Most “investors” in crypto are just ordinary people who want make a quick buck and these superfans use the phrase “to the moon” to describe the exponential growth of the Bitcoin price during periods of “irrational exuberance”.
This chart shows the growth in the Bitcoin price. The log price allows us to see the putative “4-year cycle” and that the rate of growth of the bitcoin price is slowing as the law of big numbers start to bite. This is because it is much easier to move from 1 to 2 users than 10 million to 20 million users. Although CryptoStar lists over 500 exchanges that want to help increase the number of people who own Bitcoin.
We know that new products penetrate markets quicker now than they did in the past. Sony took 14 years to sell 100 million Walkmans but Apple sold the same number of iPods in only 5 1/2 years. Reasons for this include much lower marketing costs and increased business agility. In my view, if there is a 4-year cycle to Bitcoin’s boom and bust then it will be shorter this time.
In the past the capital flow has been into Bitcoin and then into Alts (other cryptocurrencies) as users seek greater speculative returns from coins which have lower costs. When alts stop going up they crash and money flows back to Bitcoin and fiat. I expect this to pattern to be repeated. Some alts without any technical or commercial merit will die.
By following my reasoning that the boom-bust cycle gets faster I expect that cryptocurrency prices will be stable in 8 years’ time and in the natural way of things there will be a few big cryptocurrencies for the standard use cases and a great many niche providers built upon the main networks.
Bitcoin and other cryptocurrencies are not purely social constructs. They use atoms and energy to operate and as the networks scale they use more energy. Bitcoin uses Proof of Work which requires the expenditure of huge amounts of energy to secure the blockchain. Its design is both brilliant and stupid. Brilliant because it works, stupid because energy should be used to make the lives of the world’s poorest citizens better not dumped as waste heat.
There are many ways to make Bitcoin more energy efficient including using surplus electrical capacity and using the waste heat in cold climates. It is even possible that the Bitcoin industry could provide system benefits by promoting efficient energy use. However Proof of Work is fundamentally stupid and if you put lipstick on a pig it is still a pig. I don’t believe that politicians or voters will accept that the benefits of Proof of Work out-weigh its disadvantages and therefore Bitcoin in its current form can never become accepted by broader society as a legitimate store of value.
The Ethereum team are leading the march towards Proof of Stake and are building a hybrid system now. In my view (and the view of many others) Ethereum has too large an attack surface to be a good choice as a store of value but it is possible that the work that the Ethereum team do will demonstrate that Bitcoin can transition to a hybrid scheme that will satisfy the requirements of energy efficiency and security.
My best guess is that after many heated arguments in the Bitcoin community and several contentious forks Bitcoin will have adopted a hybrid PoW/PoS scheme and will still be the natural choice for users seeking a secure store of value.
I am arguing that Bitcoin will have a stable price in 12 years’ time. Therefore I should really make a guess what it will be. Here are some key numbers,
If Bitcoin becomes as valuable as gold then it would be worth $333k per Bitcoin (21m Bitcoins). However Bitcoin will be in competition with gold therefore they will share the market. Making the heroic assumption that they share the market gives me $150k/Bitcoin.
Bitcoin is currently trading at ~$8k. Is the difference between 8k and 150k enough to motivate the Bitcoin community to move to hybrid PoW/PoS. I think it is.