Let’s start with something you might agree with
“This was a strange year.” In multiple ways.
As Bitcoin’s price is heating up people are asking about it and its “alternatives”. If you agree that there are any of those, you’re already an outcast in some groups. On the other hand I’ve been called a bitcoin maximalist as well who can’t see the big Decentralized Finance (Defi) picture, so you definitely can’t make everybody happy.
Here quickly my perspective to this year’s end how the market and its different contenders are doing and what seems to be the narrative behind various coins.
1. Bitcoin
Oh it’s a good time to be a maximalist.
Former #3 Ripple is dying due to the SEC killing its supposedly favourite son first. Bitcoin dominance is at 70% and it’s possible it will hit the 80% again. That was the mark it once dropped off from in February 2017, when it got clearer that transaction fees are here to stay.
It’s scaling solution aka the lightning network is growing in implementations but is still laughably small in actual usage. It’s hard to do some lightning transactions without re-trying, forget about most big transactions etc… but the market is heating up. I expect the next years lightning will be able to actually show its strengths and weaknesses and I’m sure starting to use lightning now is a good choice. Companies that bought Bitcoin over the year of 2020 for the long run are not going to switch to alternatives similar to what distracted retail buyers try to do. They will try out lightning. Be prepared for this. Set up your lightning nodes! Shoutout to Umbrel and Raspiblitz and checkout Strike if you don’t mind kyc or Breez if you do.
2. Bitcoin Competitors
How is the direct competition doing?
Under-performing… but privately.
a. Bitcoin Cash
Bitcoin Cash after famous fork is under-performing… hard. The market didn’t seem to value its ‘hotfix’ capacity increase too much in 2020 and even if it would increase in value by 10x, it would only be at the BCH/BTC level it started at.
There are new features. Cash shuffle is neat to increase coin privacy. It’s a reasonable mixer service that people can actually use cheaply, while join-market on Bitcoin is — as of now — hardly used and might only increase adoption after Taproot activation.
Bitcoin Cash hasn’t found its voice in 2020, it’s trying to go after the market of people that need low fees, but the music is currently playing on Wallstreet not in Venezuela and long term holders don’t care about fees. It has solved scaling only “for now” and the 2 further forks (BCH ABC, Bitcoin SV) have ripped this community apart twice. Ouch.
b. Monero
Always-on privacy and actually a coin liked by some bitcoin maximalists. The main reason is that people want Monero to help make bitcoin more private. Also regulators don’t like it as it apparently has become a drug market favorite, so of course libertarian Bitcoiners love it. It has as well be under-performing Bitcoin, maybe the market sees that taproot and lightning will help Bitcoin to become more private without it.
c. ZCash
Optional Privacy
I actually think it would have a higher marketcap now if it just forked Bitcoin and didn’t launch a new chain without users. Zero Knowledge Proofs are a great piece of technology. But are they enough value for a new chain? The market has said no so far, but it also just had its first halving so let’s see.
3. Ethereum
The maximalist community 2.0
Ethereum had the chance to do better than Bitcoin.
To stay positive for a second:
Similar to Bitcoin it’s a victim of its own success right now.
It has a great narrative, tokens continuously getting locked into Ethereum 2.0 staking nodes, a developer community and easy to use Dapps. I’m not talking Defi and governance tokens, which have kind of become a kickstarter for finance Dapps. Wallstreet will love it eventually. I’m mostly talking Uniswap and Metamask. The usability is actually great. I’d prefer to use Uniswap over some exchanges any day but…
The negative:
Ethereum is running into the same problems as Bitcoin in 2017. Scaling is hard (probably even harder for smart contract chains). Yes, there are many solutions with their various tokens (Raiden, Loopring, Omise Go) that create the extra friction everybody hates, and the newly started beacon chain of Ethereum 2.0 won’t come to save you in 2021… or 2022…
Ethereum has to make sure to not lose its developer talent. Completely new people in the market will not try out smart contracts on Ethereum due to high fees, furthering the possible brain drain in 2021.
While the price in BTC terms is far down from it’s all time high, it still was a productive year in Ethereum.
4. Ethereum Competitors
Competition is still weak.
Polkadot, Cardano, Avalanch, Cosmos, Tezos are trying to eat Ethereum’s lunch. While Ethereum is miles ahead in terms of community and developer tooling let us see if history repeats itself and some developers become disillusioned and move to alternatives… as they did from Bitcoin in 2017. Some of them actually claim to have solved scaling. But it’s hard to see if any of them are at all ready next year to steal talent.
And something to think about. If you want to bet against Ethereum really badly, not all tokens have the same value proposition. Buying solely based on MarketCap is ill advised. People seem to be interested enough in Ethereum to pay those high fees for now, maybe this is a positive sign.
