Why I No Longer Hold Bitcoin

I bought Bitcoin in 2013 and got into crypto. Last week, I finally sold my last BTC and switched to ETH. People always ask, "Why don't you hold Bitcoin anymore?", so I thought I'd write a post about it...

First of all, I don’t hate Bitcoin. I think it’s a good asset and worth holding. But here are a few reasons why I choose not to hold it anymore:

Productive assets and "pet rock" assets

Generally speaking, I will hold assets that have end-user demand, application scenarios, and can generate cash flow, rather than those that are completely dependent on market supply and demand.

End-user demand for ETH is huge: NFT, DeFi applications, etc. ETH's market cap is less than half of BTC, but daily transaction fees on the Ethereum chain are more than 10 times that of Bitcoin. Fees reflect the demand for block space.

Bitcoin has many reputations, such as "digital gold" and value storage assets. However, from a technical perspective, its application demand is very small. What is more worrying is that as NFTs and other commodities are increasingly denominated in ETH, ETH is beginning to compete with BTC for which one is more suitable for value storage.

Once Ethereum transitions to Proof of Stake (more on this later), anyone will be able to easily earn a yield by staking ETH (expected yields of 5-10%), making it even more attractive as a productive asset.

Bitcoin will face serious security and decentralization issues

The block rewards for miners responsible for securing the Bitcoin network are halved every four years. By 2140, there will be no block rewards at all.

The idea in the Bitcoin white paper is that by this point in time the Bitcoin network will have enough adoption so that transaction fees will be sufficient to make up for the reduced block rewards.

Obviously things are not going in this direction. Bitcoin is great as a store of value, but people don't want to use it for transactions. The Bitcoin community will laugh at those who spend Bitcoin as "deserving to be poor", while in the Ethereum community, people are competing to mint new NFTs with ETH, trade Dogecoin, and so on.

This problem is not a pressing issue for Bitcoin. But it has become increasingly entrenched in the idea that there are and will only be 21 million Bitcoins, and the community is complacent. Without moderate inflation, or a reversal of attitudes toward using Bitcoin for transactions, it is hard to see how Bitcoin can remain secure and decentralized.

Bitcoin is hard to escape from ESG issues

Bitcoin mining is moving toward using more and more clean energy. While this is great, I don’t think it will ultimately appease people’s concerns about the environment. This issue is complex.

In contrast, the solution given by Ethereum is clear and straightforward: they are moving from "proof of work" to "proof of stake", which will reduce the network's energy consumption by more than 99%. It is a concise and easy-to-understand answer that even the general public outside the cryptocurrency circle can understand at a glance.

No matter how clean Bitcoin energy is, no matter how difficult the environmental issues are to resolve, I think it will be difficult for it to escape this criticism in the short term.

The Bitcoin community does not support capitalism

Bitcoin holders reject new tokens and anything that creates wealth for a single builder rather than all Bitcoin holders. In the Ethereum community, getting rich from a newly issued shitcoin is a form of honor.

This leads to an atmosphere that is more like communism (BTC) versus capitalism (ETH). We all know how it ends: innovation, progress, and economic rewards ultimately go to the capitalists.

Tribal Bitcoin communities stifle innovation

Bitcoin holders have been fiercely resistant to change, while the entire crypto industry is developing at an incredible pace. If smart contracts can be introduced and a long-term inflation plan is established to ensure network security, perhaps BTC can keep up with this technological arms race.

But the community (at least for now) will never allow this to happen. The Bitcoin community has now become a primitive tribe where everyone is afraid of the consequences. You can't even discuss these topics on Twitter, otherwise 100 observant accounts will quickly pop up and immediately label you a traitor. (These people have probably been in the cryptocurrency world for no more than 2 years, have bank assets of at most 4 figures, and have never used DApps.)

Bitcoin is not a hedge against inflation or bear markets

Historically, there have been many claims surrounding Bitcoin: it can be used as a store of value, a hedge against inflation, and a hedge against bear markets.

While this is not the case right now (although I can see changes happening on longer time frames), BTC and ETH have been very strongly correlated to the Nasdaq over the past year. For better or worse, the market has viewed them as risk assets, grouped with tech stocks.

If I were to own a crypto asset that the market categorizes as a tech stock, I would want it to be owned by an innovative tech company that has end-user demand. Therefore, I would choose Ethereum over Bitcoin.

Here are some counterarguments and my thoughts on them.

Ethereum’s transition to proof-of-stake will make the rich even richer

In fact, proof of work makes this problem worse. Mining is a huge business with huge economies of scale and extremely high barriers to entry. If you can’t order a few containers of ASICs at a time and negotiate a large power supply contract, you will be at a huge disadvantage in proof of work mining.

With the help of Lido and Rocket Pool’s liquidity staking and exchange staking, you can easily participate in proof of stake no matter how small your funds are.

Everything Ethereum can do, Bitcoin can do too

Over the years, there have been many debates about taproot, Stacks, etc. While technically correct... the fact is that the Bitcoin community has been very resistant to change. Smart contract activity on the Bitcoin ecosystem is almost zero.

As long as Ethereum and other smart contract blockchains continue to innovate at a breakneck pace, I wouldn’t bet on Bitcoin catching up and taking market share from them.

Ethereum is merging into proof of stake, and it’s been said for seven years

Yes, it's not far away. Seriously -- if you follow mergers, you know it's coming. There's a 50% chance of a merger happening by the end of the year, or a greater than 66% chance of a merger happening within the next 12 months.

at last

To reiterate, I am not bearish on Bitcoin. I don't think it sucks or anything like that. Its first-mover advantage and the Lindy effect allow it to reject innovation and still be the first choice of (store of value) cryptocurrency. But now, I prefer to hold ETH.

If you want to refute any of these points, or call me an idiot for not owning Bitcoin, feel free to reach out to me on Twitter.