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There can (probably) only be one Bitcoin
One of my key questions about the next era of cryptocurrencies and blockchain is this: How will all the capital in digital assets and cryptocurrencies likely be deployed as they become better regulated?
Over 90% of the world’s financial and commercial assets are considered “on-shore”, meaning they are owned and managed by entities and people resident in the countries where they are bought and sold.
Today, most crypto-assets are bought and sold offshore (I estimate around 80% based on CoinGecko data). However, as more regulated opportunities open up, new capital will flow into these digital asset environments. I don’t believe, however, that there will be a vast new array of cryptocurrency growth opportunities.
If you read my articles regularly, you know that I firmly believe that Ethereum will follow the path of many other technology ecosystems towards dominance. Ethereum is, first and foremost, a technological platform. Yes, ETH is a cryptocurrency, but its main demand driver is its use as payment for processing transactions. I think as time goes on ETH will be largely subject to the laws of supply and demand for processing power on this “world computer”.
The tech industry needs and thrives on standards that deliver economies of scale and network effects. Ethereum has won the programming standards war and has largely solved its scalability issues, making it the default choice. Digital assets will exist, by and large, in the Ethereum ecosystem.
Bitcoin is not subject to the same rules. Although people tend to lump them together, Bitcoin is a true crypto-asset and very similar to gold; people don’t buy it with the intention of using it. They buy it for its scarcity value and to see it appreciate as a resource. Like gold, people don’t expect Bitcoin to generate cash flow, only to appreciate due to its scarcity.
Nor do I think that recent efforts to add a Layer 2 ecosystem to Bitcoin, similar to the one that exists in Ethereum, can change this outcome. The Ethereum ecosystem has a huge advantage and Bitcoin users who want to make their asset programmable have already been migrating it to “wrapped” Bitcoin on Ethereum for some time.
Theoretically, there can be infinite Bitcoins. It seems that they practically already exist. Litecoin, Dogecoin, and countless other meme coins and cryptocurrencies are nearly identical copies of Bitcoin. And while there’s no BrodyCoin yet, I do offer free NFTs (get yours Here!).
Despite the effectively infinite supply of copies of Bitcoin, I suspect that there really can and will only ever be one Bitcoin, and that’s the one we already have. Let’s stick to the gold analogy. While there isn’t an endless supply of gold, there are many other precious metals out there. We could trade silver or diamonds just as easily as gold.
Despite the multiple options available, however, gold absolutely dominates the precious metals market. The total market capitalization of global gold shops is estimated at $13.7 trillion. Silver comes in at just $1.3 trillion and market cap. An order of magnitude separates gold from the next alternative and therefore I believe we will see Bitcoin hold a position an order of magnitude higher than any other alternative crypto asset.
I think this has a couple of important implications for people as they prepare for the next wave of growth in these markets that will come from a regulated era. The first is that inventing a new cryptocurrency will not necessarily be the path to success. Bitcoin has that role, and since people want digital gold, that’s what they will buy.
Second, the world of digital assets should and can be much bigger than just a digital version of gold. Oil is essential (for now) to the global economy and is 10 times larger than gold, generating $1.7 trillion in revenue per year (not to be confused with market capitalization). The net new growth opportunities are likely to be much greater by creating something that is used by consumers or needed by businesses. This space is much larger than holding reserve assets. That’s where I’ll look for the next real growth opportunities.