Obviously, no one can predict the future but there are a number of ways to identify patterns which can help you consider a general synopsis of where a particular asset, idea, technology or trend may end up.
Known as indicators and inflection points, having access to, and being able to dissect, the correct data is the primary way this is done. “The numbers never lie”.
To this end, when looking at how Bitcoin, and the wider crypto market is going to move forward, it’s vital to consider exactly which data you’re using, what it means, and how that will affect adoption of both the underlying technology, and commercial role of the crypto paradigm.
The problem with Bitcoin’s price is that it’s only part of the story. Not only does BTC have very little intrinsic value (beyond the technology), but it’s also one of the few asset-classes which are entirely dependent on another form of technology (blockchain) for its very survival.
This blockchain link has a number of connotations, from the risk of a fork unbalancing the entire market, to hackers and even government intervention (blockchain is entirely open source) causing havoc for miners around the world (imagine if a virus was released targeting the mining systems for BTC etc).
Thus, when considering the price of Bitcoin, it’s my opinion that you’re really considering the price of blockchain, and how much it’s going to be worth over the next few years as a medium of data exchange. This is what I’ll be covering here…
Bitcoin Isn’t Worth Anything “On Its Own”
Bitcoin’s price is based primarily on its use value as a means of exchange. The premise of the system is that with it you’re able to send money digitally to anybody in the world, so long as they have another BTC account.
The system has long been called a public ledger for financial transactions, essentially taking the role of a clearing house in a bank. The point (or value) of the system lies in the decentralized nature in which it does this.
The present technical landscape (and by virtue financial market) is entirely centralized. This means that any time you wish to deal with other people, you have no choice but to use certain systems, institutions or technology to get it to work. Whilst this isn’t normally an issue, it can lead to the likes of data-breaches, monopolies and inefficiency, all the enemy of a free market.
Part of the reason why this has been the case is lack of choice. Technology is centralized because it needs to be so, there have been no other solutions which can provide you with the means to change it.
Therefore, when considering Bitcoin, what you’re really looking at is blockchain. Blockchain is the technology which sits behind BTC and all the other crypto coins.
Designed in 2008, it was released as open source (meaning anyone has access to the source code), and the Bitcoin application was developed using it in 2009.
Without getting into the details, the whole point of blockchain is to create a decentralized infrastructure through which data-centric transactions can be sent. This works exactly the same for buying products, renting library books or sending money/assets digitally.
The main mistake people make with Bitcoin is they believe it is actually some sort of infrastructural-engine for change. It isn’t. Bitcoin is a 21st century checkbook allowing users to assign ownership of assets, money or other digitally-signed legal tender via the Internet. Blockchain acts as a means to save these transactions by way of a chain (database) of blocks (of data).
Each block in each chain of a blockchain system is encrypted. This encryption allows users to save, transfer and manage private information without the need to make it public.
The role of each crypto (cryptographic) coin (file) is to provide a means to unlock the data by way of a public/private key. Each Bitcoin represents a certain number of transactions in the network, meaning that if one of those transactions represents a large number of transferable value, the theory is the BTC could be worth a significant amount in itself.
When considering the price of BTC, you therefore need to not only look at how this process is moving forward, but how the overall market is able to react, adapt and improve with it.
This is what we’ll look at now…
Like all technological developments, Bitcoin & blockchain are widely misunderstood.
Some Utopians are busy hailing a decentralized end to money, the bringing down of entire governments and fiat currencies thanks to the decentralized invention of BTC.
Distopians believe that Bitcoin has little intrinsic value, and many have even suggested that it’s a ponzi scheme. This is because the coins themselves don’t really control any assets in the real world, and thus have very little by way of attributable fiscal value.
This has lead to wild price speculations. From its all-time peak of $20,000 in December 2017, it’s now back down to around $8,000 per coin (with continued dips predicted on the horizon).
It’s my opinion that Bitcoin occupies a very interesting place in the crypto world, synonymous with Google’s in the Internet space.
Google isn’t just a search engine. It’s representative of an entire generation’s shift to the Internet. It’s the core of what brought many people online, in a very similar way to how Windows became the gateway for everyday people to get into personal computing.
What we’ve seen with Bitcoin is an entirely unregulated market’s reaction to world changing technology. Blockchain doesn’t function in a bubble; Bitcoin is often cited as being one of the core building-blocks which will enable everything from cross-border transactions to a plethora of new alt-coins to be created on top of the infrastructure.
It’s this value which is intriguing, and where I personally believe the long-term prospect of BTC should be considered.
To fully understand this, you have to appreciate that most people have jumped onto the crypto bandwagon because it’s making them money. They make money from referrals, buying the alt-coins and generally pumping any of the different systems that come along.
Whilst this works, the big problem is that it’s all superficial and short-term focused.
