The Future of Bitcoin

We Love Bitcoin

The last weeks of February and March 2013 have seen the price of Bitcoin more than double.

This in turn draws in more and more traders.

And there’s been increasing interest in Bitcoin in the wake of the present Euro crisis.

This is Part Two of a series of articles about Bitcoin.

I split the original article up as it was a little too lengthy.

You can read Part One “What is Bitcoin” here

The Future of Bitcoin

So what will happen to Bitcoin and the Bitcoin price in future?

Short answer: nobody knows.

Bitcoin could turn out to be a damp squib.

The price could languish more or less where it is now and never really take off into the big time.

Something better could come along and capture the interest in Bitcoin.

However, my view is that these events are unlikely. I think the chances are that Bitcoin is set to rise exponentially over the coming years.

Here’s why:

Five Main Reasons Why Bitcoin Could See Massive Rises In Value

1. Supply and increase in supply of Bitcoins is strictly limited through the “mining” algorithm. This means the currency will always be in comparatively short supply relative to demand. Which puts pressure on the price in an upward direction

2. The world’s existing main physical currencies are under heavy pressure as a result of the banking crisis and the quantitative easing that governments have resorted to. This has weakened the value of their currencies and it will continue to do so in future.

3. The US dollar and the Euro are coming under pressure from the ever worsening trade imbalance with China. This puts downward pressure on the value of the dollar, making it comparatively less attractive to hold as a store of value relative to other currencies or assets – such as the Swiss Franc, gold – or the Bitcoin.

4. Interest in online investment and asset trading among the public is growing. Smartphones and tablets are also making the Web more instantly accessible.

The average Joe Public doesn’t yet know about Bitcoins and doesn’t yet have an easily accessible way to deal in them, but this will change over the next few years.

When trading in Bitcoins is as simple as using Google and everyone is doing it on their smartphones on the way to work, then we will see the Bitcoin really take off. This could happen sometime over the next 3-5 years, or possibly earlier.

5. Bitcoin is being utilized by more and more businesses. If and when any high profile companies announce that they are accepting payments or holding reserves in Bitcoin, then that will fuel a major increase in the attention given to Bitcoin. This in turn will lead to further increases in value as more people purchase Bitcoins.

In particular, if any of the world’s national banks, or for that matter, commercial banks starts diversifying part of their reserves into Bitcoins, then the Bitcoin value will increase BIG TIME.

On that basis, Bitcoin can only be a winner in future,

Bitcoin Price Could Reach $100,000 in a Few Years From Now

The prognosis of some Bitcoin enthusiasts is that the Bitcoin price could rise substantially over the coming next few years.

Rick Falkvinge, founder of the Swedish Pirate Party and a Bitcoin investor believes that a Bitcoin price of $100,000 by 2015 is not unrealistic.

$100,000 BTC price seems stratospheric and almost out of the realms of science fiction fantasy. So I was interested to find out how exactly Rick Falkvinge comes to arrive at this extraordinary forecast.

Falkvinge bases this forecast on an analysis of the current total gold market capitalization. The value of all gold in the world is currently around $8,205 billion.

Bitcoin has a current total value of just under $800 million. So Bitcoin deposits are currently equivalent to just 0.1% of the value of gold holdings at present.

If Bitcoin can win just 10% of the gold market, then at today’s valuation that would mean $820,000,000,000 which, with 11 million Bitcoins in circulation, translates into a Bitcoin price of $75,000.

Another way Falkvinge looks at Bitcoin’s growth potential is in terms of share of total world transactions.

The value of total world currencies in circulation right now is around $60 trillion.

If Bitcoin can win just 1% of that $60 trillion, then that would mean a Bitcoin price of $55,000.

Falkvinge maintains that provided Bitcoin can actually achieve just this small market share, then a $100,000 Bitcoin price doesn’t look unrealistic.

Whether this level can be reached by 2015 is another matter entirely. I have to say I have my doubts.

For the price to rise substantially to these sort of levels, Bitcoin would have to become a major currency player. This requires continually increasing transaction volume, transaction value, and more traders and investors entering the Bitcoin market.

This in turn means the trading infrastructure, access, as well as confidence in Bitcoin all has to improve. There has to be more acceptance of Bitcoin and easier Bitcoin transfers from the established banking sector.

The deflationary aspect of Bitcoin will also be a plus. The current volume of Bitcoins in circulation is around 11 million. This will rise over the coming years to around 21 million, which is said to be the maximum that is technically possible to be mined using the current algorithm. So this limitation will also help in keeping the Bitcoin price high.

Media coverage of Bitcoin will also help. At the moment, interest and discussion is mostly confined to bloggers and minority investment and entrepreneur forums.

But once the mainstream media start to put the spotlight onto Bitcoin, interest will increase further and the price may then start to rocket. Which will in turn fuel more rises in value.

Another point to remember is that Bitcoin is rather like gold. People buy it mainly either as a safe haven, or because they think it will rise in value. So too with Bitcoin.

In other words, angst fuels Bitcoin and gold.

The more angst there is – eg risk of the dollar falling or crashing, or the Euro crisis getting worse, then the higher Bitcoin will be likely to go.

So given all these conditions, a $100,000 Bitcoin price may well be reached eventually.

Meanwhile, back on earth… 

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Disclaimer and Disclosure

WARNING: The value of all investments can go down well as up. Always seek independent professional advice before making any investment decision. Never invest in any asset or scheme that you do not understand. Never invest more money than you can afford to lose.

DISCLOSURE: The author holds investments in currency and the stock market at the time of writing this article.

Image: Online Trading – courtesy of Richwell Publishing

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