Bitcoin is the first blockchain-based cryptocurrency and the one having the largest market cap — more than 250 billion USD worth at the moment of writing this article, at the brink of 2018. Although Bitcoin still fails to deliver well on the promise of being a medium of daily exchange (e.g. micro payments) due to its volatility and the lacking transaction performance, it is broadly considered as a store of value for future use.

There are many more cryptocurrencies created since Bitcoin (aka altcoins), some examples are Ether, Zcash, Litecoin, Ripple, and hundreds (soon to be thousands) more. However, most of them are not really currencies but more of utility tokens, tokenized protocols and DApps coins. Some of them do not adhere to the pure decentralized nature of Bitcoin (governed blockchains). Although some of these digital coins will probably have real sustainable value in the future most of them will naturally fail, as happens to majority of technological entrepreneurship.

So will Bitcoin remain the queen and king of all crypto-currencies even though some of the newer cryptographic “currencies” may seem to threaten its stand? Many people (me included) believe it will be the one to sustain its position as the digital global store of value.

What makes Bitcoin shine in compare to other crypto assets, in addition to its bigger market cap and wide acceptance, are two important characteristics: its scarcity and its long record of resiliency. The scarcity of Bitcoin (there will only ever be 21 million Bitcoins) assures the inflation of its value, making it the digital equivalent of gold. Its resiliency, or robustness, is related with the fact that Bitcoin’s core developers are sticking with the original Proof-of-Work (POW) mechanism for block consensus when mining (Ether for example is planned to move to a different mechanism — Proof of Stake). Although the currently theoretical only POS algorithm may be found to be a robust mathematical solution as well, one cannot under-appreciate the proven resilience of the POW algorithm. In almost 10 years that passed since the day when Satoshi Nakamoto has minted the genesis block of it, Bitcoin’s blockchain and mining process continued functioning without being hacked. What have been hacked are Bitcoin exchanges, wallets, DApps. Never the blockchain itself. This is an exceptional achievement for a non-governed system. No doubt it helps to remove barriers of its wider adoption.

The increasing interest in Bitcoin, by individuals, by finance firms, and by some first established institutions, combined with its strengths make the value of Bitcoin surge.

Many Bitcoin holders experienced multiplication of their investments by big factors, and many more individuals will see multiplication of their money in the coming few years, even if these will be less dramatic than the level of multiplication of first adopters’ money.

Estimations of where the value of Bitcoin will be in a few years vary from zero (“Bitcoin is a bubble!”) to 100,000 USD. One investor puts the thesis that if Bitcoin will eventually become the dominant store of value in the world, its value may stabilize somewhere between 260K USD to 800K USD! (see in references below if you do not believe). This an enormous market cap of 4.7–14.6 trillion USD.

So people that have exchanged some fiat money for Bitcoins will experience a major growth in their wealth (at least those who will “hodl” their coins for some duration). What this really means is that many people around the globe are going to have much more spending money than they had initially. This is equivalent to the effect of inflation of a state currency, only this time this inflation has a global scope (not evenly distributed between populations, but still globally). And what this means, is that it may have a rise effect on economic product growth in many countries over the globe. Pure growth out of nothing.

Conclusion

Assuming Bitcoin is here to stay and to base its position as the dominant store of value, Bitcoin may gain much higher market cap than it has today. This will bring to an increase in wealth and consumer spending potential all over the world. As a consequence, there may be economic growth in many countries, similar to the outcome of a country’s currency inflation. Will it bring to raising of wages in these countries as may happen on inflation? Will it have any effect on governments’ bonds value? And most interesting question: will it be good or bad for most people over the globe? Future will say. I welcome readers to respond with their speculations.

Disclaimer

This article presents a speculated view. It shall not be considered as an investment advice or recommendation.

Last minute update

Just fell over this article, seems to strengthen at least some of the speculations put in this article: “Japan’s GDP Grows Due to Bitcoin Wealth Effect”.

References

“Talk of a bubble intensifies as price of bitcoin soars”, December 11, 2017

“Bitcoin could hit $100,000 in 10 years, says the analyst who correctly called its $2,000 price”, May 31, 2017

“An (Institutional) Investor’s Take on Cryptoassets”, December 24, 2017