Never underestimate the market’s ability to make a product (however useless) when there’s willingness to pay. Don’t get me wrong here- I’m a huge crypto bull- but right now, we’ve got far too many cooks in the kitchen. There are currently over 9000 coins listed on CoinMarketCap.com. If we compare the number of these coins to actual currencies- only 180 national currencies exist worldwide. That means if 180 different cryptos “made the cut” for adoption as a store of value for nation-states, and completely replaced those currencies, we’d still only have 2% of coins adopted by nation-states. Of course, cryptos are much much more than just stores of value.
What if each crypto were a stock? For this comparison, we would treat each crypto as a company. Why do companies exist in the first place? Because they can do things more efficiently than individuals can. Let’s assume that each of the 9000 cryptocurrencies on CoinMarketCap deliver some kind of unique economic value (a big assumption). There are currently ‘only’ 2,800 companies listed on the NYSE- from corn-futures to Coca-Cola to clock makers to car companies, and there are currently ‘only’ 3,300 firms listed on the NASDAQ- from chip-makers to cloud computing platforms to CRM software companies to crypto exchanges (Coinbase now public!). While the stocks in the NASDAQ and NYSE are and can do anything, crypto is a very young technology that has established only a small number of real world use cases.
This goes back to the idea that cryptos are not stocks. The linked article in the previous sentence outlines the main types of cryptos:
- Store of value cryptos– behaves like gold
- Smart contract cryptos– behaves like programmable software that moves value around
- Oracle cryptos– behaves like a data-gathering node
- Payment cryptos– behaves like a much faster easier version of fiat
- Privacy cryptos– behaves like security software
- Exchange cryptos– behaves the most like stocks and ownership of crypto exchanges
- Memecoins and Shitcoins– behaves like a Ponzi scheme
A Warning Against Meme Coins and Shit Coins
I cannot warn against these pieces of sh** enough. In the world of crypto, a common argument is that it’s a Ponzi scheme or 100% relies on the greater fool theory. For meme coins and shit coins, that is completely true. These coins exist to make their founders rich, and chances are overwhelmingly that if you invest, your timing will not match up right and you’ll lose money.
Many of these coins are proliferated under the fallacy that many of the large cap coins today were ‘penny stocks’ as well at some point. While this is true for some, the number of investors and market capitalization of these coins were small fractions of what are in memecoins and shitcoins now. What if Shiba Inu went to $1 or $10???!!!?!
Unexpected Use Cases for Blockchain Technology
The APRANET (precursor to the internet) was originally developed in 1969 to send electronic messages within the US Department of Defense. For a few decades, this electronic mail was seen as the primary use case for connecting computing nodes. Some of us now wish that email didn’t exist, especially within the context of our jobs. Today we use the internet to watch cat videos, rent cloud computing services, and engage in political banter on platforms like Facebook or Reddit. The internet has been the cornerstone in creating a handful of companies worth more than $1 trillion, three of which are located within a 10 mile radius of each other in the SF Bay Area. In the below chart, you can see some of those large platforms that are prolific today.
Source: The Visual Capitalist
In 2000, 5 tech companies were in the top 10 stocks by market cap- Microsoft, Cisco, Intel, Lucent Technologies, and Nokia. Nokia is a shell of its former self, Lucent narrowly avoided bankruptcy with a merger in 2006, and Cisco & Intel are now at fractions of their market caps in 2000.
For crypto, the OG is Bitcoin and the OG use case is storing value. If I had to put my money on a survivor moving forward, it would be Bitcoin. The proof-of-work network makes it extremely economically expensive to hack or manipulate, and the store of value aspect is now too ingrained in people’s minds. As billions of digitally savvy Millennials and Gen-Zs worldwide become the plurality of the investment class over the next decade, supply and demand dynamics tell us that Bitcoin will surge and other cryptos will follow. 21 million Bitcoin, and 8 billion people by 2030.
Similar to how email was just one use case for the internet, storage of value will be just one use case for blockchain technology. The need for decentralized exceeds any switching cost or barrier to entry, even if that barrier is a nation-state’s government or central bank.
Be Cautiously Optimistic
It’s actually a good thing that the Dotcom crash and the Financial Crises are etched so recently into our memories, and namely the memories of institutional investors. Hopefully we’ll be more cautious with new things that we don’t understand. If you’re here and you’re reading this- know that you are a crypto early adopter. You probably know more about cryptocurrencies than 99% of the population- and since the space is moving so fast there is plenty that you and I still don’t know about blockchain technology and its potential applications. Going back to the Peter Lynch adage of ‘investing in what you know’, something that’s holding the asset class back is the public’s ability to understand what the technology is and what it can do. As retirement funds/institutional investors climb on board, and the technology continues to prove itself useful and revolutionary, it’s only a matter of time. Practically everyone understands the internet and what it can do now- but such wasn’t the case 30-40 years ago. Like cryptos, computers, software, and the internet were fringe technologies with dedicated followers. Look at what happened to a lot of those dedicated followers (see above statement about the handful of $2T+ companies). Stick to the larger cap coins and the technologies that already have or will prove extremely useful, and stay cautiously optimistic.