Bitcoin Saturation Point is Here

Recently the price of Bitcoin has increased to a market cap above one trillion dollars. This had generated tremendous excitement both for, and against, the continued increase in the crypto currency.

For those hoping that Bitcoin will increase in price, achieving a market capitalization of $1 trillion is a testament to the future viability of crypto currencies.  Meanwhile, for those in disbelief of the value of cryptocurrencies, the $1 trillion level highlights the extreme that the bubble has managed to attain.

Because we only follow the price, we were struck by a point made by Charlie Munger of Berkshire Hathaway in 2018:

The question has arisen, “When will ‘they’ create more Bitcoin?”  As, Charlie Munger has said, if you have the incentive, new coins will emerge.  In our view, that creation of more Bitcoins has already taken place in the form of the thousands of “alt coins” that are free-riding on the concept but have zero value.  Some of the alt coins, ranked in the range from 451-500 (by market cap), have a combined market capitalization of over $2 billion dollars.  Does anyone believe that the coin ranked 499th will amount to anything down the road?  We don’t.

When we run down the numbers for the total value of all the coins with market caps ranked from 3-1,000, which excludes Bitcoin and Ethereum, the total market cap is approximately $484 billion dollars.

As with all new innovations in their early stage, there will be hundreds of competitors lining up to become number one.  However, as the cycle for cryptocurrency evolves from the start up phase to the growth stage (can you believe it, we’re only in the start up phase), there will be many “currencies” that will die along the way.

There is a stock market investing theory that says that if you buy and sell only the two leading stocks in a specific industry you will be able make a considerable amount of money.  The thinking behind this theory is that the industry will generally do as well or bad as the leaders.  Therefore, by using the two leading stocks to confirm a rising or declining trend, you will have the stocks that will thrive in the good time and not die off in the bad times.  Almost all the other participants will be gone or become absorbed in the process.

As with most mature industries, there are 5-6 companies that have a meaningful impact on the direction of the business.  We don’t have a clue about the other 3-4 crypto currencies that will emerge as the leaders.  However, for now, the top two in terms of market capitalization, Bitcoin and Ethereum, are the contenders to be around if central banks don’t take over the concept.

The potential $400 billion (and growing) waiting to be destroyed by willing participants, who either hope the ride will continue or are unaware of the probabilities, will suffer greatly from this creative destruction. The Bitcoin saturation point is here, however, it isn’t in Bitcoin and Ethereum, instead, it is the alt coins.

See Also:

• Bitcoin Archive (our price analysis since 2013)
• Bitcoin Cycles, 2010-2021
• Ethereum, (price analysis/references)