reason #8
bitcoin IS the undisputed king of crypto
Crypto is both the best and worst investment on the planet. Bitcoin is by far the best asset ever created in history, but it has also spawned the very worst assets. You need to differentiate between cryptos that are mined in a decentralized fashion like Bitcoin and assets that are created from a centralized point. At the very heart of the FTX scandal was the ability of the exchange to issue endless FTT tokens and use those tokens as collateral for loans to related companies like Alameda. It is possible to create these tokens out of thin air without any energy expenditure. You cannot create 10,000 gold mines, 10,000 vineyards, or 10,000 bushels of wheat out of thin air. These issued tokens are not only the worst commodity in the world, but they are also the worst security in the world. They are unregistered and unregulated. The source of all the volatility in crypto is these unethical and non-economically sourced assets that tarnish high-quality crypto assets like bitcoin.
Bitcoin is the king of crypto to the extent that all other coins are known as altcoins- or alternate coins. At the time of writing this, there were 21,000 coins in circulation and the majority are pieces of shit. Meme coins popped up hours after Will Smith slapped Chris Rock and after the death of Queen Elizabeth. Despite this proliferation, Bitcoin and Ethereum account for more than half of the entire market. The question that needs to be answered is whether there is a place for all these coins.
To answer this question, you need to understand that there are four major types of cryptocurrencies - utility, payment, security, and stablecoins. There are also DeFi tokens, NFTs, and asset-backed tokens. In the crypto universe, utility and payment are the most common. Tokens are digital representations of a particular asset or utility, and the term is often used interchangeably with coins. All tokens can be termed altcoins but they are differentiated by residing on top of another blockchain and not being native to the blockchain on which they reside.
Let's turn through some examples
1) Utility Tokens
These are usually created in one by the developer of the network. They are designed to serve a specific purpose and are usually distributed by way of an initial coin offering which is similar to a new issuance of shares on the stock exchange. While investors may be able to purchase and use these utility tokens as a form of payment on that network, they do not come attached with a monetary value. Funfair is an example of a utility token. Funfair Technologies was created to reinvent online gaming by moving it onto the blockchain.
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2) Security Tokens
As an investment asset, a security token is a digital asset that represents ownership or other rights and transfers value from an asset or bundle of assets to a token. For example, a company that wants to raise funds for an expansionary project can decide to issue fractionalized ownership of their company through a digital token as opposed to issuing stock. An example is Science Blockchain.
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3) Payment Tokens
These are used for paying for goods and services inside and outside their own platforms. Almost every crypto falls into this category which means the most famous examples are Bitcoin and Ethereum.
4) Exchange Tokens
These tokens are native to crypto exchange platforms. The best-known examples of exchange tokens are Binance BNB which is the largest exchange token by market capitalization and FTX's FTT. Crypto exchanges launch tokens for various reasons, such as to cover transaction costs and raise capital and liquidity. The biggest risk of investing in exchange tokens is counterparty risk as was discovered with FTX.
5) Non-Fungible Tokens
These are cryptocurrencies with limited issuance that have unique identities and tokens that make them hard to replicate or copy. The most famous was Jack Dorsey's First Tweet NFT. Dorsey turned a static image of a five-word tweet into a digital file stored on a blockchain and the NFT was born. This took place in December 2020. A few months later, it was bought for $2.8 billion. In April 2022, the buyer put the NFT up for auction for 14,969 ether of $50 million. The highest bid was $280! In reality, more than three-quarters of all cryptocurrencies are garbage. This year has been described as crypto winter. This is like the dot.com crash of 2000/2001 which saw the emergence of Amazon and the disappearance of Pets.com. You want to spend your time looking for the Amazons in the crypto space and sidestepping the Pets.com.
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Shitcoins
In order to understand shitcoins you need to understand the term pump and dump. It is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements. The most famous pump and dump scheme was sensationalized in the Martin Scorsese movie The Wolf of Wall Street starring Leonardo DiCaprio. Jordan Belfort and his crew of scammers would buy stocks, fabricate a wildly positive story around them and then call up potential customers to buy these stocks at prices well in excess of the price paid.
