Well, it has finally happened. We’ve gone a full week with crypto prices showing positive returns. OMG, what a big surprise; ether is leading the pack, advancing nearly 15% at the time of this writing. This is encouraging because it shows that perhaps finally value investors are stepping in and helping set a pricing bottom.
It hasn’t hurt a bit that stock and bond market investors have become seasick from all the volatility. Suddenly, a tiny little weekly Litecoin move of +0.46% or even a 2.47% bitcoin cash gain, looks like pure serenity.
For a while now our focus has been on relative value and there is very little argument that, after the first quarter price collapse, a whole lot of risk has been taken out of bitcoin, ether, Ripple and thousands of others.
The question is where to go and what to go with from here. The big crypto names are the safe way to go in the short run, but each has become mired in network limitations on scaling and the concomitant cost issues.
Yes, transaction fees have dropped like a stone from their prohibitively high levels of December but then transaction volumes have fallen by half and more. That is not the stuff an investor wants to see.
Both bitcoin and Ethereum hope to solve scaling issues with the Lightning Network and Raiden. But for now, if transaction volume were to suddenly rise, the same network limitations would be there. So even though the big crypto names offer the safest short term options, does that mean we shouldn’t look further out to find value?
Will Dash Solve Bitcoin’s Problem?
Dash emerged last year as one of the most popular and most valuable altcoins. At the time it was considered a real competitor to bitcoin and the leading cryptocurrency of the future. The price of Dash increased from $11 to over $1,430. Dash had a capitalization of over $11 billion at its December peak. Since then it has tumbled more than 80%. Is now the time to move into Dash? The timing could be very good but before making that decision, we should consider a few things.
If a jury of its peers were to grade Dash on its performance in 2017, the majority would say it lived up to its billing. Using Dash, users could send money instantly using the InstaSend feature that allowed for complete anonymity. At the peak, transaction costs were around $0.60, which were dwarfed by bitcoin’s high of $30.
Since then, Dash fees have fallen to about $0.20, making them attractive for small sized transactions. All alone this represents a compelling feature of Dash. Add to that the immediacy of InstaSend and you have the makings of a genuine challenge to Bitcoin.
In appraising Dash’s performance it is useful to look at Metcalfe’s Law, which values social media assets based on a formula of network size. For Dash, it’s network is processing a tiny fraction of bitcoin’s. The limitations of its network have very likely not yet been tested, so proclaiming Dash the speed king is a bit early. There is still a larger issue to consider.
In the case of Metcalfe’s Law we need to include merchants and other service providers that accept Dash as payment. That is the big hump for them to overcome before overturning bitcoin. So far, after all, bitcoin is accepted by only about 10,000 or so merchants.
Further progress by bitcoin is stymied by transaction costs that remain far too high. Even so look at how many years it has taken bitcoin to attract merchants. Dash faces the same hurdles.
In other words, the trick for Dash is the find a way to gain mass acceptance quickly. That is when the huge $11 billion valuation of last December will begin to be justified. Look over your shoulder bitcoin – faster, lower cost competition is looking to eat your lunch. Dash could be one of those.
Featured image courtesy of Shutterstock.