There’s been a twist in my thinking on crypto-currencies. I’m going to flesh this out shortly with a more comprehensive post but for now, I just want to mention the fact that I am no longer buying the prima facie scarcity argument for Bitcoin’s rise.

Last night I attended a very interesting crypto dinner with 20 or so of the most important software people on Wall Street, from big banks to giant hedge funds. It was super-informative and everybody got a chance to ask a lot of tough questions of the experts in attendance.

My friend Brian Kelly, who is as knowledgeable as anyone on this topic, helped confirm my thinking about the beta trade in coins / tokens. He’s killed it all year with this trade on – just playing the increase in demand for exposure to coins. I asked him his opinion on this premise:

Right now, there is a very high correlation between the price of Bitcoin and the amount of new accounts being opened on the Coinbase platform. As the new accounts have skyrocketed to north of 13 million or so, the price of a BTC has shot up along with it.

And then I took the guess that, because there are two other coins supported by Coinbase – Ethereum and Litecoin – and they sell at lower prices, that those would shoot up as well. I put myself in the headspace of a know-nothing, and said “Well, isn’t there a better chance of Litecoin going from 95 to 9,500 than there is of 17,000 Bitcoin going to 175,000 (or 10x)?” Of course there’s no way to think of this as rational, I just imagined myself as one of the crowd and put on the trade. My Litecoin went from 95 to 400 almost overnight. Look what a genius I am.

So I asked Brian the following rhetorical question: There are only three coins on the platform. If there were five or ten, isn’t it more likely that they would all individually be worth less per coin, because Coinbase retail people would have more places to spread their bets? Wouldn’t the price of Bitcoin be lower if the most popular platform were not “Bitcoin maximalist”?

He agreed with my premise.

And I want to take it a step further. The biggest enemy of Bitcoin’s continued price ascent is not anything to do with Bitcoin’s own failings as a medium or exchange (which it’s terrible at, conventionally speaking). The real enemy is competition for investment dollars from other tokens. Bitcoin Cash is going to hit the platform as option number four in January. How much demand will that siphon off from BTC? Ripple just doubled and is getting all kinds of attention. Litecoin is defying gravity.

What killed the dot com and software stocks in the early 2000’s was not just their business models, but the incredible deluge of new IPOs coming to market every day. I think in 1999 there were 700 IPOs or something, three a day all year, each vying for attention and capital from a finite pool of investors.

The ducks are quacking right now and the coin people, like their Wall Street investment banker predecessors, know that when the ducks are quacking, you must feed them. How many coins and tokens will it take to do that? At what point do all the current and coming options overcome the current demand?

If you can invent more tokens and coins overnight, then the scarcity argument (there will only ever be 21 million Bitcoins in circulation and 4 million of them are already lost forever) goes right out the window. Bulls would say “No, Bitcoin is the only one that matters.”

Tell that to the Ethereum folks, they ain’t having it. It’s Yankees vs Red Sox in crypto land.

I’m not selling, still hodling. I accept the fact that I could be very wrong about this and the whole thing began as an experiment for me anyway. What’s changed is that I’m done buying for now. I’ve shut down the accumulation program I began this summer.

One last thing – it’s beginning to become apparent to me that the true transformational power of blockchain technology will be manifested in the form of cost savings for large companies who switch over from databases to private chains to build new efficiencies. This is very much how the internet went mainstream. It’s unsexy and does not require that there be a speculative play in the price of any individual coin. Vanguard made an announcement about employing blockchain technology to more efficiently transmit index data. Great for them, but what’s the trade? There might not be one.

Same goes for supply chain efficiencies to be had as a result of giant industrial companies moving from databases to private blockchains. What’s the trade? Which coin would go up on this kind of adoption? Might not be a trade to be made at all.

I’m less confident that the prices of coins will be central to the mass adoption of blockchain. I’m starting to think the trading of digital assets may end up being just some vaguely tangential activity that takes place on the side, without being of great import to the technology story.

Another aspect I’m going to get into at some point is the flood of charlatans, promoters and liars coming into the space. It grosses me out and it’s becoming impossible not to talk about. I’m going to talk about it.

As always, I’m just sharing my thoughts, not making any sort of bold pronouncement at this early stage in the game.