Why Bitcoins percieved scarcity of 21,000,000 coins is a falacy: But has worked for now
From the beginning I have been a bitcoin doubter, and have been proven wrong every day since. I now see how powerful blockchain is and believe it will make big changes to industy. Yet I still do not understand why the token have monetary value.
I originally saw the main value of bitcoin being the finite supply of 21 million coins. However, we quickly saw litecoin and a variety of other alternative coins join the ranks. I understand that they are not all created equal, but present Ethereum, ripple, and several others do appear to be real players.
Looking at the overall market cap is the standard way that we value these coins. This makes sense, but what is interesting is that bitcoin is now only 45% of the total cryptocurrency world. In the early days I am sure it was well over 90%. Based on the addition of new coins with varying supply of coins, mean that bitcoin is not scarce at all?
Bitcoin was the first, has a proven history, and the most miners, developers, infrastructure ect. However, what is to stop Ethereum, Litecoin, Ripple, or any others from gaining muster and over taking it? Could there be several new coins 10 years in the future as good or better in features than the big three right now?
It just seems hard to believe bitcoin to be a good long term store of value under these circumstances. Right now there is huge interest and investment into the crypto currency market, so it makes sense the big players should all go up to an extend similar to how individual stocks in the S&P 500 rise more or less with the market overall.
I could see cryto coins being a better investment if an ETF held every single one of them in relation to the current market cap. However, there would still be risk in that 100 new coins could be created the following year adding more supply to the who market. This is similar to stocks issuing more shares and diluting existing shareholders.
With these coins the big risk I see is more and more coins coming online and diluting the value of the existing coins. As this happens, it will become not just about the general market of cryto currencies rising or falling, but token vs token. If bitcoin is 45% of the market cap now, but in 5 years we have 9 other coins equal to its characteristics, wouldn't each coin have to be around 10% of the market cap. This would be a large decline in bitcoin value from current prices, however if overal investment in the cryto market goes up, the price could stay the same or rise.
I don't believe that all this means bitcoin has to decline, but I see it similar to investing in individual stocks. You can make money in bear markets, and lose in bull markets if you pick right or wrong. But at least there are fundamental reports you can look at to determine cash flow and if it is a worthy investment. Stocks can trade way above and below true value, but there is a way to gauge it. I think it is very hard to judge the true value of the whole cryto currency market to begin with., but I do admit it could be much higher than it is today. The problem is, how can you judge the value of one cryto currency vs another and the expectations for the future.. This is where I see the coins as pure speculation only.
Please help me understand why I am wrong. It seems that people have bought into the scarcity of there only being 21 million bitcoins ever, when this does not equate to real scarcity. Despite these feelings, it has worked and bitcoin has been the most incredible investment iI have ever witnessed, and I wonder if it could go even higher.
YOUR POINT: Looking at the overall market cap is the standard way that we value these coins. This makes sense, but what is interesting is that bitcoin is now only 45% of the total cryptocurrency world. In the early days I am sure it was well over 90%. Based on the addition of new coins with varying supply of coins, mean that bitcoin is not scarce at all?
MY RESPONSE: I really can't grasp what you mean here. Are you saying that because Bitcoin's overall % of an overall crypto market cap has shrunk (because there are more coins and investments in those coins than ever before), that Bitcoin is not scarce?
How does overall market cap % have anything to do with the scarcity of Bitcoin, which should ultimately have a fixed supply, and theoretically increasing demand due to technological improvements, increased adoption, performance, utility, retail functionality, international facilitation of transfer of value, and more countries accepting it as a real and increasingly more dominant player in their economies?
Scarcity comes from more people wanting to own Bitcoin, with more people wanting to hold Bitcoin, use it, and especially with not many new Bitcoins being created for a global community which has barely started adopting it as a whole. How many people in the world might want to own it or some and how many will exist? The ratio is staggering = scarcity.
Thank you for catching that. I wanted to work in a section on gold, but I couldn't figure out a good place to put it. This is obviously where I should have.
What is hard for me to grasp is that Gold is Gold. There are no other forms. You can get silver, copper, zinc, and others, but they are different elements and have their own prices.
To me Bitcoin, Litecoin, and others are all crytocurrencies. Yes they have different properties too, but someone could create a "100 coin" and only have 100 coins available total. Would this mean each one should be move valuable than a bitcoin because there are far less of them?
This was the point I was trying to make, yet again I admit I do not understand so please help. Hope this clarifies my argument.
Price is not in a 1:1 relationship with quantity. Supply and demand is the key here. You seem to be neglecting demand and why there's plenty of exponential demand growing. Honestly, you could get inundated with info here with many different assertions as to why Bitcoin has a different fiat price than other coins right now. I suggest that you read up on what Bitcoin IS and what is facilitates, and that it's the Big Daddy of the cryptocurrency world, with hundreds of copycats, and plenty of differentiators to add value and functionality where Bitcoin lacks. Good luck!
Thank you. I admit I have more learning to do and that bitcoin is the big daddy. But who is to say that Ethereum, Litecoin, Ripple, or something to be released will not surpass it? If this happened, wouldn't this halt the exponential demand for bitcoin?
Yes, of course. First to market is good, but it's not invincible. Other coins serve similar or vastly different purposes. Anything can grow to overtake anything if the economy adopts it.