Stacks - As an investment
Bitcoin is on its way towards becoming a very valuable asset. While a BTC costs about $60,000 approx today (early Nov 2021), it is expected to go up in price to anywhere between $1M to $10M per BTC by the end of this decade.
It is well known that Bitcoin is
decentralized (nobody can control your bitcoin)
not inflationary (monetary policy of Bitcoin is set in stone preventing new Bitcoins from being created by changing the rules)
boundary less (No need to swap currencies when you cross national borders).
However, what is not as well known is the fact that Bitcoin is also programmable money using the concept of smart contracts. This aspect of Bitcoin is slowly getting attention.
Stacks is one such project focused on providing for smart contracts on Bitcoin. This project has it’s own token called Stacks with the symbol STX. The price history of STX is shown below. You can see from here that it has multiplied ten times in the last 12 months.
But is there potential for further growth? I will look at that in detail in this article.
Let’s start by looking at the problem that Stacks is addressing. I will then consider the factors that can impact the value of the token.
Problem
The problem is how do you create programmable financial instruments leveraging the value and ethos of Bitcoin - so called DeFi or Decentralized Finance over Bitcoin. This can be done using smart contracts. Btw DeFi will be a separate post in the future.
Stacks is a company that makes DeFi possible on Bitcoin. Hence I am bullish about Stacks. There are a few other projects towards making DeFi possible on Bitcoin but Stacks is the most advanced. I like the risk-reward and decided to buy Stacks worth $1000.
Use cases
So what are some use cases that Stacks makes possible. Let’s look at some of the companies building on top of the Stacks stack.
A product built on Stacks makes it possible for you to get loans against the Bitcoin that you hold.
Another product makes it possible to earn yield/interest from the Bitcoin that you hold.
A third product is focused on creating self repaying loans. This is where you get loans against your Bitcoin. And the loan will be repaid from the yield expected from the Bitcoin.
These are still early days. Stacks has an accelerator program - Stacks accelerator . This will expand the Stacks ecosystem further leading to increase in the value of the STX token.
The current Stacks ecosystem is also quite rich as you see from the figure below. This is additional reason for my bullishness.
Risk/Reward
Given the pros and cons, I have decided to invest $500 into Stacks at an entry point in the $1.8-$1.9 region. This translates to a current market cap of approximately $2B. As a comparison, ETH platform that provides smart contract functionality on the Ethereum blockchain currently has a market cap north of $500 billion.
The downsides of STX are
It is a token that feeds off BTC (Bitcoin). Some in the Bitcoin community look down on this as it’s a separate token not pegged 1:1 to Bitcoin.
New STX tokens will continue to be created for every block for the next decade. So STX is subjected to inflationary pressures.
Better support for smart contracts is coming on Bitcoin (Taproot). And other platforms might also rise up as competitors in the future negatively impacting STX.
Regardless, in this macro-economic environment, I believe that STX has the potential to provide returns of 10x or more with a high probability. The return can be higher if the team executes flawlessly and I like the chances.
There are other similar projects that I will investigate in the future such as
How to Buy STX
There are several exchanges that exchange fiat currency for STX. Some of these exchanges are given below.
Go to one of the exchanges above. I have done this with Okcoin.
Then fund the exchange with fiat currency by connecting your bank account using Plaid.
Using the fiat you can purchase STX on the exchange.
Then transfer the STX to one of the wallets below.
Conclusion
I like the risk-reward ratio provided by Stacks and hence I have decided to invest approx $500 in Stacks. In a future article, I intend to dive deeper into the technical aspects of the Stacks project.
I would like to emphasize that this is not investment advice. This is just me describing my thought process that governs my decisions to invest in alt-coins. And please make your own decisions since we all have different constraints.