Tuur Demeester is an independent investor, newsletter writer and editor in chief at Adamant Research. Launched in 2015, Adamant Research provides a monthly newsletter service. The inaugural report, ‘How to Position for the Rally in Bitcoin’ can be found here.

2015 was another rollercoaster year for bitcoin: incredible amounts of infrastructure development, lots of talk about ‘the blockchain’ and the fierce scalability debate, all against the backdrop of a crash to $150, which was followed by a high of $500 (so far).

Let’s reflect back on the ups and downs of bitcoin’s financial history, and then we can look forward to the ride to come.

Here’s my condensed take on the financial history of bitcoin:

2009-2010: Conceptualization

This is the pre-history of bitcoin-the-currency, as there’s hardly even a price for the tokens generated by the bitcoin software.

A lot of technical and economic discussions take place, and core developers patch a major vulnerability in the source code.

2011: First bubble and experimentation

Several bitcoin exchanges compete for customers, with Mt Gox as the clear winner. Silk Road is launched, as well as payment processor BitPay, the stock exchange GLBSE and bitcoin sees its first price bubble – a rally from $1 to $30.

2012: Gambling and leverage

After a couple major bitcoin thefts early in the year, the community senses a great need for better and easier storage of coins, and several new wallets are released in response to that.

The lack of excitement in the bitcoin price is compensated for by speculation with leverage (Bitcoinica), gambling (Satoshi Dice) and dabbling in altcoins (litecoin) and mining (Butterfly Labs).

2013: Mining frenzy

After several obituaries by several large news outlets, bitcoin comes back from the dead with a major rally in the spring.

Spectacular stories of massive gains made by early adopters, in combination with the bootstrapping cottage industry of specialized hardware, cause a wave of attention for bitcoin mining.

This is further intensified by the rally during the last two months of the year, which takes bitcoin to over $1,000. The difficulty of the network jumps from 20 to 9000 Th/s in a year.

2014: Altcoin distractions

Becoming aware of the disruptive potential of the technology, the VC world wakes up and uses 2014 to invest $300m in bitcoin startups – four times as much as the year prior.

Not all sectors in bitcoin fare well, though; speculative exuberance, overzealousness of hardware producers and the soaring hashrate of the network eventually cause the wheels to fly off bitcoin mining. The result is delivery cancellations, unprofitable hardware, and a slew of bankruptcies in the sector (I lost money in one of these.)

Facing a declining price of the currency and a mining capacity glut, a minority scoffs at bitcoin as being rigid, having a boring brand, not being local enough and having an inefficient mining network.

In response, a flurry of altcoins are promoted with the promise of solving these problems… or with no promise at all, such as dogecoin. Bitcoin investors readily jump on the perceived opportunity to diversify their portfolio, and 2014 becomes the stage for several significant altcoin bubbles.

Bitcoin in 2015: Blockchain hype and a maturing ecosystem

During another year of price decline and consolidation for bitcoin, many stakeholders suffer. Yet under the hood, a mighty powerful engine is starting to roar.

With limited new speculative interest and with 3,600 BTC being mined daily and sold into the markets, the bitcoin price stays depressed for most of the year. A substantial amount of bitcoin investors sell at least a part of their coins (often out of necessity rather than out of preference). Those coins then slowly move into the hands of new adopters and more dispassionate value investors.

Many bitcoin startups, often managed by inexperienced entrepreneurs, struggle to make it through the winter alive. The money raised in 2014 doesn’t last a lifetime, especially if you can’t escape the label of a ‘pre-revenue’ company.

To give an idea of the dire straits some companies are in, I know an exec who was recently in talks with a bitcoin company he considered partnering with. At one point the manager of the bitcoin company casually admitted, “You know, I think we’re in a phase where we don’t know if we should continue with the company anymore.”

Meanwhile, the bitcoin mining industry goes through a shakeout phase, with many smaller miners throwing in the towel, much to the benefit of larger, low-cost operations. As a result of the economies of scale and a new generation of mining chips, the hashrate of the network climbs from 300 to over 600 petahash.

Throughout the price doldrums, bitcoin adoption continues, often through fringe case uses such as gambling, dark net markets and capital control-defying remittance. The result is a steady increase in transactions up to 3 per second (on a network supporting a maximum of 5-7 tps).

