For more than a century, the stock market has proven time and again that it is one of the greatest wealth creators on the planet. If you buy holdings in large companies and let your investment thesis play out over time, history has a very good chance of building wealth.
But in recent years, investors have chosen to be mesmerized by the staggering returns on cryptocurrencies instead. For example, a little over a decade ago, a single Bitcoin (CRYPTO: BTC) could have been bought for around € 1. Later that year, the same token cost nearly $ 65,000.
While it’s not uncommon for retail investors to chase momentum games, I think they’re wrong – especially when it comes to cryptocurrencies. That’s because I’m a card-carrying crypto skeptic.
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The cryptocurrency space looks like a gigantic bubble
Why not love digital currencies? One of the bigger problems is their lack of acceptance and usefulness in the real world. Bitcoin, the largest digital currency in the world, has only been able to process around 300,000 transactions a day for years. In comparison, the national currency is Dogecoin (CRYPTO: DOGE), processes only 50,000 transactions on its blockchain every day. To put this in a certain context, the giants of payment processing Visa and MasterCard processed a total of 700 million daily transactions in 2018. Over the counter, cryptocurrency (pardon the pun) is practically useless.
The blockchain technology on which crypto is based poses another problem. Although the blockchain offers new ways to immutably and transparently store and access data, it has encountered a damn Catch-22. No company is going to move from a proven infrastructure to something that has not been field tested on a large scale … and no large company wants to be that guinea pig to demonstrate that it works.
And don’t overlook the fact that some governments disagree with crypto competing with their central bank-backed currencies. A handful of countries have banned digital currencies entirely, with China recently banning banks and online payment companies from offering services to the crypto industry. China is the epicenter for Bitcoin mining.
And of course, misinformation and manipulation are rampant throughout the crypto space. Tesla CEO Elon Musk has been whipping both Bitcoin and Dogecoin with a mix of tweets and memes for the past few months. Trust me, this is a sentence I never thought I would write with a straight face. Tesla originally bought $ 1.5 billion in bitcoin, with Musk allowing consumers to purchase electric vehicles using bitcoin. But not long after that, Musk ended the program claiming that Bitcoin mining was not environmentally friendly. Since then, he has changed his perceived loyalty to Dogecoin, which is possibly the largest pump-and-dump scheme in the crypto space.
And if that’s still not enough, keep in mind that every parabolic movement in history has at some point burst and returned to Earth.
Suffice it to say that there are many reasons that I would strongly recommend avoiding cryptocurrencies.
These digital currencies could be long-term winners
Even so, there are a very small number of cryptocurrencies that I believe could succeed over time. Please note that “might be successful” is not my recommendation to buy. I still firmly believe that crypto should be avoided. However, the following two digital currencies are notable for having the tools and differentiation to survive in the long run.
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Stellar
I see two main focuses in the crypto space: The goal of improving financial payments and the desire to tackle everything in the non-financial area. When it comes to financial payments, the blockchain, which I, as a crypto skeptic, think is the most promising, is Stellar (CRYPTO: XLM).
Call me old-fashioned, but I believe if a blockchain network is to supplant the existing financial payments infrastructure, it should be far more efficient. Starting today, payments from one country to another can take up to a full week to be confirmed and processed. On Stellar’s blockchain, the same payments can be validated and processed across borders in seconds, at a transaction fee that significantly undercuts many of its competitors. The more than 4 million Stellar account holders must hold a small amount of Lumen (the Stellar Coin) at all times to cover these nominal transaction fees. Overall, Stellar can do the round-trip cross-border conversion of 180+ fiat currencies to lumens and back to fiat faster than any other cryptocurrency.
Additionally, Stellar has claimed that it can process up to 3,000 transactions per second. Even if this turns out to be sky high and only a fraction of that efficiency, it would still blow Bitcoin’s transactions per second out of the water.
Stellar has support from IBM (NYSE: IBM), also. Although IBM’s craze for blockchain development has waned in recent years, IBM partnered with Stellar back in 2017 to create an international payments hub that would connect banks through Stellar’s blockchain.
Stellar is mostly off the radar right now, but I see it as the payments-driven network with the most long-term intrigue.
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ether
On the other hand, the ultra-popular cryptocurrency ether (CRYPTO: ETH) offers the greatest potential outside of traditional financial applications, even if it is fascinating in the financial realm as well. Let me remind you again that this is not a recommendation to buy Ethereum here. I think the whole group is in a massive bubble that has already started to burst. But viewed as a whole, Ethereum has a history and technology that long-term investors can potentially leave behind.
One of the biggest lures for Ethereum is the use of smart contracts. These are protocols that help review, facilitate, and enforce the negotiation of a contract. For example, a smart contract could help enforce a will. If a deceased wanted to mandate their grandchildren to receive a certain amount of money when they reach a certain age, a smart contract could take over the execution of these protocols. The best part is that smart contracts are transparent, immutable, and legally binding.
Another win for Ethereum is the buzz it is generating in the business community. The Enterprise Ethereum Alliance (EEA) has more than 200 members, some of which are branded companies. The goal of these companies is to promote the use of Ethereum’s blockchain. The EEA is essentially the best choice in the crypto space to break through blockchain technology’s catch-22.
Ethereum is also getting a lot of press for its role in decentralized finance, or DeFi. Without getting too technical, DeFi is a financially focused blockchain that uses smart contracts to bypass financial intermediaries who might otherwise refuse or slow down a transaction. While I am not denying that Ethereum will play a role in finance in the future, the differentiation of Ethereum in the non-financial arena is most evident.
If the dust clears after an expected implosion in crypto valuations, I believe Ethereum and Stellar will offer two of the most compelling property cases out there.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.
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