The utility of price appreciation

Currently, one of the most heated discussions in the cryptocurrency space revolves around utility.

While BTC proponents argue Bitcoin’s value comes from its security (immutability), altcoin enthusiasts claim higher utility will foster adoption and therefore boost price appreciation.

Even though there is some truth in both arguments, I personally believe “Bitcoiners” are correct on this one. The reason is simple.

Assuming investors and traders can make more money by diversifying into altcoins, said money is usually stored in either Tether or Bitcoin.

This means that although it is true that the price of some altcoins will eventually skyrocket, over 95% (perhaps 99%) won’t have enough liquidity for most holders to exit.

In this article, I will discuss the value proposition of both BTC and altcoins, such as Ethereum and Ripple, with the goal of explaining how each coin derives its value.

An overview of the cryptocurrency market

Let’s start with the basics. Why is any cryptocurrency valuable?

To understand how any cryptocurrency grows in value, we must initially assume markets are irrational. Value derives from many different places, and any cryptocurrency can be worth billions.

During the market peak in late 2017/early 2018, a plurality of projects that were able to raise substantial amounts did not actually have fully working products. Some, like EOS, were still in their predevelopment stages.

This shows how irrational the market is.

If we look at the summer of 2017, and then again at early 2018, Bitcoin’s dominance was about 30% to 35%. This means people were betting heavily on altcoins. Some of them, like Ethereum, almost “flipped” with Bitcoin.

However, when the crash came, people shifted again to the most secure cryptocurrency: Bitcoin.

Why? Let’s discuss below.

Bitcoin’s value proposition

To understand why investors and traders see Bitcoin as the store-of-value (SoV) cryptocurrency, we must take a few steps back.

Essentially, Bitcoin’s value comes from…

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