Are you wondering if it’s too late to invest in Bitcoin? After all, Bitcoin already went up 100x in the last few years, so you’d be right to ask if there’s still growth opportunity in Bitcoin.
I’m here to reassure you. I believe that Bitcoin will continue increasing in value over the next few years, and there are three fundamental reasons why.
Today I’d like to share with you my top three reasons why Bitcoin prices will continue to rise in the near future.
1.Bitcoin’s scarcity is the key to it’s utility.
$10,000: that’s how much you need to spend right now to put your hands on one Bitcoin today. The reason is that Bitcoin is very scarce. Only 21 million Bitcoins will ever be created.
There’s no other resource that has a strict limit like this. Gold is scarce, but it’s being dug out of the ground at a steady pace of around 2500 metric tons per year. We will never run out of gold to dig, but the computer code that runs Bitcoin is very clear: at 21 million Bitcoins, we will run out.
There’s less and less Bitcoin in the world
You can’t make gold disappear. It might be possible to grind away it’s atoms with a very powerful solvent, but you’d have to willingly want to destroy it and spend a significant amount of effort. You could alternately hide gold down deep in the ocean, but sooner or later—if the price justifies it—someone motivated enough would go down and retrieve it.
Bitcoin, on the other hand, can be lost forever. Someone can carelessly or inadvertently lose his or her own private key or die without sharing it and all of the Bitcoins under that key will become “unspendable”. Most of the Bitcoin that were mined early on when Bitcoin was still worthless are probably unspendable for these reasons. Some have estimated this amount to 1 million Bitcoins. This decreases the amount of available Bitcoins on the market, which, in turn, makes every remaining ones more valuable.
The 2 use cases of money
The first use case of money is to facilitate trade between people. Let’s say that you live in a village on a small island, and you cultivate potatoes. If you want to buy fish, but the fisherman already has potatoes and wants apples instead, then you are out of luck. Money makes it so that you don’t have to stock apples—along with every other product in your economy—in order to make trades with others. You can just exchange your potatoes for dollars, and every shopkeeper in town (including the fisherman will accept them.
The other main use case of currency is to resolve your radical uncertainty about the future. It’s impossible to know ahead of time what will be available on the markets in the future and what your tastes will be at that time. You also need something for storing wealth in the early years of your life, from, which you can draw in later years. You need a store of value that is redeemable in the future for goods that you don’t yet know you will need and have not yet been invented. Currency needs to be good at resolving your radical uncertainty about the future.
Is the dollar a good store of value?
Your grand-mother could buy a full day of grocery with $1 but today, you can’t even get a pack of gum for that same amount. Inflation is not a law of physics. Money loses its value over time simply because central banks print more of it. Every government on earth today is in the business of printing money, and they do so at the alarming rate of 5-10% every year! This graph from the Bureau of Labor Statistic show’s you that you need $1000 today to buy what $30 use to buy in 1910.
Before the creation of central banks in the USA and around the globe roughly 100 years ago, currencies were good at keeping their value over the long term. They used to resolve your radical uncertainty about the future. You could store your gold coins in your safe at home and be pretty sure that they would be worth the same 100 years later.
Prices would only change significantly when governments needed funds for war or during economic downturn. Governments would debase the currency (or momentarily go off the gold standard), print as much money as they needed to finance the war, and then go back to the gold standard at a depreciated value.
In 1971, this little back and forth dance stopped for good, and Richard Nixon took the USA off the gold standard to never come back again. Shortly after, every other country followed suit. Today, all currencies are fiat and backed by nothing more than our shared imagination. Politicians love announcing spending plans or printing money just before an election to artificially boost the economy at the expense citizens.
What are the governments doing today?
The graph below shows that every major governments, holds hundreds of billions of dollar in gold, because they don’t trust each other’s currencies. They know that any other government can start printing or devaluing their currency at any time and their only way to protect themselves is to hold gold… that is, until now.
Bitcoin is the answer to these problems. It is the first currency that cannot be replicated at will. The whim of politicians cannot influence the mathematics behind it. Bitcoin allows us to resolve our radical uncertainty about the future. Imagine knowing that every dollar you save today will be worth ten or more when you retire? With Bitcoin, rather than losing purchasing power over time, you gain it.
2. Metcalfe’s law will predict the price of Bitcoin
Bitcoin is more an Internet protocol than a commodity, it falls under the influence of Metcalfe’s law. Metcalfe’s law was first created for the Ethernet in the early 80’s, stating that the value of a telecommunication network is equal to the square of its connected node.
In simple terms, this means that as more people join an interconnected network, it becomes exponentially more valuable. This holds true for the Internet as well as social media platforms like Facebook and Instagram.
Two PhD students compiled the data for Facebook and its Chinese competitor, Tencent, and confirmed once again Metcalfe’s law in 2015. source: http://novel.ict.ac.cn/zxu/JournalPDF/Zhang_JCST_2015.pdf
Bitcoin is subject to the same phenomenon, because it is a network of interconnected nodes. And there’s a reward for helping bootstrap this new Internet protocol. Just as early Facebook investors became rich financing its early start, taking the risk of adding liquidity to Bitcoin during its infancy could allow someone to reap huge rewards.
For example, if Bitcoin ends up becoming the standard protocol to exchange money over the Internet (Hint: I believe it will), then the price per Bitcoin will most likely reach millions of dollars.
Here’s what the price increase of Bitcoin plotted on a logarithmic scale looks like: (source: theinvestorspodcast.com/bitcoin-mayer-multiple)
3. The investor floodgate is ready to open
Institutional money has already started to come in. Banks will be opening cryptocurrency exchanges soon. The parent company of the New-York Stock Exchange is already working on a crypto exchange based on rumors from the New York Times. This is probably not the last time that you will hear of a bank moving into the space.
Like Tim Draper putted it, this is the Kodak moment for banks: will they adapt and embrace this new technology or hold onto their old ways and die like Kodak when they ignored the digital camera revolution.
Already, Binance—one of the largest cryptocurrency exchanges in the world made—200 million dollars in profit during the last quarter. This is as much as Deutsche Bank, but Binance has been in business for only 12 months. Can you imagine a 12-months-old company making 200 millions dollars in profits? This is the Bitcoin revolution that we are in right now and it has only started.
The world has been patiently awaiting for better money and an alternative to the fiat currencies that we have been living under for the past few decades. Bitcoin is the solution, and I think that, at this point, the question to ask is not whether Bitcoin will replace the dollar, but how long will it take before it does.
Nine years from now, Bitcoin will have existed for the entire lifetime of every 18-years-old on the planet. It will be as ubiquitous as the Internet. Due to it’s scarcity, and because I think that the price of Bitcoin will follow Metcalfe’s law, I think we should reach the $100,000 per Bitcoin in less than four years.
Let me know what you think in the comments section below