The froth and frenzy of the 2017 cryptocurrency bubble is back at full steam in 2021 as social and traditional media helps push the meme coin DOGE to ever greater heights, recently surpassing established top ten coins like Cardano (ADA) and Polkadot (DOT) by market capitalization. Unfortunately, like a game of musical chairs, everyone has fun while the music is playing but when it stops people will need to find a chair and there will be very few chairs to go around. Just as GameStop (GME) shares skyrocketed to almost $500 per share at the beginning of the year before collapsing to around $50 at one point, DOGE will eventually suffer its own catastrophic collapse. But GameStop is an actual real world company with assets and future earning potential, while DOGE is simply a neglected cryptocurrency project that has become the plaything of one Elon Musk, among others.
What is the difference between price appreciation due to utility and one associated with speculation?
The version associated with utility, as exemplified by Binance’s BNB coin rising faster than BTC and now at about 30 times its 2017 all time high as compared with BTC’s 3 times its previous ATH gives users reason to keep holding the coin knowing that others will want to buy what they have at an equal or greater price in the future. Whereas the version associated with speculation, as exemplified by DOGE, is driven by hope — hope that others will keep the game going long enough to enable buyers at one ridiculous valuation to sell to others at an even more ridicolous valuation before the bottom falls out and enough people question why they are holding an asset without genuine utility that a collapse is precipitated
What are some key signs to look for that an asset you hold may be without genuine utility/value?
- If you are anxious about holding it and constantly watching the price, this is a sign.
- If you feel compelled to tell others how important your asset is and why they should want it.
- If you are waiting for the price to go up so that you can dump it.
- If the price going down makes you feel depressed or sad.
What are some key signs to look for that an asset you hold may have genuine utility/value?
- If you are comfortable holding the asset and don’t feel the need to watch the price, this is a sign.
- If others denying the value of your asset doesn’t bother you in any way.
- If you dread the price going up because it will become more costly to accumulate.
- If the price going down makes you happy because now you can accumulate more cheaply, knowing that price appreciation is inevitable.
If you want to experience all the comforting signs of holding an asset with genuine long term value, look for one that features differentiated utility and has virtually no competitors. I don’t want you driving up the price of mine, so I prefer not to shill it, but I will give the curious among you a hint: the P2P digital cash revolution will not be centralized, nor will it be on a transparent blockchain and when it comes, it will help bring about a kind of digital Utopia.