The first few Cryptocurrency transactions started in 2009; notable amongst these transactions is the sale of two pizzas at the reasonable price of 10,000 Bitcoin. Things have obviously changed quite a bit since then. In March 2010, one Bitcoin was valued under 0.003 USD, and about one year later, in July 2011, the value of one Bitcoin reached 31 USD, increasing over 10,000 times in value.
The growth the Cryptocurrency economy experienced during the second half of 2017 was significant, to say the least. It is also important to note that this was not the first such instance of growth that this market has experienced since its beginning.
You might think, looking at the current market price that it would have been a great investment back then; however, this story has not been one of uninterrupted triumph and profit. Four months after Bitcoin had reached its peak of 31 USD, it had lost over 90% of its value, collapsing back to $2. In 2017, we saw the price of one Bitcoin increase from 1,250 USD in April to 19,000 USD in December. That was short of a 20 times increase. What people seem to miss about the history of the Cryptocurrency market when they talk about “how out of nowhere Bitcoin skyrocketed to nearly 20,000 USD in 2017” is that episodes of volatile growth are nothing new in this market and that this has been the reality since its origin. Despite there being a consistent trend of price fluctuation in this market, another consistent trend is one of long-term growth.
This potential for growth extends beyond just Bitcoin; starting in 2011, other Cryptocurrencies that are based on Bitcoin’s open-source code began to emerge. As the Cryptocurrency market currently stands, with Bitcoin by itself dominating over 45% of the market, other Cryptocurrencies with smaller market capitalizations may have an even greater potential for a price increase in multiplicative terms. This would mean that it doesn’t require that large of an influx of capital for these smaller market cap coins to double in value relative to what it would take to double the premier Cryptocurrency. In other words, if you are looking for an even greater return on investment with higher volatility than that of Bitcoin, it is worth considering Altcoins.
Why should one expect this trend of previous growth to continue? As we know from the behavior of more conventional and mature financial markets, it’s difficult to make forecasts for future prices by extrapolating from historical data. The Cryptocurrency market capitalization was fluctuating at around $1 billion in 2013 and is currently fluctuating as always, but now at over $250 billion. If the number of Cryptocurrencies in the market remained constant during this period, the average price of Cryptocurrency would have increased 250-fold, which isn’t to say that some Cryptocurrencies haven’t beaten this rate of increase during this period.
With these significant rates of increase, some analysts have remarked that the Cryptocurrency market is showing signs of Bubble-like behavior reminiscent of the Dotcom Bubble. The bursting of the Dotcom Bubble effectively removed $5 trillion dollars in market value from tech companies. Considering that the total market capitalization of all Cryptocurrencies is currently less than $300 billion, it is impossible for a possible loss of value on the scale of the Dotcom bubble to happen. Another important difference to point out between to two events was that the Dotcom bubble was a financial phenomenon that emerged in and mostly affected US markets; however, the financial ecosystem that was created by Cryptocurrencies is something that exists on a global scale. An important similarity to note between the two instances is that in both the case of the rise of Cryptocurrency and in the case of the Dotcom bubble is that the growth was propagated from the breaking out and mass adaptation of a new kind of technology that has untapped potential. This technology in the case of the Dotcom bubble it was the emergence and popularization of the internet; in the case of the Cryptocurrency market, it is Blockchain technology. Although Dotcom bubble companies lost value in 1999, companies that continued to create IT products that worked with the internet continued to gain significant value for years and still do so. It is presumable that if an even greater correction than what has already been experienced hits the Cryptocurrency markets, the growth propagated by the development and mass adaptation of Blockchain would continue for years to come.
Even though the Cryptocurrency market created a lot of value in the past seven years, it is doubtful that it won’t change in size and structure in the near future. Blockchain technology is still at a very early stage of its development and hasn’t nearly reached its full potential in its applications. Banks, governments, and businesses around the world make announcements every day that they are in various ways increasing the security, efficiency, and functionality of their businesses through the implementation of Blockchain technology. This new technology indicates in many ways that it will stay and that it will continue to gain ground. The $250 billion market capitalization currently reached by the Cryptocurrency market is almost completely made up of individual investors with there being regulatory blocks preventing institutional investors from investing in this market. As the regulatory environment manages to catch up and determines in a clearer way where Cryptocurrencies stand, it will increasingly become easier for investment funds, banks and other financial intermediaries to participate in this market. As it currently stands, the world stock market has a market capitalization of $77 trillion, the real-estate market has a market capitalization of $217 trillion and the world derivative market has a market capitalization of $1.2 quadrillion ($1,200 trillion). With the eventual relaxation of governments’ regulatory stances, an economist would argue that there would be a natural diffusion from a concentration of high capital to low capital; as obstacles become lifted, there will be a transference from the capital that exists in more conventional asset markets to the Cryptocurrency market. A simple 1% diffusion from the $77 trillion stock market to the $250 billion Cryptocurrency market would cause the Cryptocurrency market to quadruple in size, thus also quadrupling the average price of all existing Cryptocurrencies - ceteris paribus. This economic diffusion is but one of the many possible future growth driving factors for the Cryptocurrency market.
