The Cryptocurrency Paradox And Why Crypto Is Failing



A Forbes article makes several good points about the viability of cryptocurrency as a bone fide currency.

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The Cryptocurrency Paradox And Why Crypto Is Failing

 An entire industry exists to take advantage of cryptocurrencies. From the creators of individual cryptocurrencies, to folks who sell software apps such as wallets, to companies that are attracting venture capital for vaguely-described synergies involving the retail use of cryptocurrency, to hedge funds that invest directly in cryptocurrency to those who put on conferences on how to get rich on cryptocurrency, literally billions of dollars worldwide have poured into crypto. 

Yet, cryptocurrency is failing, badly. The vast majority of cryptocurrency have already ended up listed at and even the flagship best-of-class Bitcoin as of this writing has lost 80% of its value in the last year. Despite the continuing hype for crypto, seemingly every day makes it look worse as both an idea and an investment.

To understand why crypto is failing, it is necessary to understand what crypto isn't and is.

Cryptocurrency Is Not A Revenue-Producing Asset. Unlike a stock whose value can be determined by earnings, cryptocurrency provides no income stream to its owner. While some owners like to think of themselves as "owning the technology", nothing could be further from the truth since they earn no royalties if somebody else is using that technology. Because crypto has no earnings, that means it has no P/E ratio by which a rational price can be established. Crypto isn't even as good as a zero-coupon bond, however, since it has no maturity date when principal will be returned.

Cryptocurrency Is Not A Commodity. A commodity is usually something that is consumed, leading to demand for more. Oil and wheat are examples; once a stock of those is consumed, another must be supplied. Cryptocurrency is not a commodity. There is no demand for cryptocurrency in the consumption sense, and an individual unit of cryptocurrency is not destroyed by a transaction but can be reused over and over such that most demand can be met by existing stocks.

Cryptocurrency Is Not A Store Of Value. Some pundits have claimed that crypto is a "store of value", meaning that if you put $1,000 of value into crypto today, then in the future you will be able to get your $1,000 of value back by selling the crypto. That's not the way it works in reality, however, because cryptocurrency is so volatile. As mentioned, the flagship Bitcoin has lost 80% of its value in a year, which in retrospect doesn't seem like a particularly good way to store value.

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