Monero is a privacy coin that is popular right now.
It doesn’t have much in common with Bitcoin.
But it faces some obstacles to its growth that Bitcoin does not currently have.
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If you want a shortcut to losing your money in crypto, start by buying an asset that people say is next Bitcoin(CRYPTO: BTC) right after it makes a big price move. However, if some investors are to be believed, Monero(CRYPTO: XMR) it is one of the few coins that could have a plausible claim to become the next Bitcoin due to its defining ability, offering on-chain privacy by default.
But being demonstrably valuable isn’t the same as an asset being the next Bitcoin — and it’s not even necessary for something to be the next Bitcoin to be a great investment — so let’s unpack what’s going on with Monero in more detail and assess whether this privacy coin is a real contender to replace the cryptocurrency king.
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Bitcoin became Bitcoin because it combines two things that are very rare together: a fixed supply that is harder to mine over time and an easy-to-understand investment thesis that is based on its scarcity. The result is that many asset owners can explain the entire sourcing policy in one breath without sounding like they are reading from a technical manual. In short, there’s a maximum of 21 million Bitcoins that can ever exist, and roughly every four years, halvings make the constant influx of new mining supply even smaller than before, so even if demand isn’t steadily increasing, prices are more likely to continue to rise over time than not.
Monero’s supply policy is a bit more complex. Like Bitcoin, Monero uses proof of work (PoW), meaning miners spend computing power and energy to secure the network and earn newly issued coins as a reward for their investment and ongoing expenses. Unlike Bitcoin’s emission, which is permanently approaching zero, theoretically eventually reaching it, Monero’s supply policy transitions its emission into so-called tail emissions, which are permanent, fixed block rewards that began in 2022 and never end.
But a small, constant issuance rate still results in holders diluting their value ever so slightly over time as the total supply grows. It’s important to note here that the degree of dilution we’re talking about is on the order of 1% per year, so it’s not a dealbreaker for owning the asset, but rather a quirk that makes it harder to exhibit the same supply and demand dynamics that Bitcoin does in relation to its price. Bitcoin doesn’t require new demand to absorb ongoing issuance forever, but Monero does, even if the demand is pretty modest in the grand scheme of things.
Furthermore, when someone touts an asset as the next Bitcoin, it usually, at least in part, exhibits the characteristic of absolute scarcity. None of this makes Monero bad; it just makes it different from Bitcoin, which it doesn’t try to be anyway. It almost certainly won’t replicate Bitcoin’s adoption arc, so now let’s get back to the question of whether it’s worth buying anyway.
Monero’s investment thesis is that it is private digital cash. Privacy has a multitude of legitimate uses, including personal safety, business confidentiality, and the simple desire to simply be unknown to others.
Unfortunately, privacy is something that collides head-on with what financial regulators want.
If a cryptocurrency exchange, bank, or other financial institution needs to prove where certain capital comes from, default privacy currencies like Monero will be a problem because they are impenetrable unless they are specifically designed to provide a way to slip the veil. On this front, major exchanges have repeatedly restricted or removed Monero in various jurisdictions following pressure from regulators. Binance, one of the largest and most prominent crypto exchanges, removed Monero in 2024 and is far from the only major one to do so in that time.
Regulators may one day change their minds about privacy assets. Until then, expect Monero to be difficult to buy, anxiety-inducing to hold, and perhaps difficult to sell. For most investors, these risks disqualify it from being worth buying.
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Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool recommends Monero. The Motley Fool has a disclosure policy.
Could Monero be the next Bitcoin? was originally published by The Motley Fool
