THE PAST AND FUTURE OF BITCOIN’S PRICE

On January 3 2009 Bitcoin was born when the genesis block was mined by Satoshi himself. On October 5 2009 the first exchange rates for Bitcoin were published, with 1 Bitcoin being worth $0.00076, or about 1309 Bitcoins for $1. On May 22 2010 the first purchase of real goods with Bitcoin occurred, when someone bought $25 of pizza for 10,000 Bitcoins, giving a price per Bitcoin of $0.0025 (those 10,000 Bitcoins would eventually be worth $10 million, perhaps the most expensive pizza in history).

In July 2010 the exchange rate increased an order of magnitude over a 5 day period, from $0.008/Bitcoin to $0.08/Bitcoin. Mt. Gox was established the same week, and would become the biggest Bitcoin exchange in the world (until it collapsed). The price steadily rose after that, and in November 2010 the Bitcoin market cap broke $1 million, 1 Bitcoin was equal to $0.50 at that point. Around February 2011 Bitcoin reached parity with the U.S. dollar (1 Bitcoin = $1).

In May 2011 the price began to rapidly increase, and the first Bitcoin bubble was born. The price reached a peak near $31 in June 2011, with a Bitcoin market cap of over $200 million, before steadily declining to $2 per Bitcoin by November 2011. After this point the price steadily increased to $13 Bitcoin in early January 2013.

The 2nd Bitcoin bubble then began, and the market cap of Bitcoin surpassed $1 billion in late march 2013. Price soared to $266 per Bitcoin in early April 2013, giving a market cap of $2-3 billion. The price then collapsed to below $50 only a couple of days later, and eventually steadied out near $110 per Bitcoin later that month, and stayed near that level through October 2013.

The third Bitcoin bubble then began when price started to rally in October 2013, reaching over $1160 by early December. Note how the 2nd Bitcoin bubble on the left side of the price chart is absolutely dwarfed by the 3rd bubble. This is the highest price Bitcoin has ever reached to date, and the Bitcoin market cap was briefly near $15 billion. Those that bought Bitcoin when it first started trading in early 2009 made 152,631,600% profit, in other words a $1 investment back then turned into $1,526,300! Many Bitcoin millionaires were born.

The price quickly collapsed after peaking, as it did in the previous 2 bubbles, and briefly went below $400 only 2 weeks after peaking, undoubtedly ruining some investors who bought near the peak and then panic sold. The price eventually stabilized over $800 in January 2014, and slowly declined through May 2014 to $440. Alot of the decline can be explained by Mt. Gox collapsing, China trying to ban the Bitcoin trade, and the United States government taking an anti-Bitcoin stance. Currently the price is relatively stable despite all of these factors, and it appears the worst is over.

So where does Bitcoin’s price go from here? Considering there have been 3 major bubbles in the short history of Bitcoin, another Bitcoin bubble seems probable. The price of Bitcoin has a look of bottoming out currently, like it did after the first 2 bubbles, and perhaps we will see a steady increase in price soon. It will take some time between when the price starts steadily rising and when the next bubble starts, based on the last 3 bubbles. Considering the last bubble brought the price of Bitcoin to over $1160, the next one could take the price of Bitcoin to thousands of dollars.

Beyond trying to forecast the next bubble, Bitcoin is extremely undervalued right now. The market cap is currently $5.6 billion, which is small compared to major corporations in the United States. Bitcoin is perhaps one of the greatest inventions of the new millennium, it provides a way to send currency around the world instantly and at almost no fee. Right now it costs 4 cents to send any amount of Bitcoin, even if you send $10 million the fee is only 4 cents. This alone provides major advantages over every other type of money transferring service. Also Bitcoin is completely decentralized, no corporation or government controls it, and you don’t have to trust any third party with your money. You completely control your money with Bitcoin, and can anonymously and securely send it to anyone else.

There are more users and merchants joining the Bitcoin network everyday. Bitcoin has already become a worldwide phenomenon, and will likely become a much larger force in the global monetary system. I see a future where every major corporation and most small businesses accept Bitcoin. The only thing standing in the way is government and bank regulations, which are trying to limit the ability to purchase Bitcoin, as well as the ability to accept Bitcoin as payment. These are only hurdles, and I expect Bitcoin to be allowed to grow naturally in the free world, after some trials and tribulations. It is only natural for governments to be wary of something they can’t control, but ultimately Bitcoin is a compliment to the monetary system, not something that will hurt the already present fiat money.

Right now the Bitcoin market cap is $5.6 billion, with a price per Bitcoin of $440. I think in the not so distant future the Bitcoin market cap will reach $100 billion, giving a price per Bitcoin over $8000. And once Bitcoin really catches on globally it will happen quickly, a $1 trillion market cap is not out of the question eventually. $1 trillion is only 6% of the United State’s GDP. A $1 trillion market cap would give a price per Bitcoin of around $80,000. Much bigger price increases than this scenario have occurred in Bitcoin’s past. The price going from $440 to $80,000 is ‘only’ an 18000% increase, the price has already risen 58,000,000% since Bitcoin started trading.

The drastic rise in Bitcoin price won’t happen overnight, but rather in steps, with many booms and busts inbetween. It is impossible to tell where the price will end up, perhaps Bitcoin being over $10,000 each is a pipe dream. However it seems pretty clear that Bitcoin will be going up in value in the long term.