Very recently, there has been concern in the crypto currency community about the meteoric rise of a number of crypto currencies. Of course the most notable among these are Bitcoin, which has risen dramatically to over $13,000 in recent days. Monero is another example, which in early 2017 was close to $30, and has now reached around $400. This has led to many speculations that the bubble will burst, causing the value of Bitcoin, along with possibly many other coins to collapse. The question is though, how likely is this to happen?
The rapid increase in value of Bitcoin is not unexpected. While few people still understand what a Bitcoin actually is, that hasn’t stopped the mainstream adoption of Bitcoin, even being added to major exchanges. This in turn, has led to an increase in public trust, which feeds into increased adoption, thereby further increasing its value. This leads us to the question of how high can these coins go before it’s too much?
There honestly isn’t much precedent to give an answer based on, but by looking at some trends in other related fields, we might be able to make a reasonable guess.
The first thing that we should look at when determining the viability of these prices, is the continued utility of the coins. Here we’re in good shape, as the usage of Bitcoin has slowly grown, though some of that growth has been diverted to other coins. The important thing though, is that number of transactions performed across currencies is increasing per week, and has not decreased overall. The utility of other specific coins is debatable, but there seems to be no doubt that the currencies remain useful overall.
The next factor to examine is the supply of coins. Due to the rate that Bitcoin is mined, being a fairly consistent increase, with the difficulty being increased to counter large increases in hashrates, the market has resisted being flooded with Bitcoin, and with other coins also having this safeguard included, the rate of adoption has continued to outpace the the number of new coins being produced. A decent comparison might be to the secondary market of many Nintendo products. Products such as the Switch, the NES classic, and its successor the SNES classic have a secondary market value much greater than the primary market value because of the limited distribution of the product, and a steadily increasing supply, with very little drop in demand. Since the number of people who have adopted coins still remains so small as a percentage of the population that it’s available to, and the number of people who will have access to the internet continues to increase, this also bodes well for further increases in price.
The next factor to consider in the Bitcoin bubble is legality and regulation. At the moment, coins are barely regulated, partially due to their internal controls, and partially due to the lack of authority and decentralized nature that is considered in most cases an advantage. China for example, in the early days of Bitcoin, forbade the purchase and use of the currency within their border, but the nature of the technology made such a task impossible to carry out.
The accessibility of these currencies is not to be understated, with an internet connection, and a payment processor, nearly anyone in the world, and potentially off-world in the future would have access to this common currency, since it’s all digital.
Despite all of these things in favor of further increasing the value and use of coins, there are still risks that could severely affect the viability of these currencies in their current state. The first would be an internationally coordinated effort to stamp out use of Bitcoin. Considering its recent addition to more exchanges (though the events in South Korea bear keeping in mind), this seems unlikely to occur. The second metaphorical wrench in the works could be a sudden significant advancement in crypto technology. This could either take the form of ASIC chips advancing faster than the difficulty could increase, or in a more extreme case, quantum computing could theoretically overcome any increase in difficulty, likely causing the currency to implode. Of course, given enough time it’s likely that quantum algorithms could supplement the current models, but could be problematic in the interim. The third factor would be a collapse in digital economies in general. This would be most likely due to some sort of disaster or catastrophic event. If that happens, it’s likely that the value of your Bitcoins is going to be pretty low on your list of concerns.
Other than the minor setbacks that have been occasionally seen over the last decade of the existence of Bitcoin, nothing has stopped it yet, and it looks like Bitcoin will continue to be valuable for years to come.