Bitcoin will go to $1M / Why other cryptos won't (part 2)

in LeoFinance3 years ago

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Yesterday I wrote about why Bitcoin will go to $1M. Today I'm talking about why others won't. Diving right in....

How do you "value" cryptocurrencies?

The biggest problem with crypto is I don't think anyone really has a firm grasp on how to "value" a cryptocurrency. How do you place a value on something that can't be bought or sold? As an entity that is. No one can come in and "buy" the entire Ethereum blockchain. So how do you know what it's worth?

That's where Bitcoin has such a huge advantage. With it's "store-of-value" utility, it can actually be measured against numbers in "real world" assets. It can be measured against gold, measured against stocks, measured against bonds, measured against fiat, and given a value against the values of those other things.

How do you measure Chainlink's value for instance? The token doesn't even really have a use-case right now. It's only been in the last couple weeks you could even stake it and earn interest. Say the crypto marketcap goes to $10T. Does that make LINK any more valuable? Why? It may be used 10 times as much but what is it providing token holders? How does it benefit them?

Same for Ethereum. It is the fuel that makes the engine run but it can do that whether it's priced at $100 or $10,000. What makes it more valuable than anything else? Why is it worth more than Hive, for instance? Especially if Hive can do the same things cheaper and faster. People need ETH to do transactions but it's not like they have to buy 1000 tokens. One is enough for quite a while. If ETH were paying holders a percentage of the fees generated then you'd have a reason to own and hold. Without that, it's still pure speculation at this point.

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What makes one worth more than another?

These crypto "companies" are going to need to find a way to give value to "investors". Right now, they are just innovating and providing tools to make the cryptomarkets work. It's all basically infrastructure. Or speculative yield farming. These tokens are all "valuable", but how do you decide if it's more valuable than its current price or less valuable than its current price? Again, if LINK partners with Cardano to provide oracle services (just a hypothetical, I'm not saying Cardano needs LINK) what "value" does that provide to LINK or ADA holders? How do you quantify it?

These are the questions Wall Street is struggling to answer. And these are the questions these tokens have to provide an answer for. If I invest in Apple and they come out with an iPhone Infinity that blows away the competition, the company makes more money and my stock becomes more valuable. If I invest in Ethereum, regardless of how valuable it is to the cryptocurrency ecosphere as a whole, how does anything they do benefit the token holders?

Again, I'm not saying that these cryptos aren't worth anything. I'm just asking how I can measure how MUCH they're worth? Ethereum is worth more than LeoFinance. But should it be? Why? It seems I can make the exact same percentage on my money staking Leo as I can staking ETH. Actually, I can make substantially MORE on Leo. So why should ETH be $1800 and Leo $1.20? I can stake CUB for the next year and make orders of magnitude more on that than I can on ETH. Why is that only $3.50?

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You might say that Ethereum is used "everywhere". Half the crypto market is built on Ethereum and uses Ethereum to run.

Ahh, so token holders get paid by the other cryptos using Ethereum?

No.

Token holders get paid when other cryptos build on Ethereums network?

No.

Well then how the hell do token holders make any money?

Exactly.

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How can a token holder extract value from his tokens?

At some point, the financial energy captured by these tokens has to have a way to reach the "shareholders". Again, theoretically someone could buy Apple. They could buy up all the shares and then they would make all the money that Apple makes. Their investment would yield them a tangible benefit. With Ethereum, there's no company to buy. You're getting a token you can use to make transactions and that's all you get. You can stake it somewhere and make 6% of more ETH and sell that into fiat. From what I can see, that's the only way you can extract any value for your investment. Sounds a little dangerous to me.

In conclusion, I believe at some point people will figure out ways to place a "value" on these tokens and the markets will dictate whether they're too high or too low. More use cases will be developed and there will be other ways to direct some of that value back to the token holders. Leo and Cub are doing just that as we speak; creating uses for the tokens and allowing token holders to extract some value from those uses. But, in the meantime, I don't see ANY scenario in the current environment where any of these cryptos can get anywhere near Bitcoin in value.

And Bitcoin is going to a Million.

Stack those sats.

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Thanks for reading. Comments are welcomed and appreciated. If you like the content, please consider an upvote and rehiving. As always, I'm not a financial advisor. Cryptocurrencies can and do go up and down and you could lose all your money. Do your own research.

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Why should BTC go to a million if like in ETH case one cannot buy up a company? It's all perception. The media talks about Bitcoin the most so more investors want it than anything else. If LEO or CUB would capture the same attention like BTC does, then LEO or CUB would be worth a million if not more because of a lower supply than BTC.

