My brother and I were recently having a conversation about the relative upside potential of Bitcoin compared to Ether.
Basically, which is the better investment?
He took the position of ETH as a result of the open-source platform that the Ethereum blockchain provides for developers to launch their own products and services.
As the popularity of crypto continues to rise, many people are turning to Ethereum and ERC-20 compliant tokens as a secure and well-established place to host their DApps. This trend creates consistent, predictable, and stable demand for ETH as the native asset on the Ethereum blockchain, and suggests that ETH will continue to rise in popularity, and more importantly value, over a medium to long term horizon.
I agree with his arguments wholeheartedly, but I took up the case of Bitcoin for the sake of argument.
At the end of the day, the discussion essentially boils down to the question of demand. With the existence of efficient markets for Bitcoin and Ethereum, the price of both reflects an almost perfect equilibrium between supply and demand. The supply side of the equation is a given, thus the discussion is centered on the demand side.
And in that light, I tried to articulate three prime sources of demand for Bitcoin:
- The Casual Encounter
This is the person that sees the exponential growth of Bitcoin in the news and can’t resist getting involved as a makeshift “get rich quick” scheme. The individual is essentially the uneducated investor, who has a very limited, if not completely non-existent, understanding of the underlying technology. We all know a lot of these people, and while some might question their readiness to invest in something they know very little about, it’s important to recognize their part in contributing to the future growth of the value of Bitcoin. Check out this graph if you’re not convinced:
- The Institution
As much as a lot of cryptophiliacs might not like to admit it, the institution is becoming an ever-more important player in the Bitcoin space. The institution category includes the bankers, the private investors, CBOE Group and their futures contracts, ETFs, and everyone who participates in those goods and services. It includes myself to some degree as a moderately educated investor looking for value-based opportunities and long-term positions. This group is driving an incredible amount of demand, and stands to grow exponentially in the short term. Just as this article is being written, there are 15 pending applications for the creation of new Bitcoin based ETFs, all of which could drive hundreds of millions, if not billions of fresh dollars into the Bitcoin sphere. With a market cap of only about $240 billion, 15 new ETFs and other financial derivatives will certainly not go unnoticed.
- The Market & The Community
This group accounts for the fact that a lot of markets in the crypto space are being underwritten in Bitcoin, and therefore contribute to the overall demand for the currency, even if only for the sake of very short-term transactions. If you look at a list of offerings on an exchange like Bittrex, you’ll notice the gross imbalance between USD Tether and ETH pairs, and BTC pairs. Check it out:
This group also includes blockchain enthusiasts and supporters of the decentralization process who utilize Bitcoin and blockchain based goods and services as much as they can in their daily lives. They are the visionaries who see beyond the purely mercenarial motives of many of the people who participate in crypto markets, and look forward to the day where blockchain based technologies contribute to a more fair, private, and efficient world economy.
These three sources of demand for Bitcoin render its future quite optimistic, As the adoption of blockchain based technologies continues to grow exponentially, I expect Bitcoin to be at the forefront of that growth and look forward to the benefits yet to come.