20180120_Bitcoin-doom

This past week has seen a dramatic turn-around right across the board in the crypto-currency space. Literally billions of dollars have been slashed off the market value of many of the currencies and the once darlings of the media have quickly become pariahs.

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I watched a financial commentator on the local news speaking almost with glee on the dramatic fall from grace of Bitcoin and how cryptocurrencies were completely crazy. He then flashed up a few charts that reinforced his point that cryptocurrency investors were obviously bonkers.

I was chatting with my brother the other day and like the news commentator he also missed the single defining point about cryptocurrencies…..and that is, not all of them are created equal. Unlike fiat money which is essentially the same no matter whether its dollars, pounds, euros or whatever, cryptocurrencies can often have a business model that is attempting to solve a real-world problem.

The fact that a currency has also been created in this solution process is more often than not a side issue from the main game. For example, Ripple (XRP) is trying to solve the problem of the hugely expensive international bank transfers. This then provides Ripple with a utility that goes far beyond being merely a currency.

The fundamental difference between fiat money and cryptocurrencies is how the block chain is being used. The uses of the blockchain technology are extraordinary and limited only by your imagination.

A cryptocurrency is actually more akin to a new gTLD domain extension and the value relates to how many businesses are building real functioning websites. Like the new gTLDs the challenge for a new cryptocurrency is to get buy-in for the problem they are solving.....the more buy-in, the higher the market cap floor price.

When you look at the wild ride of the past week, my advice is to push past that and take a deeper look to determine whether a cryptocurrency is successfully solving their real-world problem. Then take a little longer view as cryptocurrencies in one form or another are here to stay.

Have a great weekend!