An interview on the topic of cryptocurrency with the manager of the investment fund Dopamine Investments, Ing. Roman Panuška, in which you will learn the difference between individual cryptocurrencies and how to think about them from a long-term investment perspective.
What should one actually imagine when referring to cryptocurrencies?
Personally, I'm not keen on using the term „cryptocurrencies“ as it's quite inaccurate nowadays. The name was originally coined primarily to designate a category of first-generation public blockchains, like Bitcoin and its counterparts, which were primarily designed as digital money.
It is quite clear today that Bitcoin has won in this category and has no comparable competitor. The rest of the „cryptocurrencies“ are actually blockchain networks supporting smart contracts and tokens created on these networks.
These tokens are used by various projects for their own needs in different ways and usually provide their holders with certain benefits or decision-making powers within the project.
With the exception of stablecoins, which are tokens that do not have a fluctuating price and are backed by some other currency or asset, they are therefore practically never currencies, so the name cryptocurrency is actually very misleading. One should therefore think of cryptocurrencies as various tokens and digital assets linked to the blockchain, which are also tradable in this digital form.
2. You say that, in your opinion, Bitcoin has no comparable competitor nowadays. What about Ethereum and others, for example?
Yes, it doesn't. For example, Ethereum, in my opinion, is not a direct competitor to Bitcoin; it's actually a fundamentally very different thing. I won't go into technical details here, but I'll give you a simple analogy. You can best imagine Bitcoin as digital gold. It's something that is scarce because there's a limited number of it and no one can create more. Bitcoin is the same. Its main advantage is its enormous decentralisation, immutability, stability, and distribution. It's a store of value that has no other use case within its network, which I think is also correct.
Ethereum is a blockchain network on which anyone can create a token, giving it any rules or restrictions. Ethereum also has its own native coin, ETH, which is used precisely for paying fees within the network. There are many similar blockchain networks; recently, for example, Solana with its native coin SOL has become very popular. Therefore, we cannot consider the coins of these blockchain networks or the tokens created on them as competitors to Bitcoin. Bitcoin's competitors can therefore be coins running on their own blockchain, created with the purpose of serving precisely as cryptocurrencies, such as Litecoin, DigiByte, Monero, Zcash, and others.
However, I currently see no point in owning coins from this category. The only exception might be Dogecoin, as a popular speculative asset not only for retail traders.
3. You use the term "token" in some places and "coin" in others, is there a difference?
Honestly, I'm not entirely sure if there's a precise definition for it now, but it's customary to use the term 'coin' for digital assets that have their own blockchain – Bitcoin (BTC), Dogecoin (DOGE), Ethereum (ETH), and others. 'Tokens', on the other hand, are for digital assets that don't have their own blockchain and have their token created within a blockchain network – Chainlink (LINK), Tether (USDT), Shiba Inu (SHIB), and others.
4. Which coins and tokens should be included in a long-term cryptocurrency investment portfolio.
I would also be very cautious about digital assets with a long-term investment horizon. This market is extremely dynamic, with new trends constantly emerging. If you had put together a portfolio of the best selected tokens and coins in 2017 or even 2020, it would be extremely outdated now and you wouldn't have seen any major returns. And although I have very strong candidates for the next growth period now, I still couldn't recommend them for a long-term investment horizon with a clear conscience. To utilise the full potential of this market, active management and regular portfolio rebalancing are required. There's a tremendous amount to keep track of, and I don't think most individuals can manage it all. It's better to turn to a quality investment fund. The exception is Bitcoin; I wouldn't be afraid to hold that long-term, although this of course absolutely does not mean you will achieve the biggest returns with Bitcoin. It's just the safest bet from my perspective.
5. Why only Bitcoin?
Bitcoin is the only digital asset that has truly won in its „cryptocurrency/store of value“ category and will never be replaced by any competition, as can happen with other coins and tokens where better and more sophisticated solutions are constantly emerging on the market. It is not Bitcoin vs. competition, it is Bitcoin vs. nothing; it has no competition. Although the entire digital asset market is highly speculative, tending to swing from extreme oversold to extreme overbought conditions with a lot of over-leveraged positions always present in the system, I believe that for Bitcoin, these extreme volatility swings could be somewhat mitigated by the ongoing institutional adoption. For example, Bitcoin ETFs have recently been bought by the largest Swiss bank UBS, one of the largest Canadian banks, Bank of Montreal, and the US state of Wisconsin. I see no reason why this trend should not continue, and imagine the immense funds at the disposal of pension and sovereign wealth funds worldwide. I cannot imagine that under these circumstances we will not see higher prices for Bitcoin than the current ones.
6. Could you give us a tip at the end about where the price of Bitcoin might go in the future?
It depends on what it's being compared against. Compared to fiat, it must inevitably increase over time towards infinity, because fiat is infinitely inflationary. If we're talking about its purchasing power, my guess is that it will increase in the coming years for the reasons I've already mentioned.
Note: Fiat is money issued by governments, not backed by any physical commodity.