The $5,000 Bitcoin: The Trends

Perform a simple Google search and you will find an enormous number of prophecies speculating the future price of Bitcoin. These will range from $2,500 to $10,000 to $500,000 and even to a $1,000,000 Bitcoin.

On the flip side the naysayers argue that Bitcoin is a bubble, is worthless, and will ultimately fail. I am yet to find an article or academic paper that offers any real substantiation for this point-of-view.

I would like to lay out some simple reasons, from my own analysis, why I believe Bitcoin has huge growth to look forward to. I anticipate Bitcoin trading at $5,000 in the next 3-5 years.

Demand & Supply

For those who took Economics I, we should all remember the basic demand and supply curves. The equilibrium between the two is where we find the market price P{e}.

supply-and-demand-diagram2
Demand & Supply Equilibrium

If you didn’t take Economics I, don’t panic! P{e} is simply the average price where buyers and sellers agree to exchange the underlying good – in this case, Bitcoin.

Demand has a direct relationship to price, thus increased demand exerts upward pressure on the price. Supply is inversely related to price, thus decreased supply also exerts an upward pressure on price.

Supply+Demand.png
Effects of Increased Demand + Decreased Supply

The twin effects of increased demand and diminishing supply both exert upward pressures on price. Theoretically, price moves from P{1} ⇒ P{2}.

Diminishing Supply of Bitcoin

Bitcoin follows a strictly diminishing supply curve (see: Bitcoin & Blockchain for further explanation of the supply protocol). So we can anticipate that there will always be upward pressure on the price of Bitcoin arising from the supply side of the equation.

Factors Contributing to Increased Demand

Bitcoin is new money. What would compel any participant in an economy to dispose of traditional money and adopt the new?

The function of money is as vital to an economy as blood is to the human body. For one type of money to be more attractive than another it must improve on 3 main attributes: security, stability & liquidity.

Compare.png

No money that is unsafe will ever achieve mass adoption. Bitcoin is safe. Certainly safer than traditional money. With the correct education and security precautions, Bitcoin wallets are 99,9% secure.

Furthermore, Bitcoin has the added security feature of maintaining some level of anonymity. Traditional banking does not.

Screenshot 2017-04-17 17.46.40.png

In addition to functioning as a medium of exchange for goods and services, money must also act as a stable store of value. Most people store their wealth in the form of savings, denominated in their local currency. Over time we hope that our savings will retain their purchasing power, yet, history has shown that the purchasing power of all fiat currencies tend towards zero.

purchasing-power-of-dollar-1913-2011
$ purchasing power. Base year 1913.

Bitcoin, over its lifetime, has steadily increased in purchasing power, and as a symptom of diminishing supply is expected to undergo deflationary pressures as opposed to the inflationary pressures that act on Fiat Currency – thus preserving and increasing the value of Bitcoin savings.

Bitcoin snapshot.png

Liquidity translates to how easily available, exchangeable and useable a money is. As education around Bitcoin spreads, more and more people accept and understand Bitcoin. This leads to increased adoption.

Screenshot 2017-04-15 23.02.49.png
Blockchain Wallet Users
Screenshot 2017-04-15 22.33.30.png
Bitcoin Transactions Per Day

All keys metrics to adoption are on the up and promise to continue increasing.

Further factors influencing adoption rates are the innovative applications built around Bitcoin. Exchanges are more prolific and available in more fiat currencies than ever before. Bitcoin wallets have become as simple as any other mobile wallet. The interfaces are attractive and simple to use.

As usability of Bitcoin becomes easier, more people begin to transact using crypto; with each successful transaction so increases the market’s trust in Bitcoin. All these factors are self-perpetuating; one increases the other which causes the effects to snowball.

Compounding cryptocurrency adoption we see the opposite trends in our traditional markets. Trust in Banks is at an all time low and we have yet to recover (nor have even begun to mend the faults) from the 2008 financial crisis. Add to this the simmering tensions prevalent throughout the world; social and political instability is threatening to spill over into chaos. All this uncertainty is bad for markets and will force investors to look at alternative options. Bitcoin will capture a huge portion of this capital.

In general, anyone can predict the approximate price of Bitcoin by taking the market cap (or number of dollars invested in Bitcoin) divided by the total supply of Bitcoins. Anticipating the effects of certain external factors, which drive supply and demand, is a more complex process but in general the basic pricing principle will always apply.

As laid out above, every economic indicator signals that the value of Bitcoin is set to rapidly increase. It has already proven to be the best performing currency in 6 of the last 7 years. Aside from developmental disputes (such as scalability), which can only be solved democratically, there is no major indicator that disputes this trend.

Make your own judgements.

 


 

I have included some links below which offer further examinations of the future price of Bitcoin. They are all positive but please note, I have searched long and hard to find credible analyses that can rationally and logically predict a long term downturn in the price of Bitcoin (in fact I dedicate 2 days per week scouring the web for anti- or pessimistic Bitcoin material). I could not find a single piece that manages to rise above petty name calling and false assertions that Bitcoin is somehow flawed. More than anything else best Bitcoin has an image and marketing problem. If any of you have come across a good analysis of the potential downsides of Bitcoin, please share in the comments section.

Cambridge University: Cryptocurrency Use Seeing ‘Significant Growth’: https://t.co/7Y3egR34qa?ssr=true

Bitcoin Price Will Reach $10,000, Might Take Another Year: Tim Draper

Bitcoin Can Reach $10,000 or Even $1 mln, Chandler Guo Explains …

The Path To $10,000 Bitcoin: http://www.zerohedge.com/news/2017-01-11/path-10000-bitcoin

The first investor in Snapchat thinks bitcoin could realistically be worth $500,000 by 2030: finance.yahoo.com/news/first-inv

Bitcoin will be worth $25,000 or morehttp://fb.me/FrTWcJ2E

https://vinnylingham.com/bitcoin-commodity-store-of-value-or-digital-currency-93457cd27c9c

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