Let's now jump into the world of crypto pump and dump. In early 2021, a discussion of a new crypto coin called FEG Token started to pop up on the internet. Its logo was a gorilla with shades and FEG was an acronym for Feed Every Gorilla. The narrative that was fed onto message boards was that this "was the easiest opportunity to get rich" and that "everyone should have a look at it". Then Twitter started to light up as accounts with obscure names started to pump this coin. This enthusiasm then spilled over onto Reddit and Discord forums in addition to Instagram. A Telegram group was then formed and numbers swelled from a handful to 40,000. People share their experiences of buying this coin and how this was the next Bitcoin. "Experts" took to YouTube, promoting the coin in different languages with the objective of widening the net as widely as possible. In May, after weeks of flattish trading, the coin launched into the stratosphere as hundreds of thousands of investors filled their boots with this coin and try and cash in on the gold rush. After a few days of exponential rising in the value of the coin, the bottom fell out of the coin and the anonymous investors who had pumped up the coin ran off with $120 million in profits. People who got in early and were able to exit before the crash also made big.
These are also known as shit coins but not all shitcoins are scams. Dogecoin is a good example. This coin started its life as a joke making fun of wild speculation in cryptocurrencies at the time. It features the face of a Shiba Inu dog. It was introduced in 2013 and was valued at $85 billion in May 2021 on the back of a few favorable tweets from Elon Musk, and is currently the 8th largest cryptocurrency in the world in terms of market cap.
There is of course a Dick coin, Pussy coin, a Poo coin (with the pop emoji for an icon) and there are a bunch of coins specifically designed to work for the porn industry (for the husbands who don't want to find a suspicious online porn charge on the credit card statement). There is also a range of coins dedicated to Elon Musk including one that is called the SEC coin that has more to do with fellatio with Elon Musk than the Securities Exchange Commission.
The more attention-grabbing the name of the coin, the greater the likelihood it will grab the attention of the unsuspecting investing public. So why do people even waste their time and money investing in these coins? You can make a ton of money if your timing is good. The world is full of people kicking themselves for not buying Bitcoin and is on the lookout for the next big thing.
There is a degree of genius to the shitcoin market. They are designed to heighten the sense of FOMO and also a promise of extreme wealth. Most financial instruments operate on the basis of creating demand through the expressed limitation of supply. Shitcoins work in the opposite direction. They work on the scatter gun approach where they flood the market with as many shitcoins as the algo will allow and hope a few of them will stick. There is no sign of regulators clamping down on shit coins. It is difficult for them to get any traction on prosecutions on account of the anonymity afforded by the Internet.
This may change as the world's richest man may himself have been guilty of the pump and dump. In 2021, Musk announced that Tesla would be accepting Bitcoin for car purchases. Bitcoin then fell by 50 percent when Musk did an about-turn and said they would no longer accept Bitcoin on account of the environmental impact of mining the coin. Tesla even admitted to selling 10 percent of the Bitcoin Musk had announced purchasing at its peak which the company admitted to having a positive impact on its quarterly earnings.
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You need to differentiate between coins that are mined and coins that are issued. Coins that are mined use proof of work consensus and are more likely to be classified as commodities. Click on this link for more information on the difference between proof of work and proof of stake. There is inherent scarcity and difficulty in the mining process, and this makes the coins more valuable in theory. Bitcoin dominates the proof of work consensus accounting for more than 93 percent of this market. Dogecoin and Litecoin are in distant second and third place in terms of market cap. Proof of stake coins relies on staking rather than mining. Ethereum used to be proof of work but in 2022 became proof of stake in an event known as the merge. Proof of stake coins are more likely to be classified as securities and therefore regulated as stocks, and not commodities. They do not have the same degree of scarcity as proof of work coins.
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