The truth is that Bitcoin’s only value has been derived from the amount people are willing to spend on each coin. There’s no science or maths behind it, people have been buying because they think they’ll be able to resell them for a profit later on.
This has lead to a sunk-cost bias, leading many people to become invested simply because they believe the price they paid justifies the underlying technology of the product. This doesn’t work, and is why the price has been jumping around so much.
As with all things in a free market, the price oscillations are determined primarily by any bumps the asset may receive that makes it a more legitimate purchase / investment to a larger number of people. For example, most people looking at Apple think that tracking the price will somehow allow them to determine its next move; really it comes down to the way in which the company has developed new products etc.
In the same sense, Bitcoin’s future is tied not only to blockchain but the legitimacy it’s given by the likes of governments, financial institutions and consumers around the world.
This is what I have been looking for in terms of the system itself:
- Government Regulation
This is obvious, if a government regulates the use of Bitcoin, it will potentially negatively impact its price due to the way in which it will not be accessible to as many people any more. For BTC to live up to the hype, it needs to become the digital equivalent of the checkbook, which means it has to be ubiquitous.
Whilst government regulation cannot impact the technology itself, it can determine whether it’s used as a legitimate means of legal tender, or whether it’s forced underground. If the latter, the price will likely take a nosedive.
- Government Adoption
In order for a crypto currency to work, it has to have assets that it controls. In the case of Bitcoin, these assets are meant to be money. Money is known as legal tender because as many people will point out it has very little value on its own.
The real value of money lies in the means through which it can be redeemed. For example, every British bank note has the words “I promise to pay the bearer the sum of…” emblazoned on the top. The point is that with fiat / government-issued money, you’re basically getting a token of an economy. The strength of that economy determines the value of that token in the real world (what people will be willing to trade for it).
If BTC is adopted by any government (it won’t), that will send the price to $100k almost overnight. Of course, in the same sense a government could easily issue their own crypto currencies (which is likely going to be the case moving forward).
- Third-Party Applications
Bitcoin’s network like ETH’s is often used as a basis for other applications to manage money. In other words, third-party developers can build their own solutions on top of the blockchain technology.
The proliferation of these third-party adaptations is strong indicator of the value of BTC in the marketplace, and how it’s likely going to be used moving forward.
- BTC Adoption/Use
If you find that a huge swathe of the populace begins to use BTC for some reason (typically because it’s the only way to achieve some result), this is another avenue for growth. This is primarily how the technology business grows.
To this end, one of the key metrics to consider is how the Bitcoin system is actually being used by the users it was designed to serve. Presently, this consists of people who want to send money cross-borders to others. This has been quite limited so far, leading to the wild shifts in its price.
- ETH + XRP Expansion
Finally, Ethereum and Ripple will also play a part. As mentioned, the Bitcoin infrastructure will typically be determined by how much the blockchain ideal is adopted. This has lead many to also observe the likes of Ethereum and Ripple (which are legitimate businesses in their own right) to determine how much each will be able to grow.
From all of this, we come to several conclusions.
Firstly, Bitcoin is primarily seen as a vehicle for speculative trading at present. It has very little intrinsic value, use value or transactional value. Most people who bought it did so because they figured they could sell the coins for a huge profit later on.
Secondly, the underlying technology of BTC is not unique, and can therefore be superseded by anything designed & deployed by the likes of the government, central banks or other institutions. Yes, this will defeat the decentralized ideal of BTC, but it’s only the banks that have the ability to ascribe core value to any transaction performed with crypto.
Thirdly, Bitcoin as a means of exchange is not overly effective. The core reason why you may even consider using the service is tenuous at best, leading to a large amount of speculation in its market. Therefore, when considering the price of the asset, you have to remember that – in the end – the product is only as valuable as how useful it is to its buyers.
With this in mind, my perceptions are that Bitcoin will continue to sink to around $5k per coin (especially with the DOW being so high). It may even sink to $3k.
However, there will come a point where something will trigger money to flow back into the system. It may be the price itself, or (most likely) will be some sort of business collapse in Wall / Main Street. Much like what happened in 2008, there’s going to be something which causes the economy to shrink leading investors to look for a safe haven for their cash.
When this happens, it will likely be a very quick ascent for BTC again. Seen as the most reputable coin in the crypto market, it will take the bulk of investors money, allowing users to trade them as required.
In terms of the overall price for each BTC, and whether it will reach $100k/coin, I doubt this. The coins themselves don’t hold any actual value, and so without some sort of external factor – such as government adoption etc it’s difficult to attribute much by way of a price to them. However, this didn’t stop them reaching $20k in December 2017.
As with any investments, it’s not the results that matter but the prior seeds which were planted before. In the case of Bitcoin, there are not that many seeds of its own but there are potentially a few from other quarters which can serve it well.