True value of Cryptocurrency

Many cryptocurrencies have lost a lot of value during 2018. The reality supported caught up with Bitcoin and other currencies. The hype is no longer able to drive the prices up to ever higher levels, and the demand for mining equipment is no longer causing large GPU (Graphics processors) shortages.

Bitcoin, the most famous crypto currency was at one point worth over $19 000 a coin. They have now decreased in value to under $4000 a coin. Bitcoin has lost almost 80% of its value under 2018. Does this mean that Bitcoin and other cryptos are undervalued and a good buy or will they continue to fall.

Value for trade

The primary purpose of any currency is to be used for trade. We, therefore, have to start by looking at the allows of crypto currencies as a currency used for purchase. We will primarily look at Bitcoin since Bitcoin is the largest and most used cryptocurrency. Any problems experienced using Bitcoin is likely to be present in other currencies as well when they grow to the same size as Bitcoin.

Bitcoin has a number of benefits for certain transactions. The currency is anonymous and allow you to make purchases without any 3rd party knowing that you were the buyer. This can be used for purchased of restricted substances but can also have many legal applications. One such example is that you might want to open a casino account without it showing up on your bank statement.

Using bitcoin to deposit money to a casino can be a good way to conceal your gambling. It can also be an excellent way to hide your winnings from said casino. In both cases, you value the privacy of bitcoin, not the value of the coin itself. You buy bitcoin to immediately deposit them in a casino that converts them back to the account currency. Your usage is a not a vote of confidence in Bitcoin because you do not keep the money as bitcoin. It is simply a convenient way to hide that you deposit money into the casino.

Other similar examples are that you might want to pay for adult entertainment and illegal substances using Bitcoin or another Crypto currency to hide your identity. The fact does, however, remain the same, You are using bitcoin to stay private, not because you see any other value in the currency.

A currencies most important quality cannot be that it allows anonymous transactions. A currency needs to be suitable for everyday transactions as well. If it is not useful for everyday transactions then it is unlikely to become, and stay, popular. If we look at Bitcoin we find that the currency is all but useless for most everyday transactions. There are plenty of stores that accept bitcoins but the transactions fees you are charged when you make a purchase is too high to make bitcoin a good option. You are often charged the equivalent of USD35 or more to make a transaction. This is way too much for you to be able to use bitcoin to pay for any small ticket item. Using bitcoin is a very expensive option if you are looking to spend less than USD 1000. It is a better option for larger transactions, but a currency needs to be suitable for all types of transactions to be useful.

Crypto currencies are almost worthless for everyday transactions and have limited value outside of this. It can be a good option when you are willing to pay for privacy but this market is too small to ever make it a mainstream currency.

Value as an investment

Cryptocurrencies have as earlier mentioned very limited value for trade. The majority of all Cryptos are not backed by any assets. Neither are they backed by the economy of a country as is the case with most Fiat currencies. They have no true value, only what people are willing to pay for them in the belief that they will retain or gain value over time.

Cryptocurrencies entire value is based on hype and trust. If you remove this hype and trust, then the crypto currency is worthless.

We have partly already witnessed this fact during 2018. When Bitcoin and other crypto currencies started to lose value they kept losing value and quickly lost a lot of their value. Bitcoin has lost 80% percentage of its value. Many other currencies have lost even more. If we assume that crypto currencies has little value outside their speculative value then we find that they remain overvalued and that they are likely to keep going down. Many of the currencies are likely to become worthless while the largest currencies such as Bitcoin might survive due to the privacy they offer. But even they are likely to lose the majority of their current value. I predict that Bitcoin will be worth less than USD 100 in 2-3 years.

You can still make a lot of money trading these currencies during their decent. They are likely to remain very volatile and you can earn a lot of money by moving in and out of them to benefit from this volatility.