The Next Big Investment: Beyond Bitcoin

Bitcoin has been a trailblazer in the cryptocurrency world, setting a standard for other virtual currencies to follow. However, it is not the only cryptocurrency available, and there are several alternative coins, or 'altcoins', that have emerged as competitors. These include Ethereum, Tether, XRP, Binance Coin, Cardano, Solana, Dogecoin, and Shiba Inu, among others. While Bitcoin continues to lead in market capitalization, user base, and popularity, some altcoins offer newer features such as handling more transactions per second or using different consensus algorithms. The future of crypto is uncertain, and while Bitcoin has the first-mover advantage, it remains to be seen if it can maintain its dominance in the face of growing competition.

NFTs could be bigger than Bitcoin

NFTs, or non-fungible tokens, are being touted by some as the next big thing in the world of cryptocurrency and could potentially be bigger than Bitcoin.

Kevin O'Leary, the host of Shark Tank, has gone on record to state that he believes NFTs will be bigger than Bitcoin. O'Leary, who has transitioned from a crypto skeptic to an enthusiast, investor, and evangelist, highlights the value that NFTs bring to the table in terms of authentication, inventory management, and various use cases in different asset classes. He also emphasizes the importance of strong creative software engineers in determining the success of a platform, and his investment decisions are based on evaluating these teams.

O'Leary's interest in NFTs is not just theoretical; he has invested in Jordan Fried's company, Immutable Holdings, which owns NFT.com, and WonderFi, a company consolidating assets in the crypto space. These companies are focused on creating, curating, and managing NFTs to make them more ubiquitous and liquid so that they can trade on any blockchain.

The NFT market is growing rapidly, and investors are keen to get in on the action, hoping that it will be a significant growth area in the crypto market. NFTs can be used to prove ownership of real-world assets, such as designer watches or cars, and bring physical goods into the digital world. This synthesis of real-world and digital assets is an increasingly popular concept in the crypto space.

While the potential for NFTs to surpass Bitcoin is there, it is still a speculative investment. The market is still in its early stages, and the risks associated with such new technology should not be overlooked. However, for those who missed out on the massive profits from Bitcoin, investing a small amount in NFTs could be a way to potentially get in on the ground floor of the next big thing.

Ether is already bigger than Bitcoin for some investors

While Bitcoin remains the leading cryptocurrency in the market, some investors have started to favour Ether over Bitcoin. Shark Tank host Kevin O'Leary, for instance, has a larger position in Ether than in Bitcoin. O'Leary's decision is based on the fact that many financial services and transactions are occurring on the Ethereum blockchain. Additionally, new software is being developed to consolidate transactions and reduce overall costs in terms of gas fees on Ethereum.

Ether has also been growing faster than Bitcoin. Since January 2018, Ether holders have compounded their investment by 16.3% per year, while Bitcoin has only grown at 9.2% per year. This growth is despite the fact that Bitcoin didn't crash as hard as Ether in 2018. Furthermore, Ether has a higher Sharpe ratio than Bitcoin, meaning that investors have gotten more bang for their risk buck holding Ether over Bitcoin.

Another reason for investors to favour Ether is that Ethereum has more use cases than Bitcoin. Ethereum is the number one smart contract blockchain, allowing developers to build all kinds of decentralised applications (dApps) on the platform. This makes Ethereum ideal for use cases such as DeFi, NFTs, blockchain gaming, decentralized data storage, and decentralized autonomous organizations (DAOs). While it is technically possible to build dApps on Bitcoin, it is a complicated process as Bitcoin wasn't built for running dApps from the start.

Finally, Ethereum's switch to a proof-of-stake (PoS) blockchain gives Ether an edge over Bitcoin. Unlike Bitcoin, Ethereum no longer depends on miners to secure its network, but uses validators instead. This means that validators don't have to invest in expensive mining equipment and electricity, and they are less likely to sell their coins to pay their bills. As a result, there is likely to be less downward pressure on the price of Ether. Additionally, the switch to PoS could make Ether more appealing to big institutional investors due to its reduced energy consumption and the ability to stake Ether to earn passive income.

Bitcoin is the currency of the Internet

Bitcoin is a cryptocurrency, a virtual currency, designed to act as money and a form of payment outside the control of any one person, group, or entity. It was introduced to the public in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto. It has since become the most well-known and largest cryptocurrency in the world.

