[Opinion] I don’t see Bitcoin and Altcoin as “Cryptocurrency”. Here’s why.
Bitcoin and altcoin is a completely new asset class that consist of a very unique set of features. I think calling bitcoin and altcoin as a “cryptocurrency” can be very misleading from an investment standpoint. The reason is very simple, they dont function like a fiat currency nor used as a medium of exchange or store of value (maybe bitcoin can be seen more as a currency. But not for altcoin.) I personally like to refer “cryptocurrency” as “digital asset” or “the thing that everyone is hyped about”, but for the ease of understanding, ill call it cryptocurrency for this article.
I think the mentality that people are speculative trading in “cryptocurrency” as if they are a fiat currency, and then comparing it to gold by its store of value and then completely ignoring the underlying development is wrong.
In fact, digital asset is a hybrid of all 3 functions.
1.Medium of exchange like fiat currency
At the moment, most “cryptocurrencies” are not usable for real world exchange. Although many startup and companies are developing technologies to help quicken mass adoption for cryptocurrency to become a medium of exchange, such as TenX and Bitpay. But at the moment, not many people are actually using cryptocurrencies to buy stuff.
Because cryptocurencies are not mostly being used as medium of exchange, they do not behave in a way like fiat currency. Most of the cryptocurrency perfectly correlate with each other, unlike fiat currency, and cryptocurrencies does not dependent on any external factor, such as interest rate or GDP. Fiat currency depends on many factors like interest rate, political factors, import and export and also can be hedged with negative correlated currency. Therefore there is a legit reason to short certain fiat currency for some economical reason.
Perhaps as the cryptocurrency market develop, the medium of exchange function will enhance and cryptocurrency price will start to affected by more factors like consumer spending, consumer confidence, import and export etc.
Maybe i will start trading cryptocurrency in relation to fiat currency in the future. But now its mostly speculative based on news and some fundamentals.
- Store of value like gold
Bitcoin and gold share two similar characteristic which is scarcity. Bitcoin has a supply cap of 21millions, similar to the gold where there are only so much in this world. Both Bitcoin and gold are the dominate currency for their sector, where bitcoin is trade against all altcoin and gold is traded against USD and all other currencies are traded against USD.
The difference between gold and bitcoin is their ownership. Gold is based on physical ownership and bitcoin is based on information ownership. This means, if you are physically holding the gold, that will represent your ownership of the gold, historically speaking. This is store of value at the purest form, which allow to be used as a collateral for other form of ownership. Cryptocurrency enable new form of ownership, identity ownership. Which means, if you own that piece of information, you own the underlying cryptocurrency. Cryptocurrencies are essentially informations.
To summarize, Bitcoin is the equivalent of gold in cryptocurrency but not necessarily the substitute of gold in the real market, as they fundamentally serve a very different and intangible economic purpose.
From investment perspective, cryptocurrencies may be a good hedge for future digital asset, for example cloud storage future contract or electricity power option or mobile data price?…But at the moment, it cannot be seen the same as gold, even though they are both high risk high return asset.
- Fundamental development like equity
Investing in cryptocurrencies are also like investing in stock market. The investor is essentially backing the underlying blockchain technology by contributing capital. With more capital, the underlying team and technology can grow better and faster.
However, a lot of traders only see “cryptocurrency” as a currency. They ignore the development and the idea behind the cryptocurrency. The price of the cryptocurrency might fluctuate a lot, but that doesnt mean the blockchain technology and the team underlying the cryptocurrency is falling apart too.
When I invest in cryptocurrency, i invest in the team and “company” underlying. Blockchain is an amazing technology that can greatly improve efficiency and information management by using smart contract and cryptography. Just like investing in startup, it takes time and trust to grow the company.
From an investment perspective, there are really bad startup and startup with great potential, just like cryptocurrency. Therefore, analyse the fundamentals of a cryptocurrency like how you analyse a company fundamentals, to make the best investment decision.
Conclusion
Seeing “cryptocurrency” as an asset, rather than a currency is a mentality that I have for my investment strategy. I strongly believe in the adoption of blockchain technology and cryptocurrency will be a complement currency with fiat currency in the future. However, there is still a long way to optimize this technology for the mass adoption.
Disclaimer: All information are for informational purpose only, not an investment advise. Please consult professional investment adviser for your investment decision.*
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