Crypto is not a currency – rather it is a stock option

Crypto is a new class of asset. We call cryptocurrencies “coins” so a lot of people don’t know why someone would buy a coin when it is quite difficult to use it to make a purchase. Maybe one day in the future we can buy a steak dinner with our crypto earnings. But right now, you can’t do that. Law?

Well, let’s do a thought experiment. Say you walk into a Outback Steakhouse, and you have an appointment. You are currently in between jobs, but you are making money with all your crypto investments and you want to celebrate. So you two have a wonderful dinner, and then the bill comes in. You take out your smartphone and ask: “do you take Bitcoin (CRYPTO: BTC)? ”And the server says,“ No, this is the Outback. You have to pay in dollars, mate. “

Image source: Getty Images

So what are you doing? You say, “Oh. Okay.” And you press a few buttons on your smartphone. And your broker, Coinbase (NASDAQ: COIN), operates 24/7. So you sell Bitcoin for $ 100, which turns into cash. Then you press a few more buttons and transfer your money to your bank account. And you pay the bill in dollars.

So, did crypto pay for the steak dinner? Yes, he did, but not directly.

It doesn’t matter whether a restaurant accepts crypto or not

When my car died earlier this year, I had to buy a new one. I own shares in Carvana So this is where I decided to buy. (By the way, amazing customer service – I’m a very satisfied customer.) One thing I did not to do – they would have thought I was crazy – was to try to pay for my car with my shares in Carvana. I had to sell my shares on my brokerage account and wait three days to get my money back.

The major crypto exchanges are much, much faster than the exchanges. If I tried to pay for a steak dinner with my Carvana shares, that would be a really embarrassing conversation. If I said “I’ll have the money on Wednesday,” I would do the dishes in the kitchen.

Crypto right now looks a lot like gold, silver, or a company’s stocks. It may not (yet) be considered a currency. But it’s certainly a valuable asset, and it can be turned into dollars. And crypto exchanges are so fast – and they operate around the clock – that Bitcoin’s failure to actually serve as currency (again) is almost meaningless. You can turn it into dollars in a matter of minutes.

What if crypto becomes worthless?

Personally, I think a lot of cryptocurrencies are worthless, just like a lot of stocks are worthless. But Bitcoin has a market cap of $ 1.1 trillion. It is the opposite of worthless.

Of course, it could be overvalued, and it probably is. (A lot of stocks are also overvalued.) Bitcoin has already seen at least two serious crashes. I’m sure he will have more. High-end stocks are also often volatile. Why would crypto be any different?

Bitcoin Price Table

Bitcoin price given by YCharts.

Bitcoin almost hit $ 20,000 at the end of 2017, then plunged below $ 10,000, and it stayed there for a while. And then, in the fall of 2020, Pay Pal announced that it will allow people to buy and sell crypto on Venmo. And Square said he was buying Bitcoin. These two announcements from the giants of the fintech world sent the coin into the stratosphere.

Why is crypto valuable?

All value is based on supply and demand. The incredible wealth that some people have gained from crypto makes other people take the risk that other types of crypto might do the same.

Something similar was common in the dot-com era of the late 90s. An internet startup would pay people minimum wage (or whatever small amount of money they could get by) and encourage people to work in exchange for stock options in the company. If the business was successful, you would be a millionaire when your options were vested, potentially selling them for a lot of money. More often than not, the options ended up being worthless.

Crypto is really like that. A tech start-up working on blockchain technology may have very little money. But it can make some very smart people work for her by paying them with the company coin. If the coin seems to be successful, other people will want to own it as well. And so a company does everything in its power to drive up the price of the part. Indeed, the coin is a mechanism to pay the software engineers and others who bet on this start-up.

When you buy the company coin, of course you do not own any company stock. It is a private company (or sometimes even some non-profit entity). But the entrepreneurs who started the business really want the coin to rise in value (because they own a lot, a lot more than you).

Crypto is an optional blockchain investment

Once you realize how revolutionary blockchain technology is, it flips the switch on risk. If you research this industry, you will find that blockchain is going to disrupt huge, multi-billion dollar companies. Microsoft (NASDAQ: MSFT) could be in trouble, for example (again).

In the 20th century, the internet radically changed the technological balance of power away from Microsoft and its control of the office. Microsoft has survived and thrived by becoming a powerhouse in the cloud. And now peer-to-peer networks threaten that dominance as well. And it’s not just tech companies, blockchain can revolutionize many industries, including major sectors of the economy like healthcare and finance.

I wouldn’t want to ignore the blockchain race or pretend it’s irrelevant. If you have big investments in the current paradigm, do you really want to ignore all of these disruptors?

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Darnell Yu

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