(Updated 20210804) Further to my Get into Crypto Trading Now article, which was written for newbies to get into trading and start playing around with crypto, I am writing this note to share my wider opinion on the “recent” late-2020 crypto craze. Take a look at the chart below, still can’t see the pattern?
Still writing in notes form and will be updating it every now and then. Welcome to leave me comments or contact me directly.
- Cryptocurrency is just a big trading game for now, until you can widely use it for everyday transactions. “If you can’t buy coffee with it, it’s not money.” I understand you can use Bitpay Pre-paid Mastercard, have your crypto converted to it and use ApplePay with it to buy your coffee. But I am talking about being a truly new currency, digital and all, should have better user experience than what it is trying to replace. Accepted directly everywhere, no multi-steps conversions needed.
- Look at the number of transactions on Bitcoin and Ethereum blockchains. Currently at around 300k and 1.3m transactions per day. That’s just the main chain transactions, far more are transacted at exchanges which usually have their own blockchains. But the growth is simply not proportional to the total value growth, suggesting that the recent growth in value is not due to the usage adoption growth of cryptocurrencies, but just for trading, investment or even gamble.
- Big names like Elon Musk are helping to drive the market up, but 1.5 billion is hardly serious money for him. Previously, when he says anything about BTC or Dogecoin, the market will go crazy, speculating if he owns any. Now that the news is out that he bought BTC for Tesla and Dogecoin for his son, would the market still react so mindlessly to make him or his son richer?
- Total value of all cryptocurrencies is around 2 trillion dollars at the moment. It’s way more than a double of the 2017 crypto bull-run peak of around 770 billion dollars. It can be hard to understand how much money that is. 1.55 trillion valuation would make it 4th largest company in the world, just after Apple, Microsoft and Amazon, bigger than Google, Facebook and Tesla. Why is that important? For crypto value to grow another 10%, that’s an extra 155 billion dollars, which is about the marketcap of McDonald’s, Wells Fargo and Costco. During a global pandemic, general economic slowdown and slow usage adoption beyond crypto trading, where to find billions more to drive the price up?
- Key idea of bitcoin is that it is all open and transparent, with hard limits and clear accounting of all coins issued. But currently there is no way to know the total fiat used to buy crypto. USDT and other stable coins are not proven to be anywhere near 1:1 pegged with USD or other fiat currency. Tether issued 35 billion USDT but have only recently confirmed having 1.8 billion in cash, something that they have been refusing to confirm for a long time.
- Some compare BTC to Gold total market cap of 9 trillion, but it will take BTC many more years before it is as common as Gold. If you are reading this, you already have some level of tech competence, but for the general population, it is still much easier to buy and sell gold today than BTC. Walk into any jewellery store and pay for it with cash. No need for computer, internet access, passwords, keys, credit card, etc.
- Bitcoin is here to stay. The core technology concepts and even the digital asset stored and processed on the blockchain will still be around. But Proof-of-Work won’t be the norm of future blockchain technologies. Consuming huge amount of electricity to have the decentralised trust is no longer the only solution since it was first launched over 10 years ago. Proof-of-Stake is being well tested and will soon be ready for over 40% of blockchain transactions on Ethereum and other top chains (BTC has a dominance of around 60% or so.). There are other consensus algorithms and protocols which are being developed.
- We can’t imagine BTC turning to PoS? Haven’t seen a hard fork before? Happened on both bitcoin and ethereum. Can they do it again? Yes. But this time, can they do it without keeping the classics? (A bit of history, when it first happened, everyone was confused about hard fork, on how can it just split into 2 coins and both have different values. We were used to splitting or merging stocks but the total value remains unchanged, but not a hard fork where the total value increased.)
- I am not waiting for a BTC killer. There isn’t even a Ethereum killer any time soon. Cardano, Polkadot, Binance Coin, XRP are all competing against each other to be a stable #3, but still not a threat to ETH. None of them are even close to the total value of ERC20 tokens yet, so they are still quite a way off to displacing the Ethereum ecosystem. The assumption that BTC and ETH are too big or too slow to change is unfounded. What you are using today are not the same version of BTC/ETH when they were first launched, both projects been forced to hard fork and are still around and strong.
