Bitcoin will likely take 1 of 3 paths
I have been thinking this for some time now, but it was good to hear my same thoughts echoed out loud in the national media by Aswath Damodaran.
Who the heck is Aswath Damodaran?
I'm glad you asked!
Aswath Damodaran is a finance professor at NYU and is known in trading circles as;
"The Dean of Valuations."
When he speaks, people listen, or else they get the dunce hat. (just kidding about that last part)
Aswath declares himself as neither a bitcoin bull nor a bitcoin bear as he thinks both sides have a valid arguments.
However, much like me, he thinks there will ultimately be 3 paths for bitcoin to go down down. Ironically, only one of them is bad in my opinion.
Path #1
Bitcoin becomes widely accepted as a means of transaction.
This is the dream scenario for the biggest bitcoin bulls out there. However, it has a long ways to go to reach this stage. It will have to become much more stable than it currently is, it will have to be accepted globally by governments, and the technology will have to be improved to scale to this kind of wide spread usage.
If this were to happen to the point where bitcoin was actually competing against other generally accepted currencies, a much higher price would be justified, especially given its limited supply.
Path #2
Bitcoin becomes akin to digital gold for the younger generation.
In this scenario bitcoin is seen as a store of value for those that don't trust the central banks, governments, and fiat currencies. It can also be seen as an uncorrelated asset that doesn't track many other investments, a perfect way to hedge.
This was the path mentioned by Tom Lee and his team as their basis for bitcoin reaching $25k per coin within the next 10 years, and that was only talking about capturing 5% of the gold market.
If this scenario were to play out, one would expect bitcoin to behave much like gold does currently. Seen as a safe haven when times are shaky and falling in price when times are good.
Path #3
Bitcoin turns into the modern day Tulip Mania.
This one would obviously be the least desirable outcome for bitcoin bulls.
In this outcome, bitcoin would be like a shooting star attracting new capital far and wide as it shoots up in value. However, once the easy money stops being made traders leave and look for something else, letting the price drop even faster than it ran up.
Keep in mind that money could just shift to a different cryptocurrency in this scenario.
My thoughts:
Personally I think we are still too early in the game to have an educated opinion on which path it ultimately chooses, however, it still can be fun to postulate never the less.
I think Path #2 is the most likely path for bitcoin in my opinion. I don't see Bitcoin replacing major currencies or competing with them mainly because I don't see governments giving up that kind of power.
Bitcoin might be used in niche markets much like it is now, but ultimately I think it will mostly just be used akin to digital gold. An alternative investment that isn't really correlated with any other assets and widely held by the younger generation.
The younger generation already believes in it, so it won't take much convincing to get them to consider it as an asset class.
Like Tom Lee says, if Bitcoin just takes 5% of the gold market in the next 10 years, it is worth $25k per coin. In that context it doesn't really have to do any currency replacing to be a wildly successful investment, even at current prices.
What about you guys, which one do you think is the most likely path bitcoin ultimately chooses?
Let me know in the commment section below.
Sources:
https://twitter.com/AswathDamodaran
Image Sources:
https://twitter.com/AswathDamodaran
http://www.lunadais.com/career-path-align-life-purpose/
Follow me: @jrcornel
Definitely path #2.
Someone who has created these 3 path seem to have a very shallow understanding of blockchain technology, and its potential, capabilities.
Both Path #1 and #2 both has valid reasons to happen, while #2 seem to have the most odds to be a major route of these two. But at the same time there are SO MANY MORE other path to be realistic (As we see it from today) Many more will arise with time going, some of those routes we do not even imagine today.
#3 IMHO simply does not stan the water. It is just like another BS crap from Jammie Dimon.
I'm sure the holders of tulip bulbs thought the exact same way.
You seem unwilling to even entertain the idea.
I agree with onealfa in that it seems Bitcoin has more than three possible future routes. I guess it is connected to blockchain technology, but I don't understand the connection between the blockchain and Bitcoin's price. Can anybody help me understand how more blockchain development leads to higher Bitcoin price (if it does)?
I'm thinking of BTC as early day web with text, images, flash videos and hyperlink. My view of Bitcoin is that it's a prototype or a Minimum Viable Product. It would end up more like one of those old FPS multiplayer games which pioneered a whole genre that's still being played by a tiny community of people. BTC is a stepping stone. Most crypto coins in the Top 100 are far superior to Bitcoin. Eventually BTC will loose the mojo of its first mover advantage and eventually be phased out in favor of faster, cheaper, private coins with tons of extra features like Dash, NEM, PIVX or some other yet to be created coin.
Bitcoin is a technology; a software. It's like Windows XP or dial-up internet. Technology always get old and get replaced. Period. BTC will end up like those old multiplayer games. We'd see BTC running few nodes and doing few Mega hashes being presented to the world like a part of a digital museum. I think this would happen in 10 years +/- 3 years.
I agree what you said
In 10 Jahren gibt es ..............................
in 5 Jahren gibt es ................................
wer weis das schon?
