While nobody was paying attention...

While everyone was paying attention to the bitcoin ETF decision, my focus (and money) was on Ethereum. The rationale was simple. In the event of ETF success, every altcoin would have been pulled along with Bitcoin. In the event of ETF failure, ETH would be seen as a safe haven, or at least a coin where bitcoins can be dumped into on exchanges that don't support dollars, like Poloniex.

However, the real story here isn't whether Ethereum was a stable choice while the bitcoin markets had extreme volatility yesterday. I believe that the ETF decision represents a major shift in the industry's future, and that we will ultimately see that a trend reversal occurred for bitcoin yesterday. The current bear market will last until the blocksize debate is resolved.

Our payouts now cost more than $3 in fees, and our usage of the bitcoin network has declined by more than 75% since last year. The reduction in usage comes from more customers preferring other coins, and from our own decision to hold more money in our wallets, to use credit cards to buy items online, and to sell in larger batches. With "normal" transactions now costing more than $1, I think that it is reasonable to project that absent a miraculous and immediate conversion to Bitcoin Unlimited, users will be paying $20-$50 by the end of the year. If this price sounds ludicrous, look at how fees are increasing exponentially even now.

$50 fees exclude all but the most expensive purchases as a percentage of the purchase price. There are uses that would support fees like that, such as Wall Street trading. Stockbrokers routinely charge amounts in this range to execute trades, so bankers won't have problems spending that much. Unfortunately for them, bitcoin can't be bought as a stock, because the ETF rule change was rejected, and that is the long-term problem for Bitcoin. Without investors to support such high fees, people will permanently change to other coins for their everyday purchases and Internet of Things applications.

Bitcoin is a network that is more expensive, is slower, is less reliable, displays extreme volatility, has fewer features than tens of other coins on the market, and many of its Core developers don't care about any of these things. Litecoin, despite its obsolete codebase, is API-compatible and is a far less volatile store of value than Bitcoin has been. DASH, while overpriced because mainstream banks will never work with a currency specifically designed for anonymity, has a number of features that nevertheless make it appealing to a different audience. Monero has no blocksize limit and many additional currency features. Ethereum, meanwhile, has demonstrated it can survive a hard fork, can do contracts as well as money, suffers from less inflation than Bitcoin and most of the other coins, and has a far more functional development team behind it than Bitcoin does.

Bitcoin had nothing going for it other than a "network effect" and the potential for the network to become a sort of "investor's paradise" where big money was able to trade against other firms and store huge amounts of cash in it. What does Bitcoin have to look forward to now? There is no network effect. The "network effect," if it existed, was from legitimate merchants and darknet sellers accepting bitcoins for small transactions, both of whom are now looking for other options. There is no ability for people to buy billions of dollars of bitcoins for their retirement accounts. The only use now is for speculation and a "store of value."

To see why this is, consider two merchants who are selling the same item when the BTC fees are $2. One charges $20 and accepts ETH, or DASH, or LTC, and the other one only accepts BTC and charges $18. The BTC-only merchant cannot charge much more than $18 because if he did, people would see that the same product is available elsewhere at a lower cost, and for every cent above $18 he charged, some of his customers would go elsewhere. The ones who don't leave are those willing to pay a "convenience fee" because they prefer bitcoins, and each of them has a price at which they become fed up and buy elsewhere.

Furthermore, regardless of which side you prefer, it is certain, without question, that a hard fork is coming. The fork is going to cause panic, a split in value, and the largest DDoS attacks in history that cause the network and exchanges to grind to a halt. Even if everything goes perfectly, people are still going to sell because they think others are going to sell. In the meantime, users can expect to wait for hours after spending several dollars to execute that trade - something which lost us $50 earlier today.

The inevitability of lower bitcoin prices is what has caused DASH to soar to ridiculous levels, and why I think that ETH is poised to explode in currency applications. As an investor, is it more likely that bitcoins will be worth $2000 or ETH be worth $36 six months from now? When transaction fees reach $20, even though people will still use bitcoin, which network will you be buying things with?

The ETF rejection was a fundamental change in the direction of the industry. It's not an accident that altcoins are up across the board today.

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I edited this post to clarify that it was written when ETH was worth $20. The point of the price comparison in the second to last paragraph was to ask which coin would rise in value by 180% first, and the statement is confusing when starting from current prices.