Does Price Matter Any Longer?

Cryptos have now reached the stage where price has fallen to a level many did not expect after a year of falling and falling with no bounce, seemingly knowing no other direction, but down.

Tether has risen today to 5th position in market cap. It is not far off from overtaking Stellar to become a top four crypto. BSV briefly overtook BCH in a first for a minority chain-split coin.

While BCH, once the second biggest coin for a brief period and usually a top four coin with great distance from other lower cryptos, now looks indistinguishable in market cap from Litecoin or EOS.

Ethereum, once within a hair breadth of overtaking bitcoin, now stands below Ripple with some distance of $4 billion. Ripple itself is now not far off from falling below $12 billion. Its once price of $3 has now been reduced to $0.3.

After the astonishing price rise last year, everyone sort of new it was going to turn and when it does it was going to be bad, but not this bad. Although that’s how it always fell in previous crypto bear markets.

A return of ethereum to double digits isn’t really something that even the biggest perma bear would have guessed. Easy peasy $324, but $85 per eth coin sounds quite incredible.

It might not be that incredible, of course, it might have further down to go. The old ethtraders apparently think this might go below $60. The new ethtraders think it might even go below $30.

Does it matter, even at zero. One eth is still one eth out of about 104 million. About a third of US’s population and circa one fifth that of Europe.

Plenty of projects raised billions last year with much of it diversified into fiat. For most of them price is now probably irrelevant. 

Even at zero they’ll have funds to build all the things, but this astonishing rise and astonishing fall does look pretty bad and does have to be addressed because while many made plenty, plenty lost much.

The most probable reason for this astonishing volatility, which unlike in the Tulips bubble keeps repeating itself, is probably due to the Proof of Work design, or more correctly, it is probably due to the way the distribution of new coins is designed.

First, in a real bubble of a worthless asset, its price might go up to the stratosphere in a collective delusion of sorts, but then goes down to zero and stays there.

For bitcoin or eth it has usually recovered to then “bubble” again because network stats show people aren’t actually leaving. Eth, for example, has been handling 500,000 transactions a day for months. Bitcoin is currently transferring some $4.6 billion a day.

They might go up or down, but there’s utility for some. Thus it isn’t that people suddenly woke up and thought this is now worthless, like with the tulips. Obviously there may be some who do so, but if the numbers say anything, then there are some businesses and there are some use cases which continue functioning regardless of the price action.

What usually happens, therefore, is that some new people or businesses find out about crypto, with the word then spreading to the point where it becomes a lot of people and to the point where the infrastructure can no longer handle them.

What the current infrastructure can handle probably keeps going on about its crypto business. Yet as now there can’t be any new growth in usage due to the scalability matter which is being addressed, the somewhat fairly high level of inflation leads to a fairly steep fall.

Thus you get this up and down volatility which might be temporary if we look at a long enough time frame. That’s because inflation will be cut in half in bitcoin in 2020, and then again some years after. To the point where eventually there is no longer new supply, so no steep downwards pressure.

In eth, they’ll cut inflation down next month, then again when the Proof of Stake (PoS) Beacon Chain launches down to 0.8% a year or so. They might also put a cap on new supply to perhaps 120 million, with stakers and thus security to be paid by transaction fees and potentially storage rent once sharding goes out to allow potentially even a billion transactions a day.

It may well be that what happens to price until there is that new capacity might be irrelevant. Speculators and traders will obviously speculate. Investors will have a more long term view. Coinbase may try to trademark buidl, but builders will build anyway.

While plenty will keep on working towards a world where there’s a people’s money and is digital, and codable, and free. Where there’s 21st century efficiency in some outdated still paper based financial instruments. Where machines have money. And where there’s greater fairness in contractual relations due to the replacement of at least some intermediaries. 

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