As Crypto Markets Crash, Are Bitcoin Maximalists Being Proven Right?
Are bitcoin maximalists on the right side of history? The crypto market has shed one-third of its worth in under a month, dropping from a market cap of $304 billion USD on July 24th to below $200 billion by August 13th. For some, the concurrent phenomenon of bitcoin’s return to over 50 percent market share was inevitable.
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Predictions of Bitcoin Maximalists Playing Out… so Far
The term “bitcoin maximalist” was originally a pejorative term directed towards those who foolishly cling to ten minute blocks and Antminers while having an irrational animosity towards the Initial Coin Offering (ICO) model that gained popularity in 2017. In their detractor’s eyes, bitcoin maximalists are just old-fashioned and unable to move on from what is clearly an outdated prototype.
Yet, bitcoin fanatics, who can either be either of the Core or Cash variety, have come to embrace the term. A popular modification of the Ring Verse from the Lord of the Rings series demonstrates both their reverence towards bitcoin and their willingness to engage in self-mockery:
One coin to rule them all, one coin to find them; one coin to bring them all, and on the blockchain bind them. #bitcoin
— Adam Back (@adam3us) May 25, 2017
Bitcoin maximalists are aware that some see them as extreme or belonging to a monetary cult. But they don’t seem to care. As Italian massimalista Giacomo Zucco of the BHB Network put it on the Noded Podcast, it’s best just to “embrace cultism” (while also running your own full node). The elaboration of maximalist ideas from academics like Saifedean Ammous, who published a book this year called The Bitcoin Standard, have added credibility to their cause.
Despite their reputation as dogmatic, the maximalist viewpoint is not monolithic, though it often overlaps with libertarianism or economic views close to the Austrian School of economics. In general, maximalists believe that the state should more or less stay out of the economy. They are aligned with the idea of strict monetary policy rules over policy discretion.
This makes them allergic to central banks who increase and decrease money supply based on economic conditions. (Though, it should be noted, they have less convincing answers about what should be done when private cartels form monopolies, but that’s another issue.)
This belief in sound money explains why maximalists like bitcoin, which is a deflationary digital currency that has a strict limit on the total number of coins that will ever be created. For those who believe in bitcoin, pre-mined altcoins that have no token cap or guarantees of responsible governance are anathema.
There is also skepticism around the practical feasibility of newer methods of securing a cryptocurrency blockchain, such as proof-of-stake. And while maximalists admit that the cost in electricity for the bitcoin network is high, they would point to the fact that bitcoin has never been hacked at the protocol level in over nine years and that new generations of miners will likely become more energy efficient than current ones.
A Tale of Relative Market Cap Dominance
Those who have argued since the bull market of 2017-2018 that bitcoin has a unique place among cryptocurrencies can now sit back with satisfaction at the performance of Satoshi’s brainchild, at least as compared to other coins.
To be sure, all cryptocurrencies have declined in value dramatically since the highs of December and January. Bitcoin has dropped by 68 percent, from around $20,000 to $6,380 at press time. While significant, its decline starts to look better when put in the context of other large cap currencies. Ripple has fallen below 30 cents. It once traded for over $3.50. Bitcoin Cash has fallen 88 percent from its peak, while Litecoin is off 85 percent. And Ethereum has dropped 79 percent.
Since bitcoin has declined less than its peers, there has been a corresponding increase of its share of the market. Bitcoin crossed the psychological 50 percent mark on August 11th, and at press time accounts for 53.5 percent of the total crypto market cap. That is its highest level since December. It appears that as crypto investors have sold out of altcoins, they’ve moved their money into bitcoin, which is seen as a kind of blue chip stock of the cryptosphere.
And Then There’s the Protocol Argument
Besides the economic aspects, there’s another argument maximalists make as to why bitcoin will be the last coin standing among currency-only protocols. (It should be noted that many maximalists concede that there will still be room for DApp and smart contract-hosting platforms such as Ethereum, although that view is far from unanimously held).
The “last coin standing” position is perhaps best expressed by Wences Casares, founder and CEO of Xapo, who has argued that bitcoin will dominate because it will become a standardized internet protocol. Like TCP/IP, HTTP, or SMTP before it, Casares thinks that bitcoin will eventually become the protocol for value transfer on the internet. As it’s more efficient to have one protocol than several, in his view bitcoin will eventually become widely adopted.
Crypto Promoters Still Have to Make Their Case
Naturally, nothing has been settled in the cryptoverse. There are many other arguments for why one coin or another will eventually become widely adopted, or at least find a market niche. But since business models based on tokens are yet to demonstrate success over significant periods of time, the onus is on altcoin advocates to make their case.
Being clear about the difference between cryptocurrencies and blockchain, often elided, may be crucial to deciphering the future of bitcoin and other alts. While governments and private industry are increasingly testing blockchain systems in supply chain, land registries, or finance, many of those systems don’t need a coin or token.
More than a few crypto startups are betting on the widespread adoption of their DApp or platform, and an ensuing rise in their coin’s value. But there are still a variety of technical and legal challenges that need to be overcome before widespread adoption will occur. And it remains unclear when and how those problems will be resolved.
And while there are many criticisms that can be made of bitcoin (and cryptocurrencies more generally), those who have held their BTC for the past year have seen a 53 percent increase in its value. Because of that, bitcoin maximalists have some reason to feel justified. Whether those positive returns will last, or if further losses will erase them, however, remains to be seen. In a bear market like this one, even maximalists should be careful of getting too comfortable.
Have your say. Are altcoins facing inevitable extinction? Are bitcoin maximalists right? Sound off below.
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