TThe cryptocurrency space has been in turmoil in recent months, with prices rising at the start of the year and then dropping sharply, new coins coming regularly to the market and increased speculation in digital currencies potentially replacing traditional banking services and card networks.
While cryptocurrencies present exciting opportunities and potentially huge upside potential, there are big risks as well. Cryptocurrencies could become a new kind of financial platform and an alternative to fiat currencies, but unlike corporate stocks, cryptos don’t produce anything. While a stock is intrinsic value can be seen as the present value of all future cash flows, any sort of intrinsic value for cryptocurrency is more nebulous; it will essentially be worth what the supply and demand in the market dictates it is worth – which could be a lot, or nothing.
For all of these reasons, if you’re ready to get into cryptocurrency, don’t bet more than you can afford to lose. But if you are planning to speculate, a coin should definitely be at the top of your shopping list.
Image source: Getty Images.
Bitcoin: OG cryptocurrency remains the safest value
Since cryptocurrencies are relatively new, a basket approach may be the best, but I really think the first and largest having in any crypto basket should be Bitcoin (CRYPTO: BTC).
Why Bitcoin? For the same reason Amazon.com has become a dominant internet company, while many other potential competitors have fallen apart: Bitcoin is a forerunner.
A first mover has a huge competitive advantage in any industry where there are powerful network effects. A network effect occurs when a platform becomes more valuable as more and more people use it. Think of the major social networks or Amazon’s e-commerce marketplace: sellers want to go where buyers are; buyers want to access the site with the best selection and lower prices. By getting a quick lead, Amazon has become a dominant force in e-commerce. Facebook continues to dominate social media in the same way due to that first-come status and terrific execution.
If cryptocurrencies are worth anything in the future, it will take a critical mass of people and institutions to believe that a certain crypto platform has value, either as a medium of exchange or as a reserve of. value.
In this regard, bitcoin is far, far ahead of other coins.
Businesses, Banks, and Even Governments Buy Bitcoin
Bitcoin’s value increased dramatically earlier this year, as a critical mass of businesses, governments, and institutional investors began to allocate a significant amount of capital to bitcoin. FinTech company Square (NYSE: SQ) bought bitcoin in October 2020 and again in February. You’re here bought Bitcoin with his own corporate cash back in February to a lot of media buzz, and he initially said he would accept bitcoin payments, only to turn the tide in May due to Bitcoin’s energy footprint. Perhaps the biggest bitcoin enthusiast among companies is MicroStrategy, who not only started buying bitcoin last August, but has borrowed hundreds of millions of high yield debt to buy even more in recent days.
Also in the first quarter, a large American bank Morgan stanley became the first big american bank to allow access to funds that trade bitcoin. Last month, Goldman Sachs published an article officially naming bitcoin as an investable asset class, reversing its previous position, while also setting up a cryptocurrency trading desk. same BNY Mellon, the oldest bank in the country, has said it will start funding bitcoin and other digital currencies during this year.
Finally, at a conference last weekend, President Nayib Bukele of El Salvador said he would present a bill to the country’s Legislative Assembly to make bitcoin legal tender in El Salvador, which would make El Salvador the first country to take this step. Bukele also said the country is partnering with Strike, a crypto digital wallet company, to build the company’s digital currency infrastructure.
Needless to say, bitcoin appears to be the first digital asset these institutions recognize as a viable asset or currency. While there may be more cryptocurrencies reaching this level of adoption, it’s clear that bitcoin has a pretty big lead early on.
Jack Dorsey bets on bitcoin
Speaking of Square, its founder and CEO, Jack Dorsey, is an evangelist dedicated to bitcoin, to the exclusion of other digital currencies. This month, Dorsey said that Square is considering building a hardware bitcoin wallet and that if he thinks the bitcoin ecosystem needs him, Dorsey will leave Square and Twitter to work on bitcoin.
This is because Dorsey sees bitcoin as the “native currency of the Internet” and a way for people in developing countries to protect themselves against the potential devaluation of their national currency. âThis is why we don’t deal with any other ‘currency’ or ‘coin’ because we strive so hard to make bitcoin the native currency of the internet,â Dorsey said.
The wind is in the back of Bitcoin
While many investors and commentators like to highlight some of the innovative properties of new coin types, the architecture of Bitcoin is also quite innovative and also has a strong community of developers around it. For example, bitcoin developers recently developed Sovryn, a decentralized finance (DeFi) app based on the bitcoin RSK side chain. DeFi had been considered by many to be the exclusive domain of the bitcoin competitor Ethereum (CRYPTO: ETH), but the bitcoin blockchain ecosystem appears to be flexible enough to also host DeFi applications.
With a flexible platform, a big first-mover advantage, and a critical mass of institutions and entrepreneurs like Dorsey exclusively supporting it, bitcoin should definitely be a novice’s first crypto purchase, and it probably should be. largest allocation among all “crypto basket”. “you are looking to buy.
10 stocks we like better than Bitcoin
When investment geniuses David and Tom Gardner have stock advice, it can pay off to listen. After all, the newsletter they’ve been running for over a decade, Motley Fool Equity Advisor, has tripled the market. *
David and Tom have just revealed what they believe to be the ten best stocks for investors to buy now … and Bitcoin was not one of them! That’s right – they think these 10 stocks are even better buys.
* The portfolio advisor returns on June 7, 2021
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of its CEO, Mark Zuckerberg, is a member of the board of directors of The Motley Fool. Billy Duberstein owns shares of Amazon, Bitcoin, Ethereum, and Facebook. Its clients may own shares of the companies mentioned. The Motley Fool owns shares and recommends Amazon, Bitcoin, Facebook, Square, Tesla, and Twitter. The Motley Fool recommends MicroStrategy and the following options: $ 1,920 long calls in January 2022 on Amazon and $ 1,940 short calls in January 2022 on Amazon. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.