There exist numerous predictions for how the Cryptocurrency market will grow with various supporting reasons. Nike Novogratz, the founder of the investment fund Galaxy Investment Partners, makes a high-end prediction and believes that the Cryptocurrency market cap may hit $2 trillion in 2018. Referring once more to those who compare the rise of Cryptocurrencies to the Dotcom bubble, Novogratz remarks “The whole market cap of all [Cryptocurrencies] is $300 billion. That’s nothing. The NASDAQ at its high, in the 1999 Dotcom bubble, was $6 trillion, and the NASDAQ was a U.S.-led bubble,” he said. Cryptocurrency, on the other hand, is “a global phenomenon,” with the majority of trading volumes concentrated outside of the U.S.”. He goes on to explain that Bitcoin will naturally over time take on the use case of being “Digital Gold’ and for Bitcoin to reach parity with gold market capitalization it would need to grow 30 to 50 times relative to where it currently stands. It is important to point out that Bitcoin does retain a very special place within the Cryptocurrency market; aside from dominating over 45% of the entire Crypto market; just as the US Dollar and Euro, Bitcoin is used widely as a measure of value for other financial assets. Although Bitcoin doesn’t formally hold any position over any of the other Cryptocurrencies, some of Bitcoin’s functions in the market are reminiscent of a reserve currency.
Let’s look at some other predictions that have recently been made and try to see if we can discern the reasonable from the unreasonable. Swiss financial expert Kristjan Dekleva argues that stability may only be expected in the cryptocurrency market after ten years. He expects the stabilization of the markets to coincide with a general acceptance of Bitcoin by governments even as Anti-Crypto as China. John McAfee, founder of McAfee antivirus software predicted last year that Bitcoin’s price would hit $7000 before the end of 2017, which it surpassed by a significant margin; McAfee’s next prediction for Bitcoin is that it will reach $1 million by 2020. McAfee’s reasoning is tied to the declining rate of Bitcoin supply growth as well as an anticipation of increased adoption of Cryptocurrency and Blockchain globally. Another prediction comes from Ex-Chief of JP Morgan, Tom Lee. Lee speculates that Bitcoin may once again reach a price of $25k in price within 2018, believing that growth will be driven by the increased involvement of institutional investors in the Cryptocurrency market and a steady increase in Bitcoin’s user base.
There exist many speculations as to how the price of Bitcoin may grow, ranging from a couple hundred dollars to over a million dollars. There are also numerous predictions pertaining to the growth of the larger Cryptocurrency market which isn’t necessarily Bitcoin. It is possible that the growth of the Altcoins in the market may be even greater than the price growth of Bitcoin as it would take less capital influx to double the value of an Altcoin with a lower market capitalization; it is also possible that the growth of the rest of the Cryptocurrency market may not be able to catch up with the growth of Bitcoin. CCN reported that Co-Founder of Apple, Steve Wozniak particularly favors Bitcoin and Ethereum — the former as digital gold, the latter as a robust platform that could be the “next Apple” although he believes that the rest of the Cryptocurrency market may be exhibiting bubble-like behavior.
To conclude, although the Cryptocurrency market may be affected by the symptoms of being an immature market at its current stage, the growth factors that have previously propagated and still fuel the industry’s growth will likely lead to a continued trend of volatile growth for the foreseeable future. With the regulatory environment pertaining to Cryptocurrencies and Blockchain becoming clearer, as more companies, countries, and banks start finding new applications for Blockchain technology and as institutional investors slowly enter this growing industry, the Cryptocurrency market will likely grow beyond its relatively small market capitalization of $250 billion.
You might think, looking at the current market price that it would have been a great investment back then; however, this story has not been one of uninterrupted triumph and profit. Four months after Bitcoin had reached its peak of 31 USD, it had lost over 90% of its value, collapsing back to $2. In 2017, we saw the price of one Bitcoin increase from 1,250 USD in April to 19,000 USD in December. That was short of a 20 times increase. What people seem to miss about the history of the Cryptocurrency market when they talk about “how out of nowhere Bitcoin skyrocketed to nearly 20,000 USD in 2017” is that episodes of volatile growth are nothing new in this market and that this has been the reality since its origin. Despite there being a consistent trend of price fluctuation in this market, another consistent trend is one of long-term growth.
