Negosentro.com | Why Bitcoin Is Worth So Much More Than Other Cryptocurrencies | Bitcoin is almost synonymous with the term cryptocurrency, and there are two primary reasons why: First, Bitcoin was the original cryptocurrency, getting its start in 2009. Second, Bitcoin is the most valuable cryptocurrency.
It’s also the only cryptocurrency that can be traded on major exchanges like the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE). In addition, Bitcoin can be traded via regulated brokers who provide low-cost contracts.
Many other cryptocurrency options have come onto the market since Bitcoin’s start, but the fact that these are collectively called altcoin (a portmanteau of “alternative to Bitcoin”) tells you everything you need to know about how bitcoin stands in relation to crypto alternatives.
The Value of Cryptocurrency
As of April 2020, there are over 5,000 cryptocurrencies in existence.
According to Yahoo! Finance, the cryptocurrencies in existence are being traded with a market capitalization of $201 billion, but the top ten cryptocurrencies account for $178.42 billion (almost 90%). Bitcoin alone is worth $128 billion (over 60%).
Why Bitcoin Is Worth So Much More Than Other Cryptocurrency Options?
There are several reasons why Bitcoin is the most valuable cryptocurrency.
The Oldest Cryptocurrency
As we’ve previously mentioned, Bitcoin is the oldest cryptocurrency in the world. It is well-known and accepted as a store of value and can be used in exchange for goods and services.
Trust is an integral part of any currency. Bitcoin is more trusted and widely accepted than other cryptocurrencies. Those seeking to enter the cryptocurrency market are likely to opt for it over other options. Plus, you can even buy bitcoin with bank account, meaning it is super-accessible to anyone, regardless of their experience level when it comes to crypto.
Stable Supply of Bitcoin
The peer-to-peer Bitcoin network is responsible for generating additional Bitcoins, including how the asset is created, when it is created, and at what rate. Any exceptions to the well-defined algorithm for Bitcoin generation (e.g., currencies generated by malicious parties) will be rejected, helping maintain the “purity” of the supply.
Bitcoins are mined every time a user (called a “miner”) discovers a block. The block creation rate adjusts every time 2,016 blocks are discovered, resulting in the number of Bitcoins generated to decrease geometrically over time.
In the end, the maximum number of Bitcoins in existence (once all have been created) will be slightly less than 21 million. This strategy was designed to reflect the rate at which “real” commodities (like gold) are mined.
In the long run, the demand for Bitcoin may fluctuate based on economic conditions, but the supply remains the same. If there is a steady growth in the demand for Bitcoins, the price of Bitcoin will go up.
Furthermore, the stable supply can be a hedge against inflation, letting investors know that there will be little fluctuation resulting from the changes in supply. This can impact demand for the currency as well.
Using Bitcoin As Currency
Bitcoin is not legal tender, but in a lot of cases, it is considered to be and can be used as currency (especially for those seeking to minimize the banking fees or transaction fees they accrue for international payments). This is not the case with many other cryptocurrencies, which means that there is more demand for Bitcoin than its alternatives.
The Sacramento Kings became one of the first sports teams to accept Bitcoin in exchange for tickets and merchandise in 2014. In 2019, the Dallas Mavericks followed suit and began accepting Bitcoin as payment. S.L. Benfica, a Portuguese-based professional football club accepts Bitcoin as well.
Bitcoin is also becoming influential in the area of charitable giving. For example, large nonprofit organizations like the Red Cross and the United Way accept donations denominated in Bitcoin, while Unicef has announced a crypto fund that would allow it to receive (and give) in Bitcoin. Furthermore, #BitcoinTuesday is a legitimate effort started in 2014 by the crypto community to raise funds for nonprofits via Bitcoin donations.
When it comes to retail, many major companies (including Microsoft, Expedia, and AT&T) accept Bitcoin. Furthermore, an HSB study found that 36% of small- to medium-sized businesses accept Bitcoin as payment. This means that people can use Bitcoin like they would traditional currencies for their everyday transactions.
