I follow the world of bitcoin and altcoins with some degree of closeness. It’s a world that has enough opportunity to change things dramatically but who knows whether it will actually happen. A lot can happen with projects as large as these.
There is a lot of misunderstanding going around about the nature of demand with the various projects that exist. As I sit here writing, bitcoin currently has a value of $6,547 per coin. There’s some degree of demand that drives that value. However, prices of bit/altcoins fluctuate rapidly and regularly implying a large degree of disconnect on how to value the demand for these projects.
This disconnect resonates throughout how people talk about bit/altcoins. Let’s break down the three levels of demand so we can maybe have a degree of agreement on how to communicate:
- Developer/Early adopter demand. This group is interested predominately in the potential to use bit/altcoins for novel use cases. They aren’t interested in buying a gallon of milk, they want to create something new. This level of demand largely creates interest and future potential. Very little of the value of coins as it stands today comes from here.
- Institutional/Long-term investors. This group goes around shopping for deals. They want to buy something today for $1 that will be worth $5 tomorrow. Undeniably, bit/altcoins contain this potential. As projects from level 1 become more mainstream, this potential gain realism. Most of the value of bit/altcoins is derived from this level because there really isn’t much else for the average owner of bit/altcoins to do with it.
- Everyday users. This group does not exist yet. Sure, there are some limited use cases that allow people to use bit/altcoins in repeatable and useful ways. These cases still fall easily under the early adopter frame. None of the projects is ready for the average consumer to go buy a gallon of milk. No value of the coins sits from this bucket.
Most investments that people can make involve a mix of valuations across these groups. Over time, the gap between the various valuations closes to bring about consensus to the value of an investment. Bit/altcoins are no where near that point. Each investor is still applying their own valuation process which creates significant valuation gaps.
There’s no right answer, but it’s important to realize that any two people having a conversation around “what is the right value of bitcoin” are probably having two different conversations even though using the same words.