- It’s worth knowing a bit of the history of Bitcoin and crypto. Gen 1, just bitcoin and a few other similar coins. It was rather simple, you pay cash to someone and you get coins. Exchanges was for trading between different crypto, mostly based in BTC. Gen 2, a quasi-cash USDT (not real USD) was introduced as part of the ERC20/ICO craze. Trade volume shot right up as trade can happen with a USD-cash-like USDT showing on exchanges directly. Putting a virtual USD value to the coins and tokens which you can trade in between. I call this, crypto², virtual currency based on virutal USD. Gen 3, now with many derivative products on different exchanges, running on different chains, based on crypto², so it is more like crypto³ now, virtual financial products based on virtual currency priced using virtual USD.
- We are blindly trusting the new chains are safe. Previously you only had to know that BTC and ETH are secure. Now, you won’t even know which chain it is based. Most of them are not valuable enough for hacking. That’s what happening with Defi contracts now, enough money, easier to find issues, just hack and take the money.
- Do not confuse crypto with blockchain. Crypto might just be the best killer app of Blockchain right now. Or better still, it can just be a decentralised 1.5 trillion dollars marketing for the blockchain tech industry of the future. A great proof of concept to test blockchain to handle valuable digital “assets”, trillions of dollars worth of transactions, bigger than any company in the world. So that the world can trust it to handle the next wave of distributed tech.
- But most enterprise blockchains are not using the same tech as the top crypto currencies. They are using Hyperledger, Hyperledger Fabric in particular. It is not costing them 5–20 bucks per transaction in fees like BTC and Ethererum network. And they don’t need to worry about PoW wasteful mining or PoS complexity of powerplay. An efficient permissioned ledger with good smart contract, called chaincode, support to keep all stakeholders happy. There might not be wide enterprise adoption of public crypto blockchains, but only to use them for the open cryptocurrency aspects, or like Elon Musk bet on BTC growing faster in value than their core car making business.
- The biggest players in crypto are exchanges. It’s worth remember this because no matter if the market goes up or down, they make money by volume of trades. But unlike BTC and ETH being just the tech behind the crypto, most exchanges are registered companies that can be shutdown by governements. Sure, most of them are registered at tax or crypto friendly countries, but it is still a big risk in a well connected (financial) world. Even Switzerland is slowly complying to certain global financial rules.
- Talk to BTC hodlr and they will turn all news positive. They will say that regulations of crypto will be a good thing. Will help with adoption. So people can start using it globally, to spend the same crypto globally to buy coffee. It sounds great, but we can do that with USD already. Using Visa or Mastercard to do secure global USD transactions electronically. But as a regulated well adopted currency, BTC shouldn’t have such big daily swings, it will just be like any top currencies in the world. Boring. How many private individual USD day traders do you know? When crypto becomes boring, will people just go back to using fiat which they actually didn’t stop using? Most people like crypto because it is not regulated and volatile. They don’t care that much about the tech or trust, they hardly understand the maths and cryptography.
- Not all games are zero-sum games by design. Most of them, even if they seem to be zero-sum, like a market of buyers and sellers, zooming out can still be a positive sum game for the wider economy or ecosystem. (Oh, people might just find it easier to understand zero-sum and sounds better. Positive sum game might be boring as saying win-win.) But crypto is a fast moving space. New rules and products are introduced and killed quickly. Be good with learning about the new and quick-changing rules if you want to stay ahead.
- Not totally saying that you should throw out the traditional wisdom when playing with crypto. There are areas which technology didn’t fully solve. The end players are still humans. “Greed is good” still applies. For most of them to make money, they have to lure others to get in. Then sell it to them at higher than what they paid. These rules are still the same.
- Actually, the above is not quite true, most crypto trades are done by bots. And you don’t even know who owns the bots. So when you trade by hand, you need to have a different strategy to win. You can’t trade faster than bots.
- How stupid is PoW? Was cool when it was first “introduced” by Satoshi with first gen blockchain. But did he really expect Bitcoin to reach the current value? So he could have been the richest person by holding on to more BTC right at the beginning? Because if he didn’t, then PoW might have just been a miscalculation. Didn’t expect the computation to get so difficult and so well competed by many miners trying to make a lot of money, to eat up a sizeable country worth of electricity.
