By Dr. James M. Dahle, WCI Founder
While long-term readers know I don't put serious money into speculative investments like cryptocurrencies, foreign currencies, commodities, precious metals, or Beanie Babies, I find cryptocurrency absolutely fascinating to watch. However, one thing I cannot understand is why the market (i.e. all the people speculating in cryptocurrency) does not yet recognize that there is no way that Bitcoin is going to be the winner of this technological race.
Let's talk about why.
The Race to Be the Best Cryptocurrency
The world is up to more than 6,000 cryptocurrencies now. Cryptocurrency is not going to go away. It will only become more popular and more useful as time goes on. However, it seems obvious to me that there are not going to be 20,000 useful cryptocurrencies. In fact, I doubt there will even be 10. Most likely, 99%+ of cryptocurrency uses will be monopolized by one or two cryptocurrencies. There's a race to see which one (or possibly which few) will be the winner. Remember 20 years ago when there were a half dozen or more search engines? Yea, which one do you use now? Sure, maybe you don't use Google, but you're pretty lonely if you don't. Here's the chart:
Yup, Google won. You know why? Because it was better. It was more likely to bring you to the information you were looking for. That's the way technology works. We all use the one that is the best. Sometimes, there's a little competition—you know iPhone vs. Android and Microsoft Excel vs. Google Sheets—but in the end, there are never dozens of winners in these races. This isn't automobiles where style points count.
By market capitalization, Bitcoin is currently way ahead.
However, this is simply due to its early start and, thus, its brand name recognition. You do not have to know very much about cryptocurrency to realize that this will not last. In fact, it cannot last. Bitcoin literally cannot be the world's most useful currency long-term. It lacks too much function. It uses too much energy. It is too slow, and it is too unstable.
Better Cryptocurrencies Than Bitcoin
Look at some of the other cryptocurrencies on the list. Want something more functional than Bitcoin? How about Ethereum? Ethereum introduced smart contracts, tiny pieces of code that live on the blockchain, to the world. This was a game-changer. You've heard of Non Fungible Tokens (NFTs)? Not possible without smart contracts. But guess what cryptocurrency doesn't have smart contracts? That's right, Bitcoin. The eventual winner is definitely going to be compatible with smart contracts, thus, it cannot be Bitcoin.
Most people have heard that it now takes massive amounts of energy to mine Bitcoin. What they may not realize is just how much energy it takes to use the Bitcoin that has already been mined. It currently consumes over 80 Terawatt hours every year. Now I can't conceptualize a Terawatt hour any more than you can, but if you compare Bitcoin to countries, it comes in ahead of Austria right now. So despite the fact that almost no one uses Bitcoin for anything other than speculation, it's already consuming more energy than entire first-world countries. Imagine if we used it to buy gas, groceries, and the morning coffee? No way. We'd have rolling blackouts across the world. But if you look at that list above, there are coins that use far less energy than Bitcoin.
Take Cardano for example. If Bitcoin uses an Austria amount of energy, Cardano uses a Niue amount. (Niue is a South Pacific Island with only 1,600 residents.) At any rate, Bitcoin can't win because we don't have enough energy on the planet for it to win.
What's another big problem that keeps anyone from actually using Bitcoin day-to-day? The volatility. You just can't use a currency that is worth 1/3 less or 50% more than it was a few months earlier (for example, in a 44-day span in the spring of 2022, Bitcoin dropped 40.4%). It's too volatile. Again, take a look at that list above and see if you can spot a cryptocurrency that is dramatically less volatile than Bitcoin. Yup, that's right, Tether or the USD coin are way better from a volatility perspective. They have about 1/20th of the volatility. Maybe Bitcoin becomes less volatile in the future, but I'm skeptical that it will ever have low enough volatility to be useful as a day-to-day currency and store of value.
Bitcoin is also pretty slow. Just about everything on the list above is faster than Bitcoin. One of the fastest ones out there right now is Solana. Bitcoin does about five transactions per second and takes 30-60 minutes to achieve transaction finality. By contrast, Solana does 29,000 transactions per second and takes 2.5 seconds to achieve transaction finality. Bitcoin cannot handle the world's financial needs and, thus, it cannot be the winner.
Heck, a bunch of cryptocurrencies are jokes. They were jokes to start with and they're still jokes. The funniest part is how far the joke has gone on. I mean, look at Dogecoin. Its primary source of value is that Elon Musk tweets memes about it from time to time. It's 12th on the list despite everyone knowing that it isn't going anywhere. Heck, there are even jokes of jokes (see Baby Dogecoin and Shiba Inu Coin for details). You can create your own cryptocurrency if you want. Here's a step-by-step guide.
What Will Be the Best Cryptocurrency to Invest In?
Now my crystal ball is cloudy. I have no idea which cryptocurrency will eventually become the one that is used by everyday people. It probably has not yet been invented. In fact, I think it is entirely possible that the winner will change every decade or so as technology improves. Perhaps soon, there will be one that is more useful than Ethereum, less energy-intensive than Cardano, more stable than Tether, faster than Solana, and cooler than Dogecoin and Shiba Inu combined.
But what is incredibly obvious to me is that the winner will not be Bitcoin. That means those currently on the Bitcoin train (which is the vast majority of cryptocurrency speculators) are either uneducated FOMOites or are planning to get off the rollercoaster before it reaches the top and starts plummeting to its final doom. They're essentially investing on the greater fool theory, i.e. the idea that someone dumber than them will be around to pay them more for it than they paid themselves. Well, that will work until it doesn't. Good luck timing it. Don't be left holding the bag.
Bitcoin is the AOL of the cryptocurrency market. Sure, everyone used AOL to first discover the internet, but 20 years later, who still uses it? Even your grandma moved on a decade ago, and now the company is defunct.
Bitcoin and other cryptocurrencies are not the places for your serious money. If you cannot resist the urge to speculate, do so with no more than 5% of your portfolio. And for heaven's sake, don't bet that 5% on the one that you know is going to lose.
What do you think? Why do people keep bidding up Bitcoin despite its problems? Which cryptocurrency do you see as most promising right now? Comment below!