Bitcoin’s Fatal Flaw Could Be Massive Cryptocurrency Competition

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May 17, 2017 2:36pm NASDAQ:COIN

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From John Rubino: Bitcon has been rocketing higher lately, as it gains widespread official approval and more people figure out how to use it.


As the first of its kind to emerge, bitcoin has become synonymous with “cryptocurrency”. But lately it’s been joined by a lot of others – which together now account for more than half of the cryptocurrency ecosystem:

For First Time, Bitcoin Accounts for Less Than Half Of Market Cap Of All Cryptocurrencies

(Forbes) – For the first time, Bitcoin’s market capitalization as a percentage of all cryptocurrencies has dropped to below 50%. It is a symbolic turning point for the first cryptocurrency, which for a long time accounted for more than 90% of the value of all blockchain-based assets combined, particularly through a period when so-called alt-coins that were only minor tweaks to bitcoin proliferated.

Its market capitalization then comprised over 80% of all cryptocurrencies for years, a range that held true until two months ago when it dipped below 80% and not only did not recover but did a quick dive straight down.

 

Those increasingly common predictions of bitcoin going to $20,000 or more are premised on the fact that its algorithm limits its supply. There are many more ounces of gold, for instance, than there are bitcoins, which implies that bitcoin should ultimately trade at a (possibly substantial) multiple of gold’s price.

But if bitcoin is just one of many cryptocurrencies in circulation, it makes sense to consider their aggregate supply – and the growth rate of that supply. Which is where it gets scary.

The number of new “ICOs” now in the pipeline implies that barriers to entry in the cryptocurrency space are laughably low. Apparently anyone with relevant coding skills can create and launch another Ethereum or Litecoin.

With both demand and supply soaring, it’s possible that cryptocurrencies will go through a 1990s tech stock-style boom/crash cycle in which their usage rises but their average price falls.

This is a brand-new concept (it’s not clear, for instance, how governments will react to bitcoin being the ransomware currency of choice), which means there’s no way to predict what share of the global currency market cryptocurrencies will eventually capture or which cryptocurrencies will end up dominating. So there’s no way at the moment to trace out a base case trend for bitcoin’s future value.

But low barriers to entry do create some very obvious risks.

The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) was trading at $207.08 per share on Wednesday afternoon, down $2.87 (-1.37%). Year-to-date, DIA has gained 4.85%, versus a 5.90% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #5 of 75 ETFs in the Large Cap Value ETFs category.


This article is brought to you courtesy of DollarCollapse.com.


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