Top Reasons Why Bitcoin Bull Run Is Inevitable: Is A Price Surge Coming?
Making a Bullish Case for Bitcoin
The price of bitcoin surged to a high of $20,000 in December 2017. It’s now September, and bitcoin hasn’t broken $10,000 in months. Prices have hovered between $6,000 and $8,000 for most of the summer – but is a bullish breakout coming?
You can make a bullish case for bitcoin. You can always make a bullish case for bitcoin. It’s one of the most volatile and least-understood assets traded today. People have no idea where bitcoin is going next. A single regulatory decision – like bitcoin ETF approval from the SEC – could single-handedly push bitcoin to $30,000 within a week.
Is there an opportunity to invest in bitcoin today? Is a bullish outbreak coming? Or are we going to be stuck in the bear market for months? Former Google engineer Vijay Boyapati recently tried to answer that question in a blog post titled, “The Bullish Case for Bitcoin.” In that post, Boyapati discusses a few reasons why a bitcoin bull run could be coming.
Bitcoin Is A Valuable Asset That Solves A Crucial Technological Problem
“Bitcoin isn’t backed by anything,” pundits will tell you. That’s true! Bitcoin isn’t connected to a commodity, an index, or any other concrete item. Instead, the value of bitcoin comes from its underlying technology. The underlying technology creates demand, and demand props up the price of bitcoin.
Bitcoin solves a crucial technological problem: the longstanding Byzantine General’s Problem. Nakamoto solved this problem with a proof of work-secured blockchain. Bitcoin eliminates the double spend issue that had plagued so many digital currencies that had come before it.
That makes bitcoin a scarce new form of digital gold. There’s only a finite amount of bitcoin in the world today. If all 36 million millionaires in the world wanted one bitcoin, then they wouldn’t all be able to simultaneously own one because there were only ever be 21 million bitcoins. Humans are naturally attracted to a scarce asset. As demand for bitcoin grows, and supply stays roughly the same, prices will continue increasing.
Another important thing to remember is that bitcoin’s technology continues to grow. Bitcoin developers are actively developing the bitcoin protocol. Bitcoin software companies are creating new apps. Hardware companies are creating new wallets and new miners.
Ultimately, for all of these reasons, bitcoin continues to be seen as a valuable commodity. If you believe in the technology, then bitcoin has significant long-term value.
Bitcoin Is A Good Store Of Value
In Boyapati’s article about a bullish case for bitcoin, he mentions that bitcoin is a good store of value. A good store of value has all of the following attributes:
A good store of value is not perishable or easily destroyed.
A good store of value can easily be transported and stored. It can be secured against loss or theft even when moving long distances. This is why a cow has historically been a poorer store of value than gold, even though a cow is arguably more useful.
The store of value should be the same or similar to other stores of value of that asset. One bitcoin is identical to one bitcoin, for example. One ounce of gold is roughly identical to one ounce of gold. One diamond, however, is not identical to one diamond because diamonds have different cuts, levels of clarity, and other characteristics.
A good store of value can easily be verified as authentic. You don’t need to take it to a specialist to determine its value. You can determine it yourself.
The store of value should be easy to divide into smaller parts. If you want to buy a cup of coffee with your ounce of gold, for example, then you might struggle to chip off a gold flake.
A good store of value is scarce. If your store of value isn’t scarce or can easily be duplicated and produced in the future, then your store of value won’t hold its value for long. Furthermore, humans have an innate desire to collect things that are rare.
If someone came up to you and said “buy this ounce of yellow stone for $1000”, then you might say no. However, if someone told you that it was an ounce of gold, then your opinion might change. A good store of value has an established history as a store of value.
Gold can be passed down through generations. Money in your bank account, however, is not censorship-resistant. Your funds can be frozen in seconds.
Bitcoin meets many of the standards listed above. Bitcoin can be stored in your brain – all you need to do is memorize some words and you’ll permanently have access to your bitcoin on the blockchain. Bitcoin is verifiable: you don’t need to take it to an expert to determine the validity of your bitcoin. It’s right in front of you. Bitcoin can be divided. Bitcoin is scarce. Bitcoin is portable.
The only trait bitcoin really lacks is an established history. Gold has been used for millennia, while bitcoin is less than a decade old.
How Modern Money Evolves
Next, Boyapati makes a point about how modern money evolves. Today, money doesn’t just emerge one day and become accepted as a global currency and unit of account. Instead, money grows over time. Here’s how modern money evolves – and how bitcoin could follow a similar path:
Money Is First Collectible
In the first stage of its evolution, money is demanded based on peculiar properties. We used shells, for example, because they were unique. We moved onto beads because they were collectible. In the futuristic post-apocalyptic universe of Fallout, mankind has evolved to use bottlecaps.