This potential for growth extends beyond just Bitcoin; starting in 2011, other Cryptocurrencies that are based on Bitcoin’s open-source code began to emerge. As the Cryptocurrency market currently stands, with Bitcoin by itself dominating over 45% of the market, other Cryptocurrencies with smaller market capitalizations may have an even greater potential for a price increase in multiplicative terms. This would mean that it doesn’t require that large of an influx of capital for these smaller market cap coins to double in value relative to what it would take to double the premier Cryptocurrency. In other words, if you are looking for an even greater return on investment with higher volatility than that of Bitcoin, it is worth considering Altcoins.Why should one expect this trend of previous growth to continue? As we know from the behavior of more conventional and mature financial markets, it’s difficult to make forecasts for future prices by extrapolating from historical data. The Cryptocurrency market capitalization was fluctuating at around $1 billion in 2013 and is currently fluctuating as always, but now at over $250 billion. If the number of Cryptocurrencies in the market remained constant during this period, the average price of Cryptocurrency would have increased 250-fold, which isn’t to say that some Cryptocurrencies haven’t beaten this rate of increase during this period.
Even though the Cryptocurrency market created a lot of value in the past seven years, it is doubtful that it won’t change in size and structure in the near future. Blockchain technology is still at a very early stage of its development and hasn’t nearly reached its full potential in its applications. Banks, governments, and businesses around the world make announcements every day that they are in various ways increasing the security, efficiency, and functionality of their businesses through the implementation of Blockchain technology. This new technology indicates in many ways that it will stay and that it will continue to gain ground. The $250 billion market capitalization currently reached by the Cryptocurrency market is almost completely made up of individual investors with there being regulatory blocks preventing institutional investors from investing in this market. As the regulatory environment manages to catch up and determines in a clearer way where Cryptocurrencies stand, it will increasingly become easier for investment funds, banks and other financial intermediaries to participate in this market. As it currently stands, the world stock market has a market capitalization of $77 trillion, the real-estate market has a market capitalization of $217 trillion and the world derivative market has a market capitalization of $1.2 quadrillion ($1,200 trillion). With the eventual relaxation of governments’ regulatory stances, an economist would argue that there would be a natural diffusion from a concentration of high capital to low capital; as obstacles become lifted, there will be a transference from the capital that exists in more conventional asset markets to the Cryptocurrency market. A simple 1% diffusion from the $77 trillion stock market to the $250 billion Cryptocurrency market would cause the Cryptocurrency market to quadruple in size, thus also quadrupling the average price of all existing Cryptocurrencies - ceteris paribus. This economic diffusion is but one of the many possible future growth driving factors for the Cryptocurrency market.
Let’s look at some other predictions that have recently been made and try to see if we can discern the reasonable from the unreasonable. Swiss financial expert Kristjan Dekleva argues that stability may only be expected in the cryptocurrency market after ten years. He expects the stabilization of the markets to coincide with a general acceptance of Bitcoin by governments even as Anti-Crypto as China. John McAfee, founder of McAfee antivirus software predicted last year that Bitcoin’s price would hit $7000 before the end of 2017, which it surpassed by a significant margin; McAfee’s next prediction for Bitcoin is that it will reach $1 million by 2020. McAfee’s reasoning is tied to the declining rate of Bitcoin supply growth as well as an anticipation of increased adoption of Cryptocurrency and Blockchain globally. Another prediction comes from Ex-Chief of JP Morgan, Tom Lee. Lee speculates that Bitcoin may once again reach a price of $25k in price within 2018, believing that growth will be driven by the increased involvement of institutional investors in the Cryptocurrency market and a steady increase in Bitcoin’s user base.
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| McAfee on Twitter this February |
There exist many speculations as to how the price of Bitcoin may grow, ranging from a couple hundred dollars to over a million dollars. There are also numerous predictions pertaining to the growth of the larger Cryptocurrency market which isn’t necessarily Bitcoin. It is possible that the growth of the Altcoins in the market may be even greater than the price growth of Bitcoin as it would take less capital influx to double the value of an Altcoin with a lower market capitalization; it is also possible that the growth of the rest of the Cryptocurrency market may not be able to catch up with the growth of Bitcoin. CCN reported that Co-Founder of Apple, Steve Wozniak particularly favors Bitcoin and Ethereum — the former as digital gold, the latter as a robust platform that could be the “next Apple” although he believes that the rest of the Cryptocurrency market may be exhibiting bubble-like behavior.
To conclude, although the Cryptocurrency market may be affected by the symptoms of being an immature market at its current stage, the growth factors that have previously propagated and still fuel the industry’s growth will likely lead to a continued trend of volatile growth for the foreseeable future. With the regulatory environment pertaining to Cryptocurrencies and Blockchain becoming clearer, as more companies, countries, and banks start finding new applications for Blockchain technology and as institutional investors slowly enter this growing industry, the Cryptocurrency market will likely grow beyond its relatively small market capitalization of $250 billion.
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