Bitcoin is still the most innovative crypto asset

I’ve heard an assumption that because many alt-coins do “more” than Bitcoin and have a higher combined market cap, their technology must be more advanced, and therefore Bitcoin will be left behind in value and market share.

I disagree for two reasons:

First, the fact that an asset such as Ethereum does “more”, does not mean that the market will value its feature set higher.
The potential market value of any given cryptoasset depends on the value proposition it offers to individuals times its potential market share. It remains to be seen whether Ethereum will be able to create meaningful products for individuals and how big the “smart contract” market will be in the near to medium future. Likewise for Blockchain-based lending, eSports, prediction markets, or organic banana crypto assets. Currency is a more universal need than smart contracts, so even if Ethereum provides a lot of value to autonomous corporations, the Bitcoin market may be much larger.

Second, the market cap of crypto assets is not an indication of the pace of technical innovation. Bitcoin is worth less than 35% of the 400 billion + crypto market cap, but that does not mean that it has 35% of the resources. According to analysts at JP Morgan, the ratio of money invested to market value for crypto assets is about 50/1. In other words, there has only been a few billion dollars invested in crypto, not $400+. That’s why the price fluctuates so wildly. ICO’s and altcoins are even more overvalued than Bitcoin given how fast their price has shot up. Altcoins have far fewer resources at their disposal than the price would suggest because their price would rapidly drop if the founders sold their share to pay for innovation. The vast majority have only a few people (if any) actively doing development. Bitcoin and Ethereum have the largest development teams by far. I suspect Ethereum has more contributors, but it also has a far larger feature set, so core functionality gets a lot less attention than core Bitcoin functionality.

The fact is, the vast majority of ICO’s and cryptocurrencies are doing very little technical innovation compared to the resources invested in Bitcoin Core. This is not at all to dismiss the value of experimentation and innovation, just to put it in context. As an analogy, it’s great that Bugatti and McLaren are innovating in supercars, but Honda and Toyota invest far more in technology that is practical to the vast majority of drivers and therefore are worth far more. Honda’s work in automatic accident mitigation/prevention is far more important than shaving 1/10th second from your 0-60 time. Likewise, Bitcoin Core’s work in implementing fast and stable large-scale networks (with Segwit and Lightning Network) is more important than the latest exotic token.

I believe that the market will eventually correct the imbalance between the fundamental value of Bitcoin and the hype over altcoins. It is also possible that some other asset has or will come up with a genuine valuable technical innovation, overcome Bitcoin’s network effects, and gain dominance. Presumably, that hope is why Bitcoin is down to 35% market share. However, I have not seen the evidence for it yet, and I would not dilute my portfolio over 1000+ assets (as some friends have) in the hope that one of them will hit the crypto jackpot.

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