By CCN Markets: Because the resident “Bitcoin Skeptic” right here at CCN, it is my job to offer some degree – headed arguments about why you have to be extraordinarily cautious about shopping for or buying and selling bitcoin, or every other cryptocurrencies. Do not be a sucker.

And ignore hype from the media.

Immediately I am specializing in the argument that bitcoin’s restricted provide will imply that the cryptocurrency is all the time in demand. Consequently, ongoing demand with restricted provide will drive the coin’s value up over the long run.

There are three gaping holes on this argument.

1. Bitcoin Is Not Distinctive

cryptocurrency crypto market cap
Bitcoin is not distinctive – not anymore, anyway. | Supply: Shutterstock

The primary argument is that bitcoin is just not the one recreation on the town. There are quite a few different cryptocurrencies, some extra well-known than others. As a result of all of those cryptocurrencies are successfully the identical, they’re commodities.

The worth of bitcoin in US {dollars} will rely on its change charge relative to different cryptocurrencies, and we’d count on different cryptocurrencies to repeatedly seem.

Bitcoin bulls consider the change charge between BTC in relation to different cryptocurrencies will continuously modify in proportion to their relative provides.

Bulls additionally say that as the availability of different cryptocurrencies will increase, there might be an appreciation within the change charge of BTC with respect to those different cryptocurrencies.

Due to this fact, bitcoin’s share of market capitalization ought to stay secure over time.

That’s not essentially true. Actually, we already realize it to not be true through this chart:

bitcoin market share
Bitcoin market share declines as 1000’s of recent cryptocurrencies flood the market. | Supply: Coinmetrics

Even worse, its worth with respect to different cryptocurrencies doesn’t even present a obscure correlation.

2. No Intrinsic Worth Means Demand Will Fade

bitcoin exchange
With no intrinsic worth, crypto demand will ultimately fade. | Supply: Shutterstock

The second argument is rooted in the truth that neither bitcoin nor every other cryptocurrency has any intrinsic worth. Crypto tokens usually are not beholden to any basic financial elements, both.

Bitcoin, like gold and the US greenback and lots of different securities, trades at a premium to its basic intrinsic worth. Gold and the US greenback commerce a premium as a result of they possess worth as change items.

So does bitcoin…for now.

But gold and the US greenback will retain that change unit factor, giving them a flooring.

3. Bitcoin’s True Worth Is Meager

bitcoin price chart
Value and worth usually are not all the time the identical factor. | Supply: TradingView

Bitcoin is simply helpful to folks so long as it retains its decentralized database administration and its permissionless entry.

Which will present it with a flooring, however that also destroys the idea that it’ll have limitless demand in opposition to restricted provide.

Ed Butowsky, Managing Associate and Chapwood Capital Funding Administration, tells CCN:

“There’s no restrict to what number of cryptocurrencies will seem available on the market. That flood of provide will impression bitcoin ultimately. Financial concept additionally proves that the worth of asset that has no backing will all the time be risky and unpredictable. Buying and selling and proudly owning bitcoin is thus like taking part in with fireplace.”

And I will make you one promise: You may inevitably get burned.

Disclaimer: The views expressed within the article are solely these of the creator and don’t symbolize these of, nor ought to they be attributed to, CCN.

 

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