I don't think it can be a combination of 1 and 2, they seem mutually exclusive to me.
A good store of value is typically something that goes up in value, or at the very least is not inflationary, so it's not something you want to spend. I could buy some things with my Bitcoin but I would never do that because I think it will be worth much more in the future.
So if Bitcoin (or anything really) is a good store of value then it's not a good currency, and vice versa.
I definitely think it will be either #2 or #3 for Bitcoin and some other cryptocurrency which is pegged to something like the dollar that could take off as a global currency. SBD are a great example of that.
I hope it's not #3 but I think that's definitely a possibility. At some point Bitcoin will reach a certain level of market saturation where there's not a whole lot of new money coming in. Your guess is as good as mine whether or not it will stay at that level or if there will be a mass exodus.
I should add that another reason I think #2 is much more likely than #1 is that Bitcoin as a store of value doesn't really threaten governments or banks very much, so they are much less likely to overly regulate it or shut it down. Becoming a currency obviously does threaten them much more so it will be much more difficult for any decentralized crypto to really crack that space.
My Reply to the statement "Bitcoin ... will be worth much more in the future.":
Yes, this is valid today. TODAY. ONLY TODAY.
Now Fast-forward in time some 30+ years, and imagine BTC is worth $2-3 MLN . Would you still (then) think "it will be worth much more in the future." ??? I think the answer is obvious.
As obvious is also another thing- the validity of such statement will slowly go away.
Not overnight, but day after day, YEAR AFTER YEAR, DECADE AFTER DECADE. Spending will grow, slowly, continuously. So will the level of acceptance, popularity, market saturation, etc etc.
List goes on and on.
Yes, at some point Bitcoin will stop going up in value, or will increase at a much slower pace. But by then (as you said it could take many years) another crypto (or even something else entirely) that is better suited and designed as a currency will have taken over that position, so Bitcoin will either remain a store of value or collapse.
Bitcoin apart from being a currency does not have much value added to it. Every crypt in future will be rising based on demand, and adoption. And demand ultimately drives adoption. However, apart from that one of the key that drives both demand and adoption is value like steem.
So I think, in future as you said, these newer crypt which have some value behind will rise, its only a matter of they being traded directly instead of in terms of BTC.
Path 1 is ruled out. Many better alternatives. Path 3 is possible transiently and would end up with path 2, where people consider BTC as store of value.
Thanks for sharing these views with us. I am still on the same standards I shared with you the other week. I can't help but think that governments won't like competition and the Central Bank even less. but I also believe the youth of our age are becoming more and more aware of the discrepancies and general injustice surrounding the ways of money these days. These states of affair keep on pushing people's will toward our cryptocurrency paradigms and allow for them to anchor themselves into our world economy. thus, the strongest and most adaptable cryptocurrencies will pervade more and more strongly. That is why I can't help but think that a technology as powerful and advanced as the advent of Bitshares will not go unnoticed and only gain in strength and exposure as time goes by giving by the same token more power to us all while flattening the curve of the financial system most humans currently live in and with.
Namaste :)
What about the 4th option, Bitcoin becomes aware.
Path #1 will not occur without a fight (more like a war). The world order controlled by the evil banksters will not just sit idly by and allow this "upstart" to unseat them from the wheels of power (as much as I'd like to see that happen).
JFK tried it and got a bullet for his troubles.
good post
The three paths listed seem to be comprehensive. But comparison to Tulip Mania is not valid for may reasons.
Path #2 is the most likely outcome. And justifies putting 10 to 20% of your net worth into BTC. With plans for a triple in the next 5 years or so.
As much as I would like it to, Bitcoin cannot replace fiat currencies for several fundamental reasons. The fact is no-one in their right mind would spend their bitcoin now, if they truly believe it will significantly increase in value in the long term, which if you are investing in Bitcoin, you must therefore believe. Modern capitalist economies are built on consumption, which requires consumers to spend money. Bitcoin does not incentivise this at all. The inflation and low interest rates of Fiat currencies do. For example I own Bitcoin and was out in town the other night with some friends for a few drinks. Low and behold I find out that the bar accepts Bitcoin. However I did not choose to pay in Bitcoin because I believe the bitcoin I would spend today, will be worth a lot more in the future. Therefore as a currency this does not work. It does however fit the profile of a digital Gold and a means to store value. So I feel we will take route no.2.
Thanks for the informative post!
Your post proves Bitcoin is a currency. Bad money drives out good. You kept what you felt was "good money" and did not use it for spending. Your hoarding behavior for Bitcoin proves you believe it is a valuable currency.
Im not sure if that proves it's a "currency" rather than an investment. The irony is, bitcoin was suppose to be an alternate grass-roots form of currency, but because of the way the cryptocurrency market works, it ends up being more comparable to buying and trading stock. It's like owning property in a booming area. You aren't going to sell, because you know holding onto it, it could triple in 4 years. That doesn't make the housing market a currency, it makes it an investment based on the fluctuation of the bubble and the market.