When visiting Coin Market Cap, you can get a clear picture of the current cryptocurrency market. Bitcoin is still the clear frontrunner in this new industry, but there are now more than 100 cryptocurrencies listed on the website for cryptocurrency market capitalizations. It’s no secret that I don’t see a bright future for most of the altcoins currently on the market, although there are a few coins that actually do bring something new to the table. As I lookover most of the altcoins listed on coinmarketcap.com, I can’t help but feel like there is a $600 million altcoin bubble waiting to pop. Any of the altcoins that don’t offer some kind of new advantage over Bitcoin will really have a hard time making a case for their existence once Bitcoin reaches a stable price. Why would anyone use litecoins, dogecoins, quarks, or anything else when bitcoins are a stable store of value?
The largest chunk of the altcoin market is held by Litecoin. While this coin is often referred to as the “silver to Bitcoin’s gold”, the reality is that there’s really no need for it to exist as an alternative. After all, bitcoins are divisible down to eight decimal places. The altcoin’s inventor, Charlie Lee, even talked about marketing as one of the main components of Litecoin’s success in his recent talk in Miami. He also didn’t completely distance himself from the idea of Litecoin being a “copy and paste” of Bitcoin. Once bitcoins become usable as a currency and are viewed as a stable store of value, there will be no reason to speculate on the price of litecoins. The one bit of underlying value that could be there is a situation where Bitcoin fails on a technical level, but the problem with that is Litecoin is based on the same code. There aren’t many situations where Bitcoin failing would lead to success for Litecoin. It seems the Dogecoin community has shown that their coin has more value than litecoins because it’s actually being widely used for tips and donation campaigns around the Internet. Having said that, this is more of an argument for litecoins to decline in value rather than seeing dogecoins increase. You can view Charlie Lee’s Litecoin presentation from the North American Bitcoin Conerence below:
Let me start off by saying I actually love Dogecoin. This altcoin has brought many new people to the world of cryptocurrencies, and that can only be viewed as a net-positive. Having said that, I still think this coin is highly overvalued. I don’t have a problem with people using it to send tips over the Internet, but I do have a problem with the total valuation closing in on $100 million. It seems that the recent price rise is due to increased interest from China. Dogecoins were recently made available for trade on BTER, which led to a $40 million increase in the Dogecoin market cap. I know the community around this cryptocoin is all about having fun, but we’re getting to the point where some people could end up losing a lot of money in this bubble. Dogecoins are the ultimate coin for sending someone a tip online right now, but no one is going to want to be tipped in dogecoins once bitcoins become a stable store of value. Why would you want to be tipped in something as volatile as dogecoins when you could get tipped in bitcoins? Some people like to make this same argument when comparing bitcoins to fiat currency, but the difference there is that bitcoins hold a countless number of advantages over paper money. Those same advantages to not exist when comparing dogecoins to bitcoins.
Quark, Megacoin, Worldcoin, and Others
These cryptocurrencies are basically the “Wolves of Altcoins”. These are the penny stocks that have hype men touting them all over the Internet, even though they don’t really offer any tremendous advantages over Bitcoin. Newcomers in this segment of the cryptocurrency market can easily lose their shirt in minutes as part of a pump and dump scam. These coins are a great example of people thinking about future profits rather than the underlying value of the cryptocurrency as money. If you’re trying to get in on one of these pump and dump groups, please realize that you’re the one getting scammed. The ones running the group will buy up the altcoin before they tell everyone else about the start of a new pump. If you join one of these groups, you’re not getting in during the pump phase; you’re getting in during the dump.
Coins That Aren’t Altcoins
I’ve been spending a lot of time bashing altcoins lately, but I still think there are some interesting experiments out there. Mastercoin and Protoshares are attempting to implement various Bitcoin 2.0 variations of blockchain technology, while NXT is a completely proof-of-stake coin that is also trying to take us to the “next generation of cryptocurrency”. Even Namecoin is an interesting option with its upcoming features as a general form of online identity. Basically, you don’t want to put your money in anything that is competing against Bitcoin right now. Bitcoin is the best app for money when it comes to using a blockchain, but there are plenty of other uses of the blockchain that will offer interesting investment opportunities.
Last modified (UTC): April 20, 2014 18:31