Money Then Becomes Seen As A Store Of Value
After it’s collectible, money will eventually be recognized as a means of keeping and storing value over time. Suddenly, you don’t just want to collect your shells and bottlecaps: you want to hold onto them long-term. You keep some shells tucked away in your home, for example, in case you need to access some value.
When It’s Established As A Store Of Value, Money Becomes A Medium Of Exchange
“When money is fully established as a store of value,” writes Boyapati, “its purchasing power will stabilize. Having stabilized in purchasing power, the opportunity cost of using money to complete trades will diminish to a level where it is suitable for use as a medium of exchange.” Eventually, when enough people use money as a store of value, the value of that asset will stop fluctuating or increasing. Bitcoin might be in that stage now – it’s seen as a store of value by many people, and nobody wants to spend it because they believe bitcoin will increase.
Money Finally Becomes A Unit Of Account
“When money is widely used as a medium of exchange, goods will be priced in terms of it,” writes Boyapati. Eventually, a form of money becomes so common that we price everything in the world relative to it. The USD or EUR are two examples of that today. We measure the price of a barrel of oil or an ounce of gold in USD, for example.
Could Nation-States Enter Bitcoin Next?
Next, Boyapati moves onto discuss how nation-states could enter bitcoin markets.
It sounds crazy – but it happened with gold in the past. Today, countries like China and the United States hold vast reserves of gold. It’s seen as a store of value and a hedge against falling currency prices. It’s the same reason why China holds vast amounts of USD.
“The market capitalization of Bitcoin is currently too small for it to be considered a viable addition to reserves for most countries. However, as private sector interest increases and the capitalization of Bitcoin approaches 1 trillion dollars it will become liquid enough for most states to enter the market.”
Boyapati believes that when the first country in the world chooses to add bitcoin to their reserves, it will lead to a stampede of other countries joining the trend.
How Will Bitcoin Become A Medium Of Exchange?
Bitcoin has had an interesting trajectory over time. In its early days, bitcoin was cheap and easy to transfer between two people. Its value came from its transferability. With bitcoin valued at just a few pennies, there was little reason to hold onto bitcoin long-term. Bitcoin became a popular currency on the dark web and other parts of the internet.
Then, people started to recognize the value of bitcoin’s underlying blockchain technology, and prices started to rise. Today, there are millions of dollars of bitcoin transactions per day, but many avoid spending bitcoin because they see it as a store of value that will increase – not a good daily medium of exchange.
So how will bitcoin return to being a medium of exchange? Will bitcoin return to being a medium of exchange? Here’s how Boyapati sees it:
“More precisely, a monetary good will only be suitable as a medium of exchange when the sum of the opportunity cost and the transactional cost of using it in exchange drops below the cost of completing a trade without it.”
Common Misconceptions About Bitcoin
Boyapati then highlights some of the common misconceptions about bitcoin, including:
Bitcoin Is A Bubble
Bitcoin has a monetary premium like any other monetary good. A monetary premium is defined as the excess over the use-demand price. If you accept this definition, however, then money is always in a bubble everywhere. You’re always paying a monetary premium for fiat currencies.
Bitcoin Is Too Volatile
“Bitcoin’s price volatility is a function of its nascency,” writes Boyapati. As bitcoin adoption grows, and bitcoin usage grows, prices will eventually stabilize. Volatility is inevitability during the “hype” part of the cycle of adoption.
Transaction Fees Are Too High
Boyapati describes the growth in fees as “healthy and expected”. Transaction fees are the cost of paying miners on the bitcoin network. Those who complain about high transaction fees also fail to see the trajectory of money: in order to become a daily payment method, bitcoin needs to first become an effective store of wealth.
Vijay Boyapati is a former Google engineer who presented a lengthy argument in favor of a bitcoin bull run back in March. Instead of using technical analysis or referencing future announcements, Boyapati referenced the long-term value of bitcoin as a unit of account, a medium of transfer, and a store of wealth.
Boyapati’s argument is based on a simple concept: in order for something to be accepted as a medium of transfer, it first needs to be accepted as a store of value. We didn’t accept gold as a medium of transfer until it was seen as an effective way to store wealth. Only once a lot of people are using bitcoin as a store of value can it transition into a medium of transfer, because at that point, the value of bitcoin will be well-established.
You can read Boyapati’s full argument for a bitcoin bull market here.