The Bitcoin investment case (over Ethereum and altcoins)

My first post may come as an FUD to many :-) Like a legion of new comers to cryptocurrencies, I entered cryptos from investing in other asset classes. Don't buy what you don't understand is investment 101, so I bashed my head against the complex arcanum and economics of blockchain-based tokens and currencies. Here I present my conclusions on why Bitcoin is here to stay as a new digital "gold standard".

1. Bitcoin as an Asset Class - As opposed to the altcoins, to serve as a "Cryptocurrency" is in Bitcoin's founding DNA. Today, at close to $2500 a coin, it is fast moving more towards an asset class that doubles up as a currency, much like the shiny metal gold. And like digital gold - Bitcoin will, sooner or later, see flight of money in times of global recessionary conditions and bear markets. Since we are currently in a bull market (in terms of traditional asset classes) it is a good time to buy Bitcoins as the upside and value unlocking due to "flight to safety" and money flow is still unexplored. Part of gold's popularity lies in how the precious metal endured the ups and downs of human history as a durable store of value. Once Bitcoin survives an economic depression it will see mass recognition as a substitute for gold. Further, Bitcoin's supply increases at a decreasing rate and is capped at 21 million. This is different compared to other inflationary altcoins, ensuring the "scarcity premium" of Bitcoin will only increase overtime as it gets harder to mine and scarcer to find - again mirroring the properties of gold.

2. Bitcoin is being adopted by the mainstream - Japan, Korea, Australia, Switzerland have begun mainstream adoption. In China it is already a huge curiosity. Wait till India and South America pick it up in a huge way. Bitcoin has name "recall" amongst the mainstream. Building brands is expensive. Millenials do not trust banks and the stock market but have heard of Bitcoins and are endeared to its counterculture origins and essentially de-centralized nature. Bitcoin has a first mover advantage and the network effects of cryptocurrency adoption will benefit Bitcoin more than any other altcoin.

3. Bitcoin is being adopted by market-makers and hedge funds - As a sign of "early adoption" stage in an asset lifecycle, Bitcoin has moved on from its Dark Net drug running days into the NAVs of high-net worth portfolios. A look at the investment news aggregator Seeking Alpha makes it clear that a number of hedge fund managers are now weighing Bitcoin as a position in their portfolio. Earlier this year, we saw Bitcoin ETFs trying to enter this market that could be traded over stock exchanges. The SEC currently has an open notice of proposed rulemaking and is inviting public comments on the idea of allowing Bitcoin based ETFs. This is an eventuality that will bring "smart money" into Bitcoin in a way that has not happened in the past and such market making will take the currency/asset further into the mainstream. Such moves also give Bitcoin more stability and less volatility over competing altcoins, making it more like a stable, mainstream fiat currency.

4 - Bitcoin has become the default trading pair for cryptocurrencies on exchanges worldwide - A look at forex traders online will show you that such an adoption of $BTC based trading pairs is happening in a major way. All cryptocurrency exchanges support trading with BTC pairs against other cryptocurrencies and also against all fiat currencies like the EUR and USD. For people around the world, Bitcoin often is the point of entry into Ethereum and other altcoins. This has become a "Trend" and Bitcoin has become the USD of the cryptocurrency world, and like the USD this adoption of BTC as the base currency will be hard to undo. Like traders say - don't fight the "Trend", for the "Trend" is your friend.

Having stated all these advantages of Bitcoin over other altcoins, it is worth stating that most altcoins were not originally designed as an asset/currency but rather tokens for a blockchain to scale applications with real world business use-cases. The tokens were meant less as stores of value and more as incentives for network participants in a closed loop economy. The various exchanges have created a market for these tokens so they trade against Bitcoin like currency pairs.

Ethereum is the most promising of such altcoins which seeks to achieve goals very divergent from Bitcoin. Think of Ethereum as Web 3.0 - the internet of the future not running websites on web servers but an Ethereum blockchain with user and business applications piled on top (each with tokens exchangable against Bitcoin and Ether).

As a pure play asset-class and investment - the many merits of Bitcoin over other cryptocurrencies will always stand out. If I had to conclude the message simply, I would say that the fair value of cryptocurrencies does not hinge on intrinsic value but perception, i.e the fair value converges with perceived value and that makes Bitcoin a leader - because it was first to capture mind share and it was the first to be designed as de-centralized digital gold.