The news around bitcoin recently has been awash with reports of the price hitting new highs. Recently the price has surpassed the $260 mark it high it hit in April.
The problem with these stories is that they come from finance-oriented sites that think because bitcoin is described as an asset and a currency all the typical knowledge they have about assets and currencies applies to bitcoin.
These are websites that get excited about a few hundred basis points (few percent) move in the price of gold so when bitcoin doubles its value in a short time its an amazing feat.
Thats not to say that doubling value isn't a significant change, but it just doesn't mean the same thing as say, gold, doubling its value.
The problem with these stories is that they come from finance-oriented sites that think because bitcoin is described as an asset and a currency all the typical knowledge they have about assets and currencies applies to bitcoin.
These are websites that get excited about a few hundred basis points (few percent) move in the price of gold so when bitcoin doubles its value in a short time its an amazing feat.
Thats not to say that doubling value isn't a significant change, but it just doesn't mean the same thing as say, gold, doubling its value.
Bitcoin price is tied to its adoption
Bitcoin is a new technology, but its also a new asset and currency. The price of a bitcoin is affected by many things including psychology, macroeconomics and news but by far the most important effect on its price is its level of adoption.
If there were only ten people in the world interested in gold and trading it between themselves would they trade it at $1300/oz? What about if those ten people suddenly had another 100 interested? would they trade it at the same price?
Bitcoin's price and its adoption are closely linked because adoption of this particular technology is close to being the same thing as demand for it as an asset.
If there were only ten people in the world interested in gold and trading it between themselves would they trade it at $1300/oz? What about if those ten people suddenly had another 100 interested? would they trade it at the same price?
Bitcoin's price and its adoption are closely linked because adoption of this particular technology is close to being the same thing as demand for it as an asset.
bitcoin is a technology with an adoption curve
Here's a bitcoin chart you may not have seen already:
Mundane right? sure there's a bit of volatility in there but not much to speak of, generally it looks like a pretty straight line.
The chart above is the bitcoin price in USD from day one until today. The reason it looks like a straight line though is that the scale is logarithmic, not linear. Here's the USD bitcoin price charts with their different scales:
The chart above is the bitcoin price in USD from day one until today. The reason it looks like a straight line though is that the scale is logarithmic, not linear. Here's the USD bitcoin price charts with their different scales:
This is the same data, the only difference is the scale.
Interesting, but so what if bitcoin is following an exponential curve in its price, maybe its just a fluke or a massive bubble?
Interesting, but so what if bitcoin is following an exponential curve in its price, maybe its just a fluke or a massive bubble?
technology adoption curves are not linear
The reason why this makes sense is that new and groundbreaking technologies are not linear, they are S-curves.
Here's a chart of Facebook's users:
Here's a chart of Facebook's users:
As you can see its not linear, its exponential. Growth starts out small, maybe stays linear for a while but at some point a critical mass is reached and adoption propagates like a chain reaction with each new user causing more new users to adopt. Later when saturation is nearing the curve slows down and starts to level off (you can just see that starting to happen at the end of this chart).
Bitcoin is following a similar adoption curve, the only difference is that the price is also affected by other factors like greed, fear, news, and the economy. This adds volatility to the curve and even creates bubbles within the curve but the overall trend stays the same - an exponential curve (with bumps) that will at some point level off.
The levelling off will occur when bitcoin nears saturation, not just from individual user adoption (people that know about it and maybe own a few) but adoption for any and all purposes that it is useful for (store of value, remittances, merchant transactions...).
The bitcoin price isn't going on some huge inexplicable upwards streak, its following a standard adoption curve.
Bitcoin is following a similar adoption curve, the only difference is that the price is also affected by other factors like greed, fear, news, and the economy. This adds volatility to the curve and even creates bubbles within the curve but the overall trend stays the same - an exponential curve (with bumps) that will at some point level off.
The levelling off will occur when bitcoin nears saturation, not just from individual user adoption (people that know about it and maybe own a few) but adoption for any and all purposes that it is useful for (store of value, remittances, merchant transactions...).
The bitcoin price isn't going on some huge inexplicable upwards streak, its following a standard adoption curve.
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