Could Monero Be the Next Bitcoin?

If you want a shortcut to losing your money in crypto, start by buying an asset that people are saying is the next Bitcoin (CRYPTO: BTC) right after it makes a big price move. Nonetheless, if some investors are to be believed, Monero (CRYPTO: XMR) is one of the few coins that just might have a plausible claim to becoming the next Bitcoin, thanks to its defining capability, providing on-chain privacy by default.

But being obviously valuable is not the same as an asset being the next Bitcoin -- nor is it 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 a bit more detail and evaluate whether this privacy coin is a real candidate for displacing the king cryptocurrency.

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This isn't a scarce asset

Bitcoin became Bitcoin because it combines two things that are very rare together: a fixed supply that's harder to mine over time, and an easy-to-understand investment thesis that's grounded in its scarcity. The result is that many of the asset's holders can explain the entire supply policy in one breath without sounding like they are reading from a technical manual. In short, there's a maximum of 21 million Bitcoin that can ever exist, and, roughly every four years, halvings make the steady influx of new supply from mining even smaller than before, so even if demand doesn't constantly increase, prices are more likely to keep rising over time than not.

Monero's supply policy is a touch more complex. Like Bitcoin, Monero uses proof of work (PoW), meaning miners expend 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 issuance, which perpetually trends closer and closer to zero, theoretically eventually actually reaching it, Monero's supply policy transitions its issuance into so-called tail emissions, which are permanent and fixed block rewards that began in 2022 and never end.

But a small, steady issuance rate still results in holders getting their value constantly slightly diluted 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 isn't a dealbreaker for owning the asset so much as it is a quirk that makes it harder to exhibit the same supply and demand dynamics that Bitcoin does relative to its price. Bitcoin does not require new demand to absorb ongoing issuance forever, but Monero does, even if that demand is fairly modest in the grand scheme of things.

Furthermore, when someone pitches an asset as being the next Bitcoin, they're usually at least in part pitching the feature of absolute scarcity. None of this makes Monero bad; it just makes it different from Bitcoin, which it isn't trying to be anyway. It almost certainly will not replicate Bitcoin's adoption arc, so now let's turn to the issue of whether it's worth buying anyway.

Privacy has a steep price

Monero's investment thesis is that it's private digital cash. Privacy has a plethora of legitimate uses, including personal safety, business confidentiality, and the simple desire to just be unknown to others.

Alas, privacy is something that collides head-on with what financial regulators want.

If a crypto exchange, bank, or other financial institution has to prove where certain capital came from, privacy-by-default coins like Monero are going to pose a problem, as they're inscrutable unless specifically engineered to provide a way to drop the veil. On that front, major exchanges have repeatedly restricted or removed Monero in various jurisdictions as a result of regulator pressure. Binance, one of the biggest and most important crypto exchanges, delisted Monero in 2024, and it's far from being the only major one to do so in that period.

Regulators may one day change their opinion on privacy assets. Until then, expect Monero to be tough to purchase, anxiety-provoking to hold, and perhaps difficult to sell. For most investors, those risks disqualify it from being worth purchasing.

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.