One of the limitations of Bitcoin is its lack of features, especially when compared to fiat currencies and the services offered by the traditional banking system. New concepts, such as Bitcoin ATMs, have come to market to help bridge these gaps. When the first Lamassu ATM launched it was for Bitcoin only. Today the company boasts several models all of which support Bitcoin but also Bitcoin Cash, Litecoin, Ethereum, Zcash and Dash. This is the usual trajectory of cryptocurrency products: the first models support Bitcoin only.
Crypto-only banks are also in the works, as key thinkers in the crypto industry navigate the challenges presented by a heavily regulated banking sector with the privacy and security typically offered by crypto options.
All in all, the infrastructure for spending Bitcoin is in place, especially with the ubiquity of cell phones and mobile wallets. Many have heard of Bitcoin, and as more and more people begin to accept crypto, it stands to reason that Bitcoin will be a first-class choice for many due to its reputation.
Bitcoin is Attracting Institutional Investors
In June of this year Fidelity reported on a year-long survey they conducted of 800 institutional investors in the U.S. and Europe. Some 36% of institutional investors surveyed were already invested in digital assets, and Bitcoin was the asset of choice for most of them. Approximately 11% were invested in Ethereum.
The majority of investors were invested directly in crypto but 22% of American respondents who are already invested in digital assets were invested via bitcoin futures. That’s up from 9% in 2019.
Indeed all of the numbers cited in the survey are trending up.
Of those who were interested in digital assets 91% expect to have at least 0.5% of their portfolio allocated to crypto over the next 5 years.
Interestingly, the study found that European investors were more open to including digital assets in their portfolios than Americans were.
Traded on Regulated Exchanges
As we mentioned Bitcoin is the only cryptocurrency traded on major futures exchanges in the US: the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE).
Both offer monthly futures contracts and ICE offers a daily contract as well.
ICE and the CME are regulated by the Commodity Futures Trading Commision (CFTC). That, along with the fact that these bitcoin contracts are cash-settled, removes some risks associated with trading the cryptocurrency.
The Billionaire’s Hedge Against Inflation
Earlier this month, Bitcoin futures traded on CME popped by 5% on the news that legendary hedge fund founder Paul Tudor Jones had invested 1-2% of his assets in bitcoin futures.
The billionaire said he believed Bitcoin could play the same role that gold did in the 1970s, namely, as a hedge against inflation. Jones characterized this position as a “great speculation.”
The news came via a letter that Jones wrote to investors. In it he warns of the pending consequences of trillions being spent in quantitative easing.
Jones wrote: “We are witnessing the Great Monetary Inflation (GMI) — an unprecedented expansion of every form of money unlike anything the developed world has ever seen.”
Below we publish part of Jones’s letter that deals with Bitcoin:
“The most compelling argument for owning Bitcoin is the coming digitization of currency everywhere, accelerated by COVID-19. Bull markets are built on an ever-expanding universe of buyers. Central to the price of Bitcoin is how many more (or less) owners of Bitcoin will there be beyond the 60 million who currently own it? The probable introduction of Facebook’s Libra (whose value will be pegged to the US dollar and will not be a store of value in that sense) as well as China’s DCEP, also tied to the yuan, will make virtual digital wallets a commonplace tool for the world. It will make the understanding, utility, and ease of ownership of Bitcoin a much more commonplace option than it is today.
Owning Bitcoin is a great way to defend oneself against the GMI [Great Monetary Inflation], given the current fact set. As Satoshi Nakamoto, the anonymous creator of Bitcoin, stated in an online forum around the time he launched Bitcoin, “the root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.” I am not an advocate of Bitcoin ownership in isolation, but do recognize its potential in a period when we have the most unorthodox economic policies in modern history.”
It’s worth noting that Jones’s position is a highly controversial, minority opinion and that he also considers gold to be a good inflation hedge.
Summary
Bitcoin continues to maintain its dominance over other cryptocurrency options. Not only is it well-known and trusted, but its stable supply also acts as reassurance for investors that their currencies will see fewer price long-term fluctuations due to changes in supply.
Research shows a growing interest among institutional investors and that will likely also mitigate bitcoin’s notorious volatility.
