The cryptocurrency market, once approaching a value of $3 trillion, is facing a rude awakening. Major companies in the industry are going bankrupt, leading investors to lose confidence and withdraw their holdings entirely (if they are able to do so at all). The important question now is which digital assets are worth owning, if any.
The only cryptocurrency I would use buy right now is Bitcoin (BTC -2.10%). This is why.
simplicity is key
Many cryptocurrency enthusiasts are enamored with the promise of another popular cryptocurrency like Ethereal. The key innovation of Ethereum was the introduction of smart contracts, which are self-executing computer programs that are executed when two parties satisfy the purposes of a particular transaction. Bulls believe this technology has the potential to disrupt major industries, with financial services at the top of the list.
Cardano is another smart contract cryptocurrency that operates a proof of participation system that tries to compete directly with Ethereum. Cardano also has a very complete and complex development structure, with five separate phases in development. Again, both Ethereum and Cardano could be used by individuals and institutions on a daily basis within a decade for a number of use cases.
But the number of complicated upgrades required for Ethereum and Cardano, with surely more upgrades added to the mix in the future, creates a lot of room for error. And the "full" versions of these blockchains could look very different than many believe they will.
Bitcoin, on the other hand, is incredibly simple. And this is completely by design.
Bitcoin was created during the Great Recession as a way for two unrelated parties to send and receive money electronically without a middleman. And its supply will be capped at 21 million coins. That is all. This is the fundamental knowledge that any newbie needs to understand it. There are certainly some implications for these features of Bitcoin (discussed below), but this is the most important information for investors to know.
Bitcoin is completely different from any other cryptocurrency out there, and that is exactly why I like it. There is really no room for a central authority to change the address of the network, and malicious actors have yet to hack into it. The simple network setup was created on purpose. I see this as a feature, not something Bitcoin lacks.
To be clear, I also don't fully understand the technical intricacies of Bitcoin, but I am much more comfortable with it and its capabilities than with other cryptocurrencies. And I think its stability deserves a premium.
A better form of money
At a high level, Bitcoin has the potential to change the very nature of money, which has three functions. Money must be a store of value, a medium of exchange, and a unit of account. Throughout its history, and probably for the foreseeable future, Bitcoin is gaining ground as a legitimate store of value.
This leaves gold as a suitable comparison. For thousands of years, the shiny precious metal has been viewed as a safe place to park your wealth. It does have some industrial uses, but gold is mostly used in jewelry and as an asset to own, so its value stems from the fact that other people think it's worth something. Why can't Bitcoin be seen in a similar way?
Bitcoin possesses key traits that actually make it a better store of value than gold. Bitcoin can be easily transported across borders. A Bitcoin is divisible up to eight decimal places. Bitcoin can be used in transactions. And most importantly, Bitcoin is absolutely finite. Once 21 million coins are mined, no more can be created.
While Bitcoin is more portable, divisible, tradable, and finite than gold, gold has a much longer history. But I can't see why in a world that's only going to become more and more digital, Bitcoin can't start cutting gold's $12.5 trillion global market cap.
Whether Bitcoin satisfies the properties of medium of exchange or unit of account has yet to be determined. And we may not know for another decade (at least). But even if the only real use for Bitcoin comes from being a new way for people and institutions to store wealth digitally, I still believe the upside is huge, especially after its price has plummeted 75% since its peak 13 months ago.
This makes it the only cryptocurrency I would buy right now.
neil patel has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin, Cardano and Ethereum. The Motley Fool has a disclosure policy.
