Saturday, February 16, 2013

Bitcoin: $100 by the End of 2013?

Wow, what a week. Reddit took the leap and is now accepting Bitcoin payments, the market took a 20% dip and bounced back like it never happened, and the general buzz around Bitcoin is nothing like the community has ever seen before.

The Bitcoin market cap is just moments away from hitting $300,000,000, and the chart is starting to make the June 2011 bubble look like a speed bump:

Bitcoin Market Cap (Chart courtesy of blockchain.info)

Looking at Bitcoin mining, the first ASICs from Avalon and ASICMiner are now online, and at some point next week Butterfly Labs will most likely be shipping their long-awaited product to the lucky miners who threw down their money last summer.

The number of Bitcoin projects on the go is impossible to measure, as most developers are rather secretive, but I can quote one anonymous source as saying, "if I told you how many major projects I was aware of, your mind would explode." I'm not sure if that means four to six, or ten to twenty, but there are definitely a lot of enthusiastic developers mashing away at keyboards as we speak.

So, with that in mind, let's take a look at the future, shall we?

The Next Six Months (Original chart courtesy of bitcoinx.com)
What I've done here is added six months onto this chart (click for full-size), showing where I believe the exchange rate and mining difficulty will take us over the next half-year. Predicting mining difficulty at this scale was rather easy; it's going to go up, and quickly. A difficulty of seven million will easily be achieved by the first couple weeks of March, as thousands of chips are sent out by Butterfly Labs and the second batches from the other manufacturers begin coming online.

Predicting exchange rate is a different monster altogether. With the Reddit adoption, in essence an acknowledgement from a large corporation that accepting Bitcoins is risk-free, the way has been paved for other major businesses to sit down with the likes of BitPay, Coinbase, WalletBit, and OKPAY, and add Bitcoin to their list of acceptable forms of payment.

It used to be that accepting Bitcoin literally meant having a Bitcoin wallet and receiving Bitcoins. Now it's obvious, almost mainstream obvious, that you can pay a third party a nominal fee to convert those Bitcoins to fiat currency and, literally overnight, expand your customer base to the global market.

Now we're at a $300,000,000 market cap. As we approach a billion dollars and beyond, Bitcoin will become even more liquid, allowing the payment processors to lower their fees and increase the pressure on thre three archaic stalwarts: PayPal, Visa, and MasterCard.

So where do we go from here? How much is global, fraud-free, peer-to-peer, open-source digital cash worth to the global economy? 300 million dollars? A billion dollars? Ten billion? At ten billion dollars, a Bitcoin is worth $476 at full dilution (21 million coins). There are several niche publicly traded technology companies with market caps in the ten billion dollar range, but we're talking about a technology, Bitcoin, that could literally revolutionize global banking. What are the odds of Bitcoin being worth 15% of ten billion within six months? I would say that outcome is quite likely, and that's all my chart is showing.

The current "spike" to $28 is the equivalent to the spike to $10 that occurred before the June 2011 bubble. Assuming this is a similar "calm before the storm" situation, I predict we'll see mid-fifties by mid to late March, followed by a consolidation in the $40 range, and then an aggressive steady climb toward $100 by the end of 2013.

Again, I can't predict the future; nobody can, but at this point I can't see why such a useful technology that has already survived three years of endless attacks unscathed, will not receive massive adoption in the very near future, at first by business, and then subsequently by consumer. Most importantly, Bitcoin is a concept that is starting to go viral, and when things go viral on the Internet, they move quickly.

9 comments:

  1. I think you are confused. Comparing Market Cap of Bitcoin to Market Cap of a tech company is really a nonsensical comparison. In the latter, it is an expression of the value of the company in terms of capability to produce more value.

    In the Bitcoin case, the proper way to calculate potential Market Cap is to estimate how much total value will be necessary to support all the uses. In other words, how many dollars worth will be squirreled away by investors, plus how many dollars worth will be necessary as spare change / spending money.

    Corporations who buy product and sell product in Bitcoin will need an absolute shit-ton of Bitcoins just to handle the monthly business cycle - either that, or they'll be unnecessarily converting in and out of Dollars (/Euros) throughout the month.

    THAT is where the potential value is. And this could easily be $10B or $100B.

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    1. Actually going by http://www.investopedia.com/terms/m/marketcapitalization.asp the market cap formula for a company is [market cap] == [# shares] * [share price], and I don't see how that ends up working differently than how we calculate the market cap for bitcoins.

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  2. Interesting article and blog. I think $42 is not hard to reach however I think a correction at the previous all-time high of around $30 is more likely. As I wrote about here: https://bitcointalk.org/index.php?topic=136146.msg1449961#msg1449961

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  3. "when things go viral on the Internet, they move quickly" muahahahaha :)

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  4. It is wrong to compare a not inflatable currency to shares of a company.
    The price of the shares are dependent on the future value of the company.

    The currency value depend on the "demand to hold" of the owners and the "demand" of the buyers.
    Whatever is higher set the price of the currency unit.

    As the anonymous wrote, the price of a bitcoin depend on how much bitcoins people and entities like Reddit, Wordpress, etc. need to keep at hand to maximize their future income.

    Wordpress now convert all its bitcoins in US$ because it pay all its bills with US$. Tomorrow Wordpress could be asked by a contractor to be paid in bitcoin. It has to keep bitcoins at hand to pay its contractor, no reason to convert them in depreciating US$ and then reconvert them in bitcoins. These bitcoins, as Wordpress must have them in its wallet, are out of circulation.

    This will reduce the BTC supply available on the market (and raise the US$ supply on the market) and raise the US$/BTC rate.

    As BTC is a better currency than the US$, it will start to suck market cap from the US$ and other fiat money as a black hole suck gas from a nearby star. First slowly, then faster and faster.

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  5. "It is wrong to compare a not inflatable currency to shares of a company."
    You are absoulutly right but people just dont understand this. They dont understand the difference between population variance and sample variance they dont understand this are different formulas to use. What they also dont understand is there is a different between discrete and continuous random variables.

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  6. Love all the people saying how fast this will grow. typical ponzi, nothing more. people that bought early will do well, suckers that see all the hype now and buy in will get caught short.

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  7. Looking good so far.

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  8. LoL at 220 $ now 11/3/13.

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