How the liquidity of the whole cryptomarket rests upon Bitcoin
Let’s face it, cryptocurrency adoption is very small. A small portion of the global population owns cryptocurrency (estimates suggests only 3.5% of households are crypto households) and there are still few real world use cases. Yes, it is possible to buy food, houses, cars, or even travel using Bitcoin. Yes, Ethereum revolutionized the way crowdfunding is done and showed how blockchain has the potential to be applied to other things besides being just a digital currency (Crypto 2.0). However, the crypto market still lacks liquidity. Most people still trade their Bitcoin for fiat currency in order to make their purchases. Also, many altcoins have no use in the real world and resemble stocks with the added advantage that they are transferable. They are speculative assets and you have no way of using them unless you sell them or trade them for Bitcoin.
Although we may be painting a dark scenario, things will probably be very different in the next 10 years as adoption grows. But let’s focus on the here and now: the whole liquidity of the crypto market rests solely on Bitcoin shoulders. Not only that but as we could see from the crash that happened this month of January, the price of most altcoins are indexed to the price of Bitcoin.
Bitcoin holds most of the crypto market captive. In most cases when Bitcoin goes up, alts go up, and vice-versa. So, even if you are only invested in altcoins you should pray for the health and well being of Bitcoin because it affects the market as a whole. There is also another issue: Bitcoin’s network, in its current state, is slow and prohibitively expensive to use. Most transactions are now done on the Ethereum blockchain. Some retailers have even stopped accepting Bitcoin, while others were forced to accept payments in altcoins. This is worrying indeed because what offers liquidity to crypto, besides trading volume, is being accepted as a medium of payment.
This might not come as a surprise to some of you, some specialist have been considering Bitcoin to be a store of value rather than a currency for quite some time now. Can Bitcoin be fixed by atomic swap technology or off-chain solutions, like the lightning network? Maybe. Are there other altcoins that work better as currencies? Definitely. Will these new altcoins bring the mass adoption that is needed to offer real liquidity to the crypto market? We certainly hope so.