Bitcoin is the first decentralized cryptocurrency. Nodes in the peer-to-peer bitcoin network verify transactions through cryptography and record them in a public distributed ledger, called a blockchain, without central oversight. Bitcoin is currently used more as a store of value and less as a medium of exchange or unit of account. It is mostly seen as an investment and has been described by many scholars as an economic bubble.

Since the 1980s, people have realized that networked digital systems could use a native currency. In the mid-1990s, internet skeptics argued that the internet would fail due to the lack of a native means of payment. While that didn't happen, using credit cards and other legacy payment methods online has created enormous challenges and costs. Bitcoin solves this by being a "push" system, as opposed to the "pull" system of credit cards. When you use bitcoin online, you "push" the payment to the recipient, rather than giving the recipient your secret (e.g. a credit card number) and having them "pull" the funds from your account. This fundamental difference, along with its open and programmable nature, makes Bitcoin uniquely fit to be the "currency of the internet". Leading technologists such as Marc Andreessen (founder of Netscape) and Jack Dorsey (founder of Twitter and Square) view Bitcoin as the internet's native money.

Bitcoin's value is based on investor activity

Bitcoin's value is determined by its restricted supply and increasing demand. The total number of Bitcoins in existence is limited to 21 million, and its scarcity drives up its price. The higher the demand for Bitcoin, the higher its price will be, as long as other factors remain constant.

The fear of missing out on large returns and greed also play a role in driving up Bitcoin's price. Investors buy Bitcoin, hoping for profits, while traders buy and sell it to profit from price movements. This speculative behaviour further contributes to Bitcoin's price volatility.

Additionally, Bitcoin's value is influenced by its attributes as a currency. It functions as a store of value and a unit of exchange, demonstrating characteristics such as scarcity, divisibility, acceptability, portability, durability, and uniformity. These factors enhance its value in the eyes of investors and contribute to its demand.

Bitcoin's price is also impacted by regulatory activity, competition from other cryptocurrencies, and news events. Any changes in government policies or the emergence of new cryptocurrencies can affect investor sentiment and, consequently, Bitcoin's price.

In summary, Bitcoin's value is based on investor activity, and its price fluctuations are driven by a combination of supply and demand, market sentiment, and external factors. As a speculative and volatile investment, Bitcoin has attracted investors seeking profits from its price movements.

Bitcoin ETFs are making it easier for investors to get involved

Bitcoin Exchange-Traded Funds (ETFs) are making it easier for investors to get involved with Bitcoin.

ETFs are highly liquid funds that change price throughout the trading day, just like a stock. They directly track the price of Bitcoin by holding a large amount of the cryptocurrency itself. This is similar to a spot gold ETF, which holds physical gold bullion on behalf of its shareholders.

The first spot Bitcoin ETFs were approved in January 2024, with the first 10 funds launching on January 11, 2024. This came after a successful lawsuit by ETF issuer Grayscale, and about a decade of lobbying.

There are several benefits to investing in spot Bitcoin ETFs:

• Convenience: Spot Bitcoin ETFs are more accessible to a broader range of investors, lowering the barriers to entry into the crypto market.
• Liquidity: They make buying and selling Bitcoins easier through familiar brokerage accounts, mirroring the process of trading traditional stocks or ETFs.
• Regulatory oversight: Spot Bitcoin ETFs are subject to rules that ensure transparency and protect investors.
• Tax implications: In certain jurisdictions, spot Bitcoin ETFs could have tax benefits compared to holding cryptocurrencies directly.

However, there are also risks associated with investing in spot Bitcoin ETFs:

• Crypto volatility: Bitcoin prices can be volatile, which could lead to significant financial loss.
• Regulatory uncertainty: There is a lack of a clear regulatory framework to protect investors, and future regulations could affect the performance of Bitcoin ETFs.
• Security risks: The large number of coins held by spot Bitcoin ETFs makes them attractive targets for cybercriminals.
• Management fees: Spot Bitcoin ETFs charge management fees or expense ratios to cover operational costs, which can diminish returns over time.
• Tracking error: Differences between the ETF share cost and the value of Bitcoin can occur due to liquidity in the market, delayed rebalancing of the fund's holdings, and management fees.

Despite these risks, spot Bitcoin ETFs represent a significant evolution in cryptocurrency, offering a regulated and simplified way to gain exposure to Bitcoin's prices. They can potentially enhance market liquidity, aid in better price discovery, and attract more institutional participation, playing a pivotal role in stabilizing and boosting Bitcoin adoption.

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