bull on this market, but having said that no one knows who the winners and losers will be — Yahoo was the early winner in Search until Google unseated it — the same fate could await Ethereum and Bitcoin — its way too early to tell, but the blockchain as a medium of exchange (and many other uses) is here to stay.