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Bitcoin has a fixed supply. That is the biggest difference. It also has first mover advantage. It is known. Those are the two biggest factors to its success in my opinion. Ethereum can keep inflating forever, regardless of EIP1559 or whatever it's called. At some point, the buying pressure will let up but there will still be new ETH coming on the market every day.

I agree, more attention will cause more people to want to own it but there still needs to be an end to that scenario or it will just inflate itself into nothing, just like fiat currencies are doing now.

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To me ETH's model is like oil, you need to purchase it to use their computational power of the network, the more complex the transaction and fast the more oil/gas you use. I think since it was the first token tool, it has first mover advantage and ALOT of assets are built on top of it.

I think it will always be around but BTC will gobble up most of the alts that don't have a unique solution. Lightning will kill any speed focused coins, RGB network will bring tokenisation to Bitcoin (which we already see running on BCH) so why would I care about having all these wallets if my BTC wallet for example can hold USDT and other tokens.

Yes the other chains will help with throughput, but I don't see anyone beating BTC

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Totally agree. Until there is a way for tokenholders to extract value from the tokens they hold, I don't know how you can call owning any of these things anything other than speculation. I DO believe that someone will invent a measuring stick at some point. I also think there will continue to be a focus for new tokens to provide an answer to that question. But, when you're talking about coins/tokens that continue to inflate their supply, there's always going to be a negative drain on value through dilution. There needs to be enough to circulate and get them into a lot of different hands (although with fractional amounts that is not necessarily true either) but at a certain point I think there needs to be a cap.

Still a long way to go before there's any real maturization of these markets. A long way.

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LeoFinance team is constantly working on adoption from other communities that exist in crypto space. That is why $LEO and $CUB are going to do great in terms of price rise. Fortunately or unfortunately BTC is the biggest crypto Brand out there and moves the price of ALTs almost all the time. You are right that that dependency will not be going away soon and BTC is going to be Dictating the market on top for a very long time.

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Totally agree. Bitcoin vs the entire cryptoverse is actually not a bad comparison to what Leo and Cub can do for the Hive universe. Money flows into Bitcoin and as it grows it filters into the rest of the market. Leo and Cub can do that for Hive. As they build value, that money will flow into the rest of the Hive family and more successes will come out of it, again, feeding the whole Hive ecosystem. Just how it works.

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I am really excited to be a part of this journey. Going to be fun stacking those coins. ;)

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Value and price are two different things. This is the problem with markets. They are very hard to rectify. What is valuable might be underpriced in the market, or reverse.

We see this all the time. In fact the market is rarely correct. It either overvalues something or undervalues it. Of course, this can flip back and forth on the same asset.

The world has been trying to value everything for a long time. The sad thing is accounting, bookkeeping, and all of finance has not done it. Crypto is no different.

Where does a stock derive its value from? The cashflow of the operations? Perhaps but what if it does not pay dividends like Tesla? Then how come the price went up so much. We know it is because of the growth potential so that is speculation. But then even the stodgy blue chip, dividend stocks are the same because there is no guarantee they wont encounter issues. Look at GM: paid the dividend for years yet had to be bailed out in 2008-2009.

So with crypto, it is no different. Where does the value come from? It is the intersection of where two people believe it is. If I am willing to pay $1,800 for Ethereum and you are willing to sell it to me for that, we establish the value. The next two players might disagree with us so that will change things.

It is why markets often are different from internal spreadsheets. We know cryptos that are used more will have more value. That is true for anything. The more people using Tesla, Apple, or Facebook products, the more valuable. How much so? That is what the markets decide.

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Yes, I'm not saying these things aren't valuable. They obviously are. They've created networks and financial instruments that have literally captured (and created) over a trillion dollars of wealth. I am just trying to get to a point it becomes quantifiable. The markets dictate price, absolutely. But right now it seems its purely based on speculation. Ethereum's been around a long time. Worth something. Ethereum's the gas behind the networks. Worth something. Other cryptos use Ethereums network. Worth something. Just trying to figure out what. It's why I don't own much ETH. Maybe it goes higher, maybe not. If it does, great, but I'll have no idea why other than more people bought it than sold it for whatever their reasons are. Not my idea of a good investment. I don't begrudge anyone else making lots of money on it. I just don't feel comfortable with that kind of risk.

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Interesting question! This is something I often ask myself and I don't really have an answer for that.

I think use cases and the number of users definitely play a role in adding value to the blockchain, but when it comes to placing a value on the token, things get a bit out of control. The tokens have value because people believe that they can get something in return in the future for having them. But it is, like you said, speculation.

