I shared my views on Bitcoin and its current state on our YouTube channel 2 weeks ago, here’s the video:
Then, Bitcoin had experienced a significant correction (>10%) which got people wondering if it’s a bubble.
At the point of writing, Bitcoin’s price has recovered;
The Bitcoin Story – till date
This is Bitcoin’s price chart over the past six years:
You’ll see that we had a crazy run in 2017 where Bitcoin almost reached USD$20,000. (Prior to that, our Bitcoin trainer Chris Long has already been buying up Bitcoins, he shares his insights here)
And then it came crashing down.
Later in 2019, Bitcoin experienced a resurgence, but barely reached its previous high before it tumbled again. Today, it has climbed back up to its all-time high, crossing USD$19,000 just last week. And so, we’re at a historical point once again.
The technical analysis camp will say that it looks like a double top, which means it’s likely to crash again…right?
Bitcoin’s controversial image
Even as a cryptocurrency or a store of value as a currency, everyone has their own views on Bitcoin. Just spend a couple of minutes on forums, blogs and social media, and you’ll experience both sides of the debate.
Till today, people still can’t seem to agree with each other, on the value of Bitcoin and whether it has a place in society.
That said, you should just consume what people say, we should take a look at what they’re doing instead.
And in my opinion, this Bitcoin rally will last, it is not a bubble, and it is actually a lot more sustainable going forward.
Or course, we may hold different views, and I will agree to disagree. But here’re my thoughts:
Gartner Hype Cycle
Gartner is a well-known research firm in the United States which does analysis on technology, energy inventions, as well as the companies. This is their concept:
Phase I – Innovation Trigger & Peak of inflated Expectations
When something new is invented, you’ll have the early adopters raving about it, as this happens, