A year ago, the idea that Bitcoin and cryptocurrencies were going to change the world was becoming the consensus opinion. Today, not so much.
The digital currency now trades below $5,000. It’s 77% off its high near $20,000 in January. Other cryptos are collapsing, too.
There is a catalyst. People who follow digital tokens blame the hard fork of Bitcoin Cash. The smaller, namesake cryptocurrency is itself a fork of Bitcoin proper. But last week, its developers and miners could not agree on the future of the digital token. So they decided to split into two competing cryptos, Bitcoin ABC and Bitcoin Satoshi’s Vision (SV).
If that seems like an inherently bad idea, it is. Bitcoin is an open source project. Developers are free to duplicate the base code and create cryptocurrencies at will. And they have. As of November 2018, there are 2,502 cryptocurrencies, according to a list compiled at Investing.com. The cumulative market capitalization of these tokens is $142 billion, although it had been much higher.
Forgive me. I’m burying the lede. The problem with Bitcoin, and cryptocurrency in general, is not forking. It’s that developers should not be able to create currency, at all.
I began writing in January that cryptocurrencies were where the internet was in the dot-com era, and in February that most of these thousands of cryptos were headed to zero. At the time, it was not a popular position. I prefaced my view on two things every potential investor needs to understand about “me too” digital coins: There is no use case, and worse, it’s unlikely they will ever represent a store of value.
Keep in mind, many things can represent a store of value. Collectibles like art, baseball cards and signed memorabilia immediately come to mind. Cryptocurrencies, at least the vast majority of them, will never be that.
Note: The author of this article is Jon Markman.