Former Goldman Sachs vice president Matthew Goetz believes that investing in bitcoin is comparable to investing in internet companies in the early 1990s: it’s clear this technology is disruptive, but it’s impossible to know whether bitcoin will be usurped by another cryptocurrency down the road — perhaps one that hasn’t even been invented yet.
Goetz, who co-founded cryptocurrency investment firm BlockTower Capital earlier this year, compares the current state of cryptocurrency to the development of the internet during the early 1990s. Even at that early date, select forward-thinking investors rightly forecasted that the internet would usher in a digital revolution, but virtually no one could have identified the specific investments that would benefit most from this technology.
“You could be right on the thesis that cryptocurrencies are transformative and you could make what you think is the right bet at the time, but remember one time you had Yahoo and then this thing called Google came along,” he told Business Insider.
Indeed, few people in 1994 could have predicted the meteoric rise that Amazon would make over the next two decades. Likewise, could the users of Archie — the first internet search engine — have ever imagined what a central role a search provider and its parent company would play in the average person’s daily life?
Goetz says this phenomenon is not isolated to the internet but has occurred throughout history.
“If you look at other industries across history, there’s a real chance that just because the first mover got out there doesn’t mean that that’s the one that ends up ultimately winning and capturing all the value,” he said.
He adds that bitcoin has a significant first-mover advantage, which will protect it against potential competitors who introduce features that are similar or only marginally better than those it already offers. Specifically, he points to Bitcoin’s entrenchment, stability, and developer support as advantages that will secure it against usurpation by most — or perhaps all — of the currently-existent altcoins:
“It’s something like Facebook. If someone creates a new Facebook that has slightly better features, say 10% better. That’s great, but network effects are strong. So, that new thing isn’t going to kill Facebook.”
Of course, entrenchment does not necessarily last forever, as recent history demonstrates. After all, when was the last time you used MySpace?