- When everyone seems to think that BTC can only go up, is it too crazy to think that it will go down? Might be an unpopular view. But which market can continue to grow indefinitely without major “corrections” along the way? I am waiting for big countries to officially recognise and adopt crypto.
- It doesn’t really matter. Don’t need much logic and research. It can go up and down quickly, almost always against your trade, but it’s okay. That’s the good thing. I don’t think anyone is ultimately in control of it. Just a very wild market. Unless you have insider information, it is just a very technical trading game. Have fun with it.
- “Nothing is certain except for death and taxes.” Don’t think Crypto can change these. Most people are not paying taxes on crypto profits, but all transactions are digital and highly traceable, be warned.
- Why can’t there be a crypto that can’t be stolen? One that is designed to protect users and can’t be used for scams? Crypto is well known for the major randomware payments, why can’t it be avoided?
- Is Bitcoin really a limited “resource” or asset? Sure, it represents about 60% of all crypto values. But the remaining 40% are all up for grabs. Anyone with a bit of ETH can issue their own token. It’s much cheaper than getting to write your own cheque or minting your own money. The idea of crypto being a scarce asset is a very Gen 1 view. Ethereum changed all that. I am avoiding talking about NFTs. 🙂
- I used Dogecoin to track the market status. It was setup as a meme, with no serious use planned or intended. If you can’t even beat Doge, then your project is not very seriously taken by the market. As of 20210419, only BTC, ETH, BNB, XRP and USDT are “serious” enough to beat Doge. Can ADA be the next?
- Reading the above might leave you with an impression that I am very negative about crypto. That isn’t the case. Medium to long term, Bitcoin and other crypto will all hit their new all time high. For the 2020/21 trend however, I think we are seeing the peaks already. Pushing the market to over 1.5T is already an amazing achievement. Next time, maybe in a couple of years, will push well up to the next level. I am excited about ETH2 to push it towards PoS, will it be ready to knock BTC off the top spot?
My Crypto Watchlist
- BTC — Obviously, can’t be serious about crypto without following the beast.
- ETH — ETH is still very exciting as #2, other crypto not even coming close to total of ERC20 tokens, nevermind overtaking the underlying ETH.
- XRP — Very strong backing, look at the transaction volume, still right up there. Starting to buy up real money transfer businesses in smaller countries.
- ADA — Technically strong, but still lacking real world usage. Can they rush out all the promised features?
- BNB — Probably the first project, other than BTC/ETH foundation, with a good business model. Started the trend of Exchange Tokens. Don’t want it to be too powerful though, not common for exchanges to dominate markets. What’s the difference between (de)centralisation and having one big exchange with near total control of the market? BSC is more or less a centralised clone of ETH with very low fees.
- BAT — Another project I like with sensible business model. Clever use of tokenomics for online advertising. Rewarding users properly for looking at web ads.
- UNI — Exciting use of smart contracts to compete with exchanges. But remember that they usually end up with lower value assets, the tokens that can’t be listed on big exchanges. It’s not about fees, volume is more important.
- FIL — I like the idea of using tokenomics for digital storage. Currently trendy for just the money side of it. But if distributed storage can be priced well, might give S3 a run for their money.
- Doge — Interesting “line” I use to track the market status. If you can’t even beat Doge, then your project is not very seriously taken by the market. As of 20210419, only BTC, ETH, BNB, XRP and USDT are “serious” enough to beat Doge.
- https://www.youtube.com/watch?v=g6iDZspbRMg — Cryptocurrencies: Last Week Tonight with John Oliver (HBO)
- https://www.youtube.com/watch?v=HaJpYjO136o&t=1s — New Rule: Crypto Mania! | Real Time with Bill Maher (HBO)
- https://www.youtube.com/watch?v=nRItzSX0aCM — The Rise of Bitcoin and Other Stupid Meme Currencies: The Daily Show
- https://www.youtube.com/watch?v=hGhMD0yfwwQ — Jordan Klepper and Smugly’s Crypto Crash Course | The Daily Show
Like most articles I write, I will keep updating it. I use Medium like an online notepad to share my thoughts. Welcome to comment and contact me for if you have questions. I am not a full time trader, not even a good trader, but I have strong views about blockchain and AI. I am building new blockchain based recruitment platform with Hyperledger Fabric and ERC20 tokens. Contact me to find out more.
By Edward Tsang on .