The Crypto Question Conundrum

[MongiIG]

What Is the Point of Cryptocurrency?
There is a question that has plagued crypto assets since they began trading. That question is, what do they solve for? It is fundamental to understand what the product does or has the potential to do in order to accurately assign any sort of valuation. I never have gotten a satisfactory answer and it would appear, neither has the market.

Initially it was thought crypto assets would become a currency. But a currency has to serve as a store of value and a store of value cannot have the volatility inherent in crypto assets. Bitcoin is down nearly 60% this year. Ethereum is down 70%.

Next, we were told crypto would serve as an inflation hedge. But as inflation began taking off and interest rates climbed, crypto assets lost value. So much for that theory. That brings me back to my original question, what does crypto solve for?

The Value of Tradable Assets 
We do know blockchain technology has value. We know its ability to act as a ledger is better than anything we had prior. We know the different blockchains support different activities and offer varying degrees of scalability. That has value.

What doesn’t have value is dogecoin or any of the other countless tulip-frenzy-like knockoffs created in the last few years. Crypto and/or blockchain’s greatest value to most people has arguably been as a tradable asset. Nevermind that broad ignorance surrounding what was being traded. When you live in a world where all assets are bid up, asking questions as to why prices are skyrocketing is trivial relative to getting in while you can. And that my friends is a recipe for a bubble.

Where Does Cryptocurrency Stand Today?
So here we are. June 2022. The bubble has burst. Reality has set in. Dogecoin, which once traded near $0.60 now hovers around a nickel. Many of the coins whose names spread through online forums faster than Covid have seen their market cap eviscerated. Most of those names will not be back nor should they.

Every bull market seems to end with an overhyped, overvalued, over indulgent, new paradigm preaching prophets promising passage to paradise. When the bubble bursts, those same people go back to where they came from and wait for the next bull market. At some point, they’ll remerge making lots of noise like market cicadas.

Don’t get me wrong, I do believe crypto has value. I do not think we will go back to a pre-crypto world. All I want and hope for is someone who can articulate in a simple way what the hell it is so I can try assigning a value to it.

 

Written by Dylan Ratigan and Josh Fabian

Jun 17, 2022 | Tastytrade