If you’ve been wondering what’s going on with Bitcoin and altcoins lately, what with ninety plus percent price declines and fears of another multi-year bear market, the following info might explain some of the contradictory price predictions claiming Bitcoin will be worth $24,000-$50,000 by the end of 2018.
Rumor has it that crypto investors expect Bitcoin ETFs to be approved between Q4 2018 and Q1 2019 resulting in an estimated 300% price increase. Additionally, big names in traditional finance and insurance are embracing crypto investments. A notable player by the name of Bakkt is entering the space this coming November with the goal of driving mainstream adoption by attracting retail investors and furthering commercial integration.
The Bakkt trading platform is owned by the Intercontinental Exchange and funded by Pantera Capital. The Intercontinental Exchange also owns Ice Futures, Ice Clear and the New York Stock Exchange (NYSE). They’re into collateralized commodity futures and stocks, while Pantera is into crypto. Combine the two and you get Bakkt.
Pump to dump
As anyone who has been in crypto for a while knows, cryptocurrencies can be traded, yes, but they are losing value if they’re only used for speculation. Successful traders take the gains and shrink the market. Obviously, more HODLing incentives are required but that still doesn’t ensure continuous growth.
Stock vs. crypto
Unlike stocks, which are based on real world economic activity, the initial value of a cryptocurrency is based on its production cost because the original goal was to create alternate currencies to be used alongside or in place of fiat currency, i.e. money.
Investment vs. utility
Furthermore, only a small percentage of people own financial instruments but everyone exchanges fiat currency for goods and services and vice versa.
Goods and services are assets whose value is based on utility and the same goes for cryptocurrencies. Technology aside, however, the only way to increase the value of a cryptocurrency is to exchange it for goods and services thereby creating real world utility and transferring corresponding value onto the cryptocurrency in the same way as it happens with fiat currencies.
Utility creates value
Let’s say a pizza costs $20. This means that a piece of paper that is a twenty dollar bill is valuable because it buys you a pizza. If the pizza place accepts one NEO (currently worth about $20) and hundreds or thousands of people buy a pizza for a NEO over the course of a year, then NEO has real world value because you can buy a pizza with a single coin during that year. If, however, the pizza place refuses NEO as a means of exchange, the coin is worthless to the people looking to buy a pizza. In other words, mainstream adoption will only happen once you can buy day to day necessities using crypto.
Price valuations for real world assets typically increase over time devaluing fiat currencies in the process. It takes more money to buy the same stuff. This is one of the reasons Bitcoin was created – a digital currency that can be used as both, an investment and a means of exchange all the while remaining stable or growing in value over time. This idea worked for a while until we hit a wall which brings us back to value relative to the things we use, also known as use cases in the world of crypto.
Once again, value is what we use, the things we are willing to spend our hard earned currency (means of exchange) on. We work. That’s valuable time, effort, tools, materials, etc. We are rewarded with currency which can be exchanged for goods and services. We then exchange that value (means of exchange earned through work) for the things we need to buy or pay for because they give us value. It’s a never ending exchange cycle in which one type of real world value is exchanged for another.
Real world value
And while the degree of value can be argued, this is clearly a very simple concept that works because it’s the reality of life and it’s time for crypto to become part of this cycle. Establishing value is simple as well. All you need to do is use it to buy and sell real world goods and service and the real world value will be established in no time. If you and a million other people pay for a pizza with a cryptocurrency, no one can call it a worthless $hitcoin. And if they do, just show them the pizza or whatever you bought with it.
Back to Bakkt…
This simplistic example is one of the reasons Bakkt wants to make it easy for investors, merchants and consumers to use crypto. Buy it, sell it, HODL it, spend it. All over the world.
And they’re not the only ones. Crypto has arrived. It has gained popularity and more and more people want in on it for a variety of reasons, including novelty (high tech digital assets), portfolio diversification, profit, and privacy (digital cash).
One of the main reasons Bakkt has managed to build such an enormous amount of anticipation is that it won’t offer margin/leverage trading. Bitcoin futures will be collateralized and held by the company.
A not so great tidbit is the idea of trading off blockchain and thereby avoiding transaction fees, something that, if true, will become an issue for miners.
Overall, the Bakkt concept – involving regulation, institutional management and institutional investors – is a huge game changer. Microsoft and Starbucks, by the way, are part of the deal.