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Exactly. The value is the belief people have that it will be worth more in the future. Speculation. There is no fundamental measuring stick that can be used to quantify what that value will be. Like I said, it gets a little scary when you look at it that way.

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The market is far too irrational. I personally believe the value in a crypto is equivalent of what the maximists are most willing to pay for it. So in this way, BTC is the parent of all crypto. No matter what, there are maximist who believe it will overtake it and become the dominant crypto in existance by becoming the global currency.

So the value is determined by these people. Now how do these people value the crypto? Their confidence in the token is ultimately what made them want to pay some lower floor. Now what does their confidence come from? I think it comes from 1) development on the block chain, 2) number of users on the blockchain and 3) use cases. So in this point of view, BTC confidence comes from number 2 and 3. They believe in the number of people buying into BTC and the use case is that it will become the new global currency that everyone will transact in.

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Okay, I would argue that number 1 comes into play as well but yes, network effect and store-of-value, plus a better form of money. But, those allow it to be compared to other forms of money and given a value in relation to them. The question remains: how do you place a "value" on Ethereum, LINK, Uniswap, etc.? They are all vital to some extent to the entire cryptosphere. But how do you say ETH should be worth $1T and LINK should be worth $200B? And what do they do or not do to "change" their value?

I don't have an answer. Like I said, almost $2T have been created in this space. What makes it so valuable? Right now, no one knows. It's all speculation that they're going to "figure it out" down the road. Bitcoin is literally the only crypto out there right now with a "quantifiable" value.

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I think ends up being their use case. Most of them also use it for governance and people want to have a voice in the proposals happening.

ETH: It's used as fees for transactions on the block chain. It has created a different system from BTC and the transaction fee (gas fee) acts to maintain its value. Also given the current issue of gas fees and the changes to the system, governance is important. Given the network effect, the value is all the people and applications built on the chain.

Link, UNI and etc: Same for transaction fees or governance. It's value is in the network effect and the advantages each system has: LINK for smart contracts, UNI for the LP and trading.

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Yes, as I said in my article, I agree there is value there. But how much? How do you say Ethereum should have a $200B market cap? Why should it be that? Why not $300B? Or $50B? It does the same thing at each valuation and provides the same return to its tokenholders at any of those values as well. ZERO. The only way token holders collect a dime is by speculating on the price. There is no quantifiable underlying "value" to the network. It's worth something, obviously. But how much? Bitcoin you can quantify and say it is better than gold and thus should be worth more than gold. So, at $1T it still has a long way to go. What is Ethereum actually worth and what SHOULD it be worth? Nobody knows.

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There probably is no answer to that question.

In my opinion, the market cap should be equal to their assets. But its hard to guess the accurate price of a token because its based on what a person is willing to pay. This changes over time and fluctuates way too much. However I think ETH paved out a paved out a possible path for crypto but its not sustainable with the current protocol. The entire problem with gas fees and the change of protocol makes me not want anything to do with ETH. Therefore in my head, ETH has a marketcap of $20B. I can't think of it being more given the problems in the entire chain.

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Totally agree: the "value" is what someone is willing to pay for something. I'm just trying to figure out how you go about placing a value on any of these. The network is really the most valuable component but how do you monetize that? Maybe if you base it off number of wallets holding it? I don't know.

Like I said, there's no question it's worth something. I'm just trying to decide how one determines if it's current value is too high or too low.

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Well, I don't see crypto as shares. Just like fiat currency you own it to derive utility in other ways (buy property, pay bills) I think the same applies to crypto.

Price is usually set via the interaction of demand and supply. Why is one currency valued than the other? Simple: one is in demand than the other.

However, I agree that a lot of crypto projects just exist. They do nothing. People hold them to speculate. That has to change in the nearest future.

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Yes, I understand the market part of it; why they're trading for the price they're trading. I'm just trying to figure out how to measure that price against something tangible to come up with an actual value. Still looking...

Thanks for the reply. I appreciate it!

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You actually made a point. Thanks for the write.

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Thanks for the -100% downvote @rock4lifegreat. I wasn't sure if that button worked anymore but apparently you know how to use on your first day.

I was frolicking with the buttons.So sorry for that.How can I do that kind of thing. My bad!
Please forgive me! For that.

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Totally understandable. Sorry, I can be real female doggy sometimes.

I even assumed that's what it was and barked anyway. Apologies. No harm no foul. I'm @dandays - The Luckiest Guy I Know. Welcome to Hive!

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