After yesterday's crash, we have all these 'experts' coming out and saying, 'I told you so', about how bitcoin is a bubble and due for an imminent crash. Even a stopped clock on the wall is right two times a day. So with bitcoin up 15x this year, let's take a look at what would make it worthless.
The argument that bitcoin prices are a bubble so you shouldn't buy it doesn't make any sense to me. The value of any asset is always in a bubble. Home prices in Vancouver, Singapore, Hong Kong and San Francisco are ridiculously high. Sure, some of that is due to demand and supply, but when home prices outstrip the gains in income, you know that there is a speculative element to it. Does that mean that we shouldn't buy a home in these popular cities as well?
There is fear that new government and central bank regulations will outlaw bitcoin, making it worthless. To be fair, this is definitely a risk that you should consider before investing. Governments have a track record of clamping down on anything they can't control. Bitcoin and cryptocurrencies in general definitely fall in this category. That said, cocaine is illegal yet i'm told it fetches a high price in the market ;)
One of the big stories this week was Charlie Lee, the founder of Litecoin, announcing that he divested most of his Litecoin holdings. That one of the major crypto whales / HODL-ers was seen to be cashing out spooked the market a little.
When a founder cashes out, that typically is a vote of no-confidence in the company and project and the market is right to question him. Charlie Lee's response that he was doing so to avoid a conflict of interest also makes no sense. If that were so, CEOs wouldn't be given stock options at all.
Moves like this are a concern and there's a risk of moving a core concentration of coins from a HODLer to someone out to make a quick buck. This makes for volatile two-way action as a day trader might cut his losses and sell at a low price just to get rid of his stake. That said, this isn't going to ruin bitcoin or any other cryptocurrency.
Why is bitcoin so valuable that it dominates over all the altcoins? Part of it is due to the fact that it had an early mover advantage. It wasn't the first cryptocurrency to emerge, but it managed to convince a number of influential investors to HODL and not sell their stake. Coupled with the limited supply of coin and the fact that there are many lost coins out there, we have tight liquidity, which makes it prone to spikes.
For an altcoin to supplant bitcoin at the top of the food chain, we would need 3 things to happen:
Right now, the only potential to bitcoin that i can see is bitcoin cash. Ether is inflationary and ripple is too centralized in my opinion.
Ultimately, bitcoin's role as a store of value comes from the faith in it's algorithm. Faith that there is limited supply and that you can't derive someone's private key based on his public key. If any of these are violated, bitcoin would be worth as much as a random string of characters typed on notepad.
With present technology, there's little risk of this happening. Who knows what will happen in twenty or thirty years? Surely these guys lifting the 5 MB IBM hard disk that weighed a ton couldn't guess that we'd have a thousand times more storage space in the palms of our hands one day.
