With so many cryptocurrencies, why does one of them have any value?

A financial report this week celebrated the launch of yet another cryptocurrency, this time a new LGBTQ-focused coin that aims to “fight homophobia.”

If successful, the Marikoin, a name that Reuters reported is derived from a homophobic slur in Spanish, could be the kind of niche characters that will survive in a very competitive field. Its founders hope so.

Since many who have introduced their own coins have made fortunes, there is sure to be a lot of competition. But for people turning their hard-earned cash into crypto tokens, that begs a pesky question.

Even if crypto tokens really have some use and real value – something that remains controversial – and if those tokens can be infinitely reproduced, as blockchain mathematicians say, why are so many traded as if they were in short supply? ?

As cryptos proliferate, informed skeptics fear that a nosedive could destabilize conventional markets.

Is there really a shortage?

The provision of any cryptocurrency, such as. B. Bitcoin, can be restricted by the algorithm that generates the tokens. But if you need something that acts like a bitcoin, experts I interviewed say there are many options.

Known as a credible source of crypto data, CoinMarketCap said the last count was 16,394 different crypto tokens traded on 451 different exchanges, valued at just over $ 2.2 trillion.

For whatever reason, Maricoin hadn’t made the CoinMarketCap list yet (although you can find it elsewhere), suggesting that the 16,394 number, while large, might be an underestimate.

Giant electronic billboards advertise cryptocurrency investment companies in a London Underground station in 2018. Since then, the number of cryptocurrencies has exploded to more than 16,000. (Simon Walker / Reuters)

Many credible financial authorities say it remains uncertain whether cryptocurrencies will ultimately have a real purpose that justifies buying a stake. Others are far more dismissive.

A recent report in the Financial Times called them “worse than a Madoff-style Ponzi scheme.“In Globe and Mail’s Report on Business, finance professor George Athanassakos’ advice on Bitcoin was,” Just say no. “

Not so good as a barter unit

Henry Kim, part of a team of around twenty at York University’s Schulich School of Business working on crypto and blockchain – the complex math that makes each cryptocurrency unit unique – says the electronic tokens haven’t been as useful as hoped.

“Bitcoin’s intended purpose, to be used as money, has limits,” said Kim, an associate professor.

As many people, including myself, have pointed out in the past, the value of tokens rises and falls wildly, which means that few people are willing to do business that is done in Bitcoin. Kim also said that with rare exceptions, central banks disapprove of its use as real money.

Kim, who has a crypto stake in his personal portfolio and has been teaching a non-fungible token (NFT) token (NFT) for his dog Smudge for sale for 0.01 of an ether, said the only proven value of crypto is still “electronic gold.” “for a crisis when other assets lose value. And he says this only applies to the most heavily traded examples, with Bitcoin and Ethereum topping the list.

As a teaching assignment, Henry Kim, a blockchain expert at the Schulich School of Business at York University, created an NFT for his dog Smudge using the same tools that were used to maintain the value of crypto tokens. No bidders so far. (Henry M. Kim)

“Bitcoin is a finite resource, it’s a digital asset, and for very similar reasons why people own gold … you can make the same argument as to why you would own bitcoin,” Kim said.

I’ve argued in the past that just like gold, the value of a crypto asset is what someone pays for it, and as long as the markets decide it has value, it will have value too. But without any other notable core purpose for the crypto units, this appears to some critics as a circular argument.

One way to keep these ratings high is to get more new investors to participate. Actor Matt Damon got himself noticed on places like Twitter for doing just that bravely. “

Another sign that Crypto.com is reaching a wider investor audience is news this week from the Wall Street Journal that the company is planning a commercial flash, including a commercial for the Super Bowl next month. It has already paid $ 700 million for the naming rights to the former Staples Center arena in Los Angeles.

For some, this may be a warning sign, like the stories of shoeshines who, prior to the 1929 crash, gave stock tips that crypto investing is getting a bit too democratic. But if so, analysts at New York investment bank Goldman Sachs are not worried. They say digital assets are not just becoming like gold, they are stealing gold from investors, according to a Bloomberg report.

However, Canadian financial technology expert Ryan Clements is concerned about the cash flow into so many different types of unregulated and speculative crypto assets.

Rather than being a new egalitarian form of trading, Clements said that in any case, a large chunk of wealth is held by the founding private “whale” investors who “could exacerbate a crash by selling off.”

Accident waiting to happen

Clements, a securities attorney who became an assistant professor at the University of Calgary advising Canadian investment regulators on cryptocurrencies, sees the market as an accident that could affect the real economy in a broader sense.

And while governments might be able to track and regulate a limited number of crypto coins, what he calls the “infinite synthesis and imitation” process means it is in the growing spectrum of electronic token trading on international platforms there is no shortage.

He says there is little evidence of “payment” cryptos like Bitcoin and its many, many imitators, which are widely used as a legal payment mechanism.

And while there are potential uses for so-called “utility” crypto assets similar to Ethereum invented in Canada, such as providing credit or other financial products, Clements says that is not yet the way they are used.

“We’re seeing a lot of interest in crypto right now because people think the price will go up,” Clements said. “You have capital flows chasing returns in an asset class that has no underlying economic purpose.”

Follow Don on Twitter @don_pittis

About Clayton Arredondo

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