Bitcoin and other current cryptocurrencies are a prototype currency, which will have to be replaced soon with asset-based, decentralized cryptocurrencies. It is obvious that the core idea of cryptocurrencies is solid and that society will not go back in time and abandoned this idea. But, it is also obvious that crypto currencies like Bitcoin will not become a mainstream, worldwide currency in their current form, a potential opportunity that asset-based crypto currencies will provide.
According to our analysis, we predict that Bitcoin will undergo several major market adjustments within 2018 and that this adjustment will make mining of crypto currencies non-profitable for an extended period (of several years) after the upcoming market adjustments. Thus, many miners will stop the mining process and choose to use their hardware for other purposes (Deep learning processes and some will even attack the system itself). The collapses of the mining industry will create investor agony, further depreciating the price of Bitcoin and the availability of asset-based cryptocurrencies will be considered by investors as a safer alternative.
It remains to be speculated that an alternative use of Bitcoins currency will be discovered and implemented, which will deem the end of Bitcoin serving as a cryptocurrency, or not. During the same time frame investments in other blockchain technologies will be fruitful and create a new booming market, taking advantage of many things the industry learned from the early crypto currencies. Miners leaving the cryptocurrency market will further contribute to the future boom of artificial intelligence (AI) related industries, as deep learning requires a lot of time to train, which is computer time and is much faster over GPU instead of CPU (Mining computers have very powerful GPUs).
“There is no such thing as free lunch.” We know the promise of a free lunch is very attractive but sadly not possible. For example, in the stock market bubble between 1995-2001people saw high returns just by investing, many people quit their jobs and just started to invest in the market, not noticing that the liquidity was coming from concentration of money in the stock market and not from an increase in productivity (more goods be manufactured). A solid economical principle is that value increase value of currencies and stocks are related to increase in productivity. Bitcoin itself is not related to productivity at all, where fiat currencies show a strong correlation between productivity (e.g. GDP) and their value versus other currencies. Hence it seems strange that one could just invest in a cryptocurrency and then relax from now on gaining a substantial return. Asset based crypto currencies like the stock portfolio based crypto currency as proposed by ChainBLX overcome this “castle in the sky” problem, they are backed by the productivity of the enterprises which stocks are held in the portfolio underlying the crypto currency.
To further demonstrate the current “castle in the sky” approach of current non-asset backed crypto currencies we take some data of ChainBLX financial calculations into consideration.
For people not familiar with ChainBLX cryptocurrency here’s a quick summary:
https://www.enterprisetimes.co.uk/2018/02/05/chain-blx-debuts-decentralized-blockchain-project/ : ChainBLX uses decentralized blockchain technology to improve access to liquidity and record keeping. The result is universal access to global liquidity, minimized costs barriers and improved security. In addition, the marketplace is always open and directly accessible to any individual or organization. This means that participants can buy or sell any asset – from digital stock derivatives and currency. Chain BLX automates the record keeping and charges a maximum fee 0.25% of a transaction’s value, charged to each party to a transaction, which builds the backbone of its asset underlying its own crypto currency. Thus, a decentralized asset-based crypto currency is born.
Thus, we would deal with a potential crypto currency:
• Which is Asset backed,
• Which has a steady supply of new coins/token created,
• Which overcomes the scalability issue of Bitcoin,
• Which is decentralized,
• Which reduces mining cost significantly,
• Which created internal use (necessity to own) of the cryptocurrency,
• Which has less volatility therefore can be used for pricing of assets and goods.
ChainBLX internally calculated therefore its year 4 revenue to be 450 Million in accumulated underlying assets from transactions. This would bring its hypothetical market cap to around 9 billion (considering an average P/E ratio of 20% of financial institutions) which is normal. If ChainBLX would apply a calculation based upon past data of current non-asset based crypto currencies the value would be above 31 billion. Hence overvaluing ChainBLX by triple its actual value.
Assuming that Bitcoin would be overvalued by a factor of three the current real value of Bitcoin would be $2238 at the point this paper is written. If such an overvaluation is true, the value of Bitcoin would drop under the cost of creating new Bitcoins and initiate the here proposed scenario. ( https://www.cryptocurrencyguide.org/one-bitcoin-mining-cost-per-country-based-on-electricity-bill/ )
As a final annotation to this example, some people argue that the cost of creating a bitcoin has an intrinsic value underlying the currency, which is not true. The electricity consumed is economically seen a sunk cost, money which is gone and can’t be recuperated (the same way you drive a car off the dealer lot, it is worth much less the first mile you drive it).
Another way to predict “judgment day” (the day where bitcoin falls under the mining cost for several years) would be using trend analysis. The problem with technical analysis (e.g. trend analysis), is that it’s based upon underlying consumer behavior in stock markets and are very inaccurate if used in circumstances of high volatility and with very limited data (Bitcoin is not a stock, is highly volatile and we have no past data of similar financial instruments). Very simplified, if you simply put a regression through the Bitcoin dollar price index you can show whatever you want by choosing the right start and end point (e.g. Bitcoin should be worth between $0 and $15,000+ within the next three month). Therefore “Judgment day” may never happen or would be very soon (both incorrect assumptions, as stated above traditional technical analysis cannot be applied to crypto currencies).
It is a known fact, that Bitcoin has been mined in conditions of higher electricity cost vs. value, but this mining has been justified with an exuberant expectation during an upwards trend of Bitcoin value vs. dollar. Never in the short history of Bitcoin have such a large number of individual investors experienced such a long lasting downward trend, and never have miners experienced such an increase in mining cost, accompanied with such a decrease in value of Bitcoin.
It can be speculated that the past popularity may be by itself part of the postulated future demise of the current non-asset based cryptocurrencies, even by ignoring all other arguments brought forward above.
The past cryptocurrency boom may have attracted too many speculative investors (gamblers) guiding to an exuberant value increase of cryptocurrencies. This caused a speculative increase of GPU-power (i.e. cost) to mine new coins. Similar to an enterprise, which can be driven out of business by growing to quickly, Bitcoin experiences the same risk. The speculative investors don’t behave in a rational manor, but more in a manor like gamblers in Las Vegas. If they don’t win any more on one table, they change tables (and to convince them to return they would need to see a long lasting exuberant value increase). This leaves the rest of the more serious community with the aftermath (e.g. high mining cost, the lease of equipment must be paid even when not in use, problems to attract people wanting to invest in Bitcoin, etc.). An aftermath which more and more serious investors may not want to deal with. This may guide to a shrinking user base and may cause a downhill spiral as those investors just look for the right time to leave. Future asset-based currencies will not have this risk as the underlying valuation gives serious investors a clear indication of when to stop and when to restart, as well as a safety net of their investment.
In conclusion; Bitcoin and other non asset-based currencies are a wonderful idea. They provided all coming blockchain endeavors as well asset-based cryptocurrencies with vital information. As prototype cryptocurrencies they will be the foundation of many technological developments as well as new understandings in economics and a second generation of asset-based cryptocurrencies. Since there is no such thing as a free lunch and because of the massive prior influx of speculative investors and their after math bitcoin and other cryptocurrencies may lose attractiveness. This may give room for anew boom in AI, asset based cryptocurrencies as well as other blockchain related endeavors.
The above references and opinions are for information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
The information contained herein is not an offer for sale of (or the solicitation, or invitation, of an offer to buy) any securities in any jurisdiction. The author and/or ChainBLX makes no warranty (express or implied) regarding the accuracy or completeness of the information.