The Case For $1,000 Bitcoin
The King is Dying
Bitcoin has gone far in the last 9 years, rising from pennies to over $19,000 at its recent peak. I am sure it was as much of a surprise to you as it was to me. All-in-all, 2017 turned out to be the year of the cryptocurrency gold rush.
Similar to the gold rushes of old, entrepreneurs raced to start up or expand services to profit from the fast-rising demand. Instead of picks and shovels, it was things such as apps and exchanges.
2017 was quite a rocket ride. But I don't think the Bitcoin party has much longer to last.
Allow me to explain.
What Is Bitcoin Good For?
Is it a currency (that almost nobody uses as such) or a commodity?
Certainly Bitcoin fits a few key characteristics of a currency - it is uniform, divisible, portable. Where it fails is as an actual way to make payments in daily life.
Even the 2018 North American Bitcoin conference in Miami stopped accepting ticket payments in Bitcoin due to the long processing time and fees!
In comparison, I had absolutely no problems paying for my Steemfest ticket in SBD. It was quick and had zero fees.
Bitcoin can only handle a maximum of 7 transactions per second (TPS), while STEEM can perform 10,000 and costs nothing. Even Visa's old legacy network can handle 56,000 TPS. So you can see why there is a long backlog.
Attempts, like segwit, have been tried and failed. The new attempt is the Lightning network is in the works. They want to perform a bunch of transactions off chain, bundle them up, and put them back on the Bitcoin chain as one transation. Many people don't like that as it lacks transparency.
I think it is like giving someone with a broken leg a band-aid and calling it fixed. Especially when the proper tools to heal that broken leg are right next to you - other cryptocurrencies.
Bitcoin is obsolete and won't be widely adopted. It has risen so rapidly on hype and FOMO only.
If not a currency, could it be a held similar to gold?
This is much more likely. If people just hold it for long periods of time as a sort of digital gold, then the slow transaction time and large fees will not matter so much.
This should also create a more steady price range for Bitcoin. But what could that price range be?
Gold usually sticks close to the production cost. If the profit margin gets too high, more gold miners are started to capitalize on that opportunity. Bitcoin would be no different.
Marketwatch did a study and found that the cheapest state to mine Bitcoin in is in Louisiana at a cost of $3,224.
Way back in 2015, cloud miner Genesis stated that it cost them $60 to mine Bitcoin. But a halving of the reward and increased competition has greatly increased the difficulty since then. It probably costs them at least 10X that now, plus other overhead.
Canada has Chinese investors looking for new places to move their mining operation as the Chinese government is cutting back on their operations. The electricity cost is about half of what it costs in Lousiana.
So the price to produce one Bitcoin should be around $800-$1,800 all totaled. As a store of value, Bitcoin should trade just above those levels.
Right now the entire Bitcoin network uses 42TWh per year. That is enough to power over 2.5 million homes for a year. That is more energy than countries like Ireland, New Zealand, or Denmark use annually. The CO2 cost is comparable to 1 million transatlantic flights.
This is an outrageous waste of resources considering there are much better options to use.
The Coming Crypocalypse
If Bitcoin continues to rise it will draw more and more mining rigs to the network. The spiral continues upward until Bitcoin is $1 million dollars and is consuming the entire world's energy.
Or people wise up. They see that there are better options to do the job. Bitcoin price slowly creeps downward with occasional spikes up, then it suddenly drops and creates a mass panic. People run to exit from it (only 7 at a time though) and it drops to around or just below $1,000 before it slightly bounces.
This crash brings down the entire cryptocurrency market and any related stocks.
As unprofitable miners shut down operations, Bitcoin stabilizes into a trading range of $1-2K.
Rise of Utility Coins
This crash is actually good for the long-term health of cryptocurrencies.
The "get rich quick" scam coins and tokens with questionable utility will be negated. I mean things are so crazy right now even the Bitconnect token is still being traded and has a market cap of over $140 million dollars! The ponzi scheme shut down. The tokens are worthless, yet their value is equivalent to 9,000 thousand acres of useful land priced at $15,000 per acre. That is just crazy!
It all needs to come back down to reality so the worthwhile cryptos can stand out. Useful ones like ETH, NEO, EOS, and STEEM. Monero can take over as the coin of choice for anonymous transactions. IOTA could carve out a section.
Conclusion
Bitcoin has been dropping and is heading further downward. It has failed to scale to the demands placed upon it. I do think that people will continue to trade it, ever hopeful for a return to the highs.
The cryptocurrency market will be brought down by the crash, but it is the opportunity for the best coins to rise from the ashes. There will be a bottom, it is when all hope seems lost. When people capitulate and sell everything they have left.
When that time comes, then will be the time to buy the cryptos with the best utility.
Because no matter how exciting an investment seems, you need to buy at the right price. There are major companies that have still not returned to the highs of the dot-com crash, 18 years later!
People say that this time is different.
I say that it is never different.
Hey,
I have now read your post and, as promised, have some feedback:
Regarding a possibility of further price crash – yep, this possibility always exists.
Regarding Bitcoin’s failure to scale – true, although I am cautiously optimistic that Lightning Network will fix it for Bitcoin. SegWit was only a foundational technology that opened up the door for LN. Hopefully LN delivers. Otherwise Bitcoin will be forever locked in the "digital gold" category. Right now cryptocurrencies like Dash, Bitcoin Cash, Litecoin, Zcash and a few others are competing for the "digital cash" niche.