By the summer, this sparks a heated debate over how to sustainably increase bitcoin transaction volumes. It lasts until a widely attended Hong Kong Scaling Bitcoin conference in December, where a semblance of consensus seems to emerge.

Perhaps in part because of the discord and pessimism in the bitcoin community, a chant rises in the fintech world: “It’s not about bitcoin, it’s about the blockchain.”

The idea is that bitcoin is probably too volatile, rigid and radical, and that to bring innovation to the financial world, one needs private, more malleable blockchains with native tokens.

Nine banks, including Goldman Sachs and Barclays, announce a “blockchain partnership”. IBM starts developing blockchain-without-bitcoin applications and several blockchain projects acquire funding: $15m for Ethereum, $30m for Chain and $32m for Ripple Labs.

One 9th June, a company called Blockstream releases the first open-source code for ‘sidechains’, a technology that allows bitcoins to be moved from the main blockchain to higher level protocols (the sidechains), where they can be endowed with new functionality such as high-speed transactions, confidentiality, smart contracts and share issuance.

The technology gets negligible attention in the media.

Finally, despite all the skepticism and scrutiny, the bitcoin price finally breaks through the $300 resistance on 27th October.

The price rally is further boosted by publicity generated from media outlets claiming to have identified the man behind the pseudonym Satoshi Nakamoto (supposedly an Australian academic and entrepreneur, a theory which now seems questionable).

Sizing up 2016

Here’s what I’m expecting for the coming 12 months in bitcoin.

1. The bitcoin network will scale

After many months of debate, I think 2016 will reveal a decision about how to scale bitcoin for the next few years.

There are a number of prudent and effective proposals on the table today, such as Pieter Wuille’s ‘Segregated Witness‘, and Adam Back’s BIP248.

I expect one of the many proposed solutions to be implemented before the summer, to then later be supplemented by innovations such as pegged sidechains and the Lightning Network.

2. Bitcoin will shine as a safe haven asset

I expect renewed volatility in global markets, and as a result I see liquidity problems popping up unexpectedly.

As a result, funds and investors will seek to hold assets with low counterparty risk. I think bitcoin will be one of these, more so than in previous years.

3. Sidechains will be appreciated as major technical breakthrough

Similar to how bitcoin had to overcome accusations of being a Ponzi scheme in the early days, sidechains technology is now met with skepticism and mistrust.

As more operational sidechains come online and their utility and open-source nature become visible to the world, I expect perception to change for the better.

4. Commodity giants will get involved with bitcoin mining

Faced with a bear market in commodity prices which implies a declining demand for electricity, some big primary sector companies will partner up with bitcoin mining companies to provide them with legal framework and physical infrastructure – allowing bitcoin transaction processing to take place in some of the most barren regions of the world.

5. The bitcoin remittance network will further strengthen

Bitcoin exchanges integrating with each other internationally, deployment of more bitcoin ATMs and growth of bitcoin-friendly remittance platforms will allow for more and more people around the world to send money to their home country using bitcoin as a vehicle.

Should we see increased volatility in fiat currencies and the enforcement of exchange rate controls, then those too will serve as a catalyst for bitcoin remittance growth.

6. The block reward halving will have a positive effect on the bitcoin price

In mid July 2016, the amount of new bitcoins awarded to bitcoin miners will drop from 3,600 BTC per day to 1,800 BTC per day.

With that, the annual increase in the bitcoin money supply will drop from 9.17% to 4.09%. Miners will have a diminished capacity to influence the markets (rumor has it that over the past two years they have engaged in quite a bit of short selling prior to pushing newly mined coins in the market).

I expect the block halving, all else being equal, to have a positive effect on the bitcoin price.

7. Investors will be surprised

Every year I’ve been involved in bitcoin, I’ve been shocked and amazed.

In the bitcoin community, developers come with new hacks and solutions on a daily basis, competition is fierce and decidedly global, investors are eager yet often inexperienced and banks and governments are uneasy and fickle.

Bitcoin technology is only seven years old and bitcoin as a financial asset is only five. If I expect anything over the next 12 months, it is to be surprised.

It’s for that reason as well that I only attach a 75% probability to the predictions above.

2016 is shaping up to become an incredible year for bitcoin – maybe it will be the year when investors finally realize they cannot afford to not pay attention to this paradigm shift in money and finance.

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Man on peak image via Shutterstock