Bitcoin: Stop Speculating and Start Innovating - The Shift of Currency to Assets

This is not financial advice - it’s merely an opinion on the paradigm shift on cryptocurrency as a whole. Please consult with your financial advisor before you make any financial decision.

Cryptocurrency has had its own interesting and, sometimes controversial, relationship with the online world. The original intention was noble and daring - however, as with anything new, it has to go through a number of growing pains before it blossoms into its final application.

Oftentimes, many don’t even know how cryptocurrency works before using (or, usually, investing in) it. Crypto brought a lot of interesting, useful tech to light in recent years. While this tech did exist before, what this industry did was bring it together into a coherent application - the beginning of web3.

From the initial pipedream ICO boom in 2017 till now, it’s become clear that crypto has not been used as a currency - in reality, it behaves more like an asset.

The adoption of crypto has also helped spur the use of blockchain as a solution for many industries. While blockchain will not be the “end all be all” solution, it will serve as part of the stack and future that is Web3.  Assets like crypto signify the transfer in value. With web3 being the overarching container for a new internet and digital assets being one of the primary drivers.

Bitcoin’s Original Intention

The evolution, inception, and very concept of crypto is interesting to say the least. In 2009, the Bitcoin whitepaper stated the original intention of the blockchain, and subsequently the “currency” that came along with it:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

What does this mean, exactly? This means instead of placing the trust with a third-party entity or perso; thee trust is merely placed within the technology itself - a sort of built-in trust. The consensus algorithm, or how Bitcoin decides what transaction is legit or not, represents this innate trust.

However, as we’ve seen over time, with a few cycles of boom and bust,  the attitude towards crypto needs to change in a very profound way. Many hardcore supporters of Bitcoin speculate that Bitcoin is the solution to all the economic woes in the world. They advocate buying it and holding it forever. Instead, cryptocurrencies should be treated like an asset.

The Evolution & The Fall of Cryptocurrency (introducing: cryptoassets!)

As time went on, new blockchains were created. These new chains held the same concept as Bitcoin in terms of peer-to-peer interactions; however, they deviated in terms of utility. The so-called “currency” of each chain, like Ethereum, merely became a temporary vehicle of value for smart contracts. Later on, this would go on to drive the creation of many other derivative currencies, each with its own respective qualities and attributes.

This, along with how people treat and speculate on these “currencies” actually behaves just like an asset or stock. Therefore, I’ll go out on a limb here and say we should start calling them crypto assets rather than cryptocurrencies.

According to Investopedia, an asset is:

“An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.”

Many treat Bitcoin (and others) in this exact way. A currency, something like the US dollar, is not held for speculation but is rather valuable because of its utility. Bitcoin shares more properties with a stock than the US dollar and is usually treated as such.

Prior to the pandemic, Bitcoin behaved like an inflationary hedge. Recently, the story has taken a completely opposing take. According to a report by 21Shares,

"Bitcoin and the S&P 500 moved in sync, with their correlation rising to an all-time high of 0.69. This bred uncertainty in the usefulness of crypto assets in portfolio diversification."

This correlation might change in the long term, but caution is very much warranted in the short term. Flashing red signs show that we might be on the cusp of a big Wall Street meltdown that will take Bitcoin with it. The recent bounce of Bitcoin could be obliterated by the upcoming Wall Street meltdown.

Here we can see a correlation between the S&P 500 and Bitcoin from TradingView.

That’s right - investors and speculators of Bitcoin should take heed of traditional market movements - for they may be telling of the future of crypto.

Conclusion - The Future of Web3

The future looks very interesting for web3. With the fall of these currencies, we will see more practical applications with ledger technology take place. The recognition of crypto, along with other forms of digital assets and ownership, will pave the way for web3’s full and eventual adoption.

The metaverse concept will become more prominent, along with the normality of using cryptography for the basis for identity, along with digital ownership of assets. **

Luckily, the price fluctuation for these assets will not affect these real world use cases. The ideal future of Web 3 will put the user in control of their data and funds, while also safeguarding privacy and security - this is something that Bitcoin itself started, and will be implemented sooner than we think.