Crypto Investment Philosophy: Is Bitcoin Too Big To Fail?
The investment potential of Bitcoin and other cryptocurrencies can be judged against a number of factors. From tech, teams and partnerships, to brand-name recognition, to the promise of some future revolutionary application.
But for strictly cautious investors looking for a ‘sure thing’, what about judging a coin’s investment potential against the criteria of ‘too big to fail’? How many pillars of the crypto community could lay claim to such a description?
The Curious Case of EOS
Has anyone noticed that EOS tends to pump stronger and dump harder than most other major altcoins? During every altcoin surge, EOS always seems to lead the charge, before losing whatever it gained just as quickly.
There’s a theory going around that this is caused by EOS block producers (BPs) selling off their coins during price peaks; and then scooping them back up during troughs. This is largely in reaction to the very thin profitability margins that come with operating EOS during bearish market conditions.
When the EOS mainnet went live in May 2018, the 1% coin reward earned by block producers was substantial enough given the $24 dollar coin price. But with no blockchain difficulty adjustment in place, as the coin price dropped throughout the year, BPs saw their profitability drop hand-in-hand.
By the end of 2018, Bitcoin miners found themselves in a similar predicament. Small scale miners disappeared – their hashing power scooped up by larger operators who could swallow the profitability loss. Other crypto projects had to lay off staff, or radically alter their business structure.
Bitcoin: Surviving the Test of Un-Profitability
One the one hand, you might say that Bitcoin has already been tested. If you are of the firm belief that the days of BTC at $3,200 are behind us, then the proliferation of cheaper mining equipment will only increase. Decentralization of Bitcoin mining will be given a chance to flourish, and the entire venture will be positively impacted.
Likewise, EOS was tested in December at a coin price of $1.56, and managed to come through. That’s despite EOS block producers openly stating that $2.50 was the point at which they’d have to file for bankruptcy. Here you can see why trading their own ‘stock’ becomes essential.
Cryptocurrency life cycles will be determined by more than just mining profitability. But looking at the sheer weight of support behind certain projects in terms of hashing power (Bitcoin), dApp activity (EOS), developer adoption (Ethereum), etc, might give a clue as to how long these coins will be around.
Slow and Steady Wins the Race
This is a cautious approach which takes only one factor into consideration – but that factor is usually a pretty weighty one. This isn’t speculating on 100x gains based on some as-yet-to-be theoretical concept. This is picking a horse for its reliability and likelihood to finish the race, rather than for its potential to break records.
Looking at the crypto landscape under this particular magnifier, how many projects would you be comfortable investing $5,000 in and forgetting about for five years? I can only think of two.
As I continue this series of articles, the cryptocurrencies mentioned here will no doubt fare worse when judged against different criteria. But when judged against the admittedly cynical criteria of ‘too big to fail’, only Bitcoin and Ethereum would get my bet at this current time.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.