Regarding energy consumption – mining Bitcoin can, indeed, be viewed as a very wasteful use of energy. However, most successful Bitcoin mining operations are powered by renewable energy (because it's cheaper than fossil energy). It has two important implications: a) it doesn't lead to large emissions of greenhouse gases, b) it creates productive capacity for other uses of renewable energy, should Bitcoin mining become unprofitable. Building new geothermal facilities, new windparks and solar farms will pay off it the long perspective, even if the short-term driving force for these new energy projects is profits from Bitcoin mining.
I think that Bitcoin in the future will be priced at least 10 times its current price leves, because it will function as a reserve currency in the baskets kept by major central banks around the world and as a "safe asset" owned by pension funds, mutual funds, family offices and private wealth managers. Maybe it's just wishful thinking on my part (I am heavily invested in Bitcoin, after all), but I do believe that this is a likely scenario for the future. Only time will tell, right? ;)
I really appreciate your insights here, you have many valid points. I think it is important to view issues from all angles and so wanted to have your input here.
But yeah, it is all up to the future as no one can be certain about it all.
What's interesting is I had a successful veteran investor say to me weeks ago that bitcoin price will eventually end up at whatever the cost to mine it is.
I agreed with it then, I agree with it now. It's just a matter of when.
Be careful out there
Double Upvote! Lol thanks for the shout out. This post sounds like a conversation I had with a friend about BTC almost two months ago. I think you laid it out even better though.
Hilarious! And says everything right there.
Everything eventually falls to it's intrinsic value, and since BTC is already obsolete in my view, it's only a matter of time until the hedge funds catch on.
Great post.
Where the price goes until then is all a matter of investor psychology.
Oh I almost forgot; I think in a couple of years, people are going to shake their heads that people were spending hundreds of millions of dollars to build massive "mining" rigs in Iceland and Sweden.
In a couple of years you're going to look up "malinvestment" on investopedia and this $115m financing will come up, mark my words!
Oh geez, that isn't even the tip of the malinvestment! At least they can sell the rigs for scrap when the inevitable oversupply hits eBay.
With worthless digital tokens from crap coins all around they will end up with literally nothing.
That gets me thinking. What can we do with mining rigs purchased at minimal prices? There has to be something useful to turn their power towards. Inventive thinkers hit me up please.
ooh, now that's interesting, I hadn't thought about that. What does one do with a bunch of now useless gpu's?
Play a bunch of videogames... or SHORT NVIDIA. I dunno, too risky for me.
1 model and build a super-brain / neural-network
2 build a profitable simulator
..
3 hello?
Great analysis, and refreshing to hear more people say the same when there is such an echo chamber of people trying to convince each other everything's fine. Bitcoin Cash has 61 TPS with potential to do a lot more with future expansion of blocksize. Who will come out on top of 2018, that's a 1 trillion dollar question!
Hey man! Thanks. As someone who hasn't drunk the crypto kool-aid I think I can step back and look at it with a mind that is not inebriated by the punch.
I do believe that bitcoin is unpredictable, the funny thing is that when bitcoin falls, all other coins also fall and when it rises, all other coins rise. Sometimes, i do fail to understand that.
I also do admire the idea of investing i n other coins, but how could we be sure that when bitcoin fall, these coins as ripple, Dogecoin and others will rise?
I'm not actually good in cryptos but i do always take my time in checking the crypto market and almost all graphs are the same.
Again, if i'm to invest in crypto's which one would you advice me ?
Thanks @gethonthetrain
Jona, everything will fall when Bitcoin does. But the best coins will rise.
yeah... true.
As for me i think steemit is so far the best for now. However @gethonthetrain can enlighten us more.
Will be glad to learn more!
I’m in full agreement on your statements on bitcoin. What utility coins do you like that you think will rise?
Well, I see that rotating out or lessening exposure to crypto until it all blows over. Actually, silver is at the top of my list - physical or profitable miners at current prices. I see the silver price rising in 2018.
So rotate into silver, as it is at a high silver to gold ratio of 78 right now. Then when crypto bottoms and holds, buy coins with utility. STEEM is at the top, EOS, NOS, ETH are some other good ones to pick up when the price bottoms. Monero as a play on privacy.
Nice. Full agreement on silver :)
Thanks for sharing your views. I think there needed to be a Bitcoin and the crazy rise in value just to bring it into the mainstream. Every day on Bloomberg it is getting discussed and even today in DAVOS
So to the future, I think your right Bitcoin will lose its shine quickly as the reality of its old technology catches up with it. As with so many first to market ventures they can't adapt as easily as the new player
Bitcoin, will be remembered as the first but not the best as that is yet to come
Technology always moves on. Thanks for the comment!
Interesting view, and I believe you are right. I think all will eventually even out and stabilize, although that might be a couple of years from now (depending on how long BTC can keep it's irrational value).
Lol, I had to chuckle reading that one :)
Yes, the markets can stay irrational for a long time but they always return to true value eventually.
@getonthetrain I agree perfectly with you but let us not also forget that though bitcoin has failed in the area of technology with issues pertaining to high transaction fees, it still has the advantage of first market thereby making it gain a lot of publicity. This in turn will attract lots of investors who are not quite informed about altcoins using more advanced technologies. Not forgetting its limited supply also plays a crucial role in making this coin very valuable.
Plenty of things have lost first mover/most popular advantage - MySpace, AOL, Kodak. I know it is the cryptocurrency that everyone hears about and knows so that is why I say it will stay around, just at a lower price level.
Oh ok. I get you
I 100% disagree with your assessment but whatever, to each his own. I think we will soon see who is right and who is wrong (within the next 3-6 months).
Ok, I am all up for a discussion about it. Why is Bitcoin to head higher?
I wrote out my long-term thinking here and didn't even touch on the Tether/USD scam that is only getting bigger. When that puppy bursts, look out!