Thursday, August 17, 2017

Bitcoin at $100,000 is possible

Bitcoin fans and owners will learn to bribe cryptocurrency critics

A theorist often lacks some genuine feelings associated with a certain real condition or activity. In particular, when you own a not quite negligible fraction of a Bitcoin, you may see how you actually want to behave and what many other owners of Bitcoins will do.

If you can afford to lose the value but you see the genuine chance for many doublings of the Bitcoin's value in the future, you are inclined to keep it – and not convert it to the real world currencies.

Exactly one month ago, on July 17th, BTCUSD bounced from lows around $1,800 and it went to $2,150 or so. Those values looked incredible but in the following month, as we can see today, the price has doubled again. Exactly. One Bitcoin is worth some $4,300 or CZK 96,000. You may watch the prices and capitalizations of top 1,000 cryptocurrencies (by capitalization) if you click at this sentence.

Why I am talking about July 17th? Because John McAfee – a cryptosecurity legend whose name reminds you of some antivirus software and it isn't a coincidence – made the following prophesy:

In three years, one Bitcoin will be worth half a million dollars. It's some 128 – let's pick a nearby nice number – times higher than the present price. You can see that with the insane growth of the last months – one doubling per month – seven months and not three years would be enough for a $500,000 Bitcoin.

It does look like insane but is it impossible? Well, I think it's not quite impossible and slightly lower prices are possible. John McAfee thinks that either it's almost certain or he has an unusual gastronomical desire:

By July 2020, your Bitcoin will be either worth half a million, or you will see a cryptocurrency legend eating a part of his body on TV. I thought it was just a finger but it really, really wasn't. ;-)

OK, how much realistic such a growth could be? What are the actual obstacles that will stop the continuing exponential growth of the Bitcoin price?

Now, one Bitcoin is worth $4,300 and there are 16.5 million Bitcoins in circulation. The total capitalization is $71 billion or so - about one-half of the cryptocurrencies' total capitalization. In a few years, the number of Bitcoins will be close to the asymptotic value of 21 million. If one is worth half a million, the total capitalization is gonna be $10 trillion or so. Is it possible?

It remains virtually impossible – as far as I know – to borrow Bitcoins. The market interest rate would probably be heavily negative due to the "deflation" – skyrocketing value of the currency relatively to anything else. This fact is both a symptom and a reason that it can't be used as a currency; and a reason why its growth is so one-sided. Without Bitcoin loans, no one can effectively short the price. Correction: Just when I completed this paragraph, I saw a new tweet that first Bitcoin-denominated bonds are issued in Japan now.

Bitcoins are therefore a part of purely positive savings of the people. Right now, the Americans' gross savings are below $4 trillion (over $10,000 per capita including infants; most Americans have less than $1,000, however). In three years, it could be $5 trillion nominally. Multiply it by 4, to extend things from America to the world, and you may say that the savings of the world will be around $20 trillion. So a $500,000 Bitcoin means something like "one-half of the people's savings will be in the Bitcoin".

I don't want to have 50% in it now – it looks too risky. But 1% could be tolerable enough. For others, it could be 10%, as recommended at Forbes. If big drops of the Bitcoin price seemingly disappear, and it is a big if, the percentage that people are willing to convert to the Bitcoin will increase.

If 50% of savings were in the Bitcoin, lots of the economy could take place in it as well, and because the Bitcoin-denominated economy is evading taxation, I believe that the governments will probably outlaw the Bitcoin before it gets this big – unless someone finds a good way to tax those who earn their income in the Bitcoin.

So I would think that the Bitcoin as we know it won't go to $500,000. The governments could suddenly find themselves not to have enough tax revenue and prosecution of all Bitcoin activities would have to begin, especially because businesses could start to understand that it's necessary to switch to the untaxed Bitcoin economy in order to remain competitive. But slightly smaller values of the Bitcoin price which are still "small parts" of the savings and the economy, like 10%, sound possible.


Because the number of decision markers is rather limited and they will be bribed by the current Bitcoin owners and the "Bitcoin community" in large. What do I mean? Well, a Bitcoin fan is worried that a lawmaker will ban the Bitcoin in his country. So he will send him an anonymous postcard saying: Here you have your new Bitcoin wallet. This is the username and the password, change them. The wallet may already contain a Bitcoin or two. And the lawmaker may add clickable image like this one on his website:

I belong to the 0.1% of least corruptible people in the world but I am still a human who thinks it is silly to pretend that someone cannot be bribed at all. If a lawmaker receives BTC 0.5 or BTC 5 every time he positively votes about the legality of the Bitcoin in his country, what does it do to his opinions?

Or imagine that an influential enough blogger who has provided the public with negative insights about the cryptocurrencies posts a clickable image such as the image above on his website. What an enthusiastic Bitcoin fan will be able to do with the clickable image? ;-)

This is why I find it rather likely that the authorities will keep on saying "the shadow Bitcoin economy isn't a problem" up to the point when it becomes totally obvious that a problem exists. So I think that a $100,000 Bitcoin in several years is possible (it happens to be the same value mentioned by Harvard's Dennis Porto, I learned about him after I wrote this blog post) but exactly around the $500,000 level, it is getting less possible.

Note that the theory "Bitcoin critics have already been bribed" seems compatible with the observed data: Most surviving Bitcoin critics are billionaires and those are harder to be bribed. ;-) This Market watch BTC critic must have been bribed, too. ;-)

If you don't have any Bitcoins, you probably feel "left behind" because the people who have possessed Bitcoins for years are in a huge advantage when it comes to this bubble. But the bubble may continue for years and if you enter now, you may be in a big advantage relatively to those who come later. Note that the numbers above indicate that roughly 1% of the mankind's savings are currently held in the Bitcoin. If it is less than 1% for you, you are underexposed to the Bitcoin.

I feel you can sacrifice 1% which is why you should probably buy some Bitcoins or perhaps other cryptocurrencies (many of them if it's others) soon. The meteoric growth of the price may continue for a few years and only when people will start to talk about serious harms done by the Bitcoin economy, some processes stopping the Bitcoin's price or its ruining may begin.

You may open your wallet e.g. at

A warning: another Bitcoin split will take place in November.

P.S.: Maybe $500,000 is possible as well. The current capitalization of the Bitcoins is $72 billion. The total value of all gold ever mined is, according to the current market gold price, some $7.2 trillion, exactly 100 times higher than the Bitcoin's. So if the Bitcoin price increases by a factor of 100, to $500,000 or so, the Bitcoin and gold wealth will become comparable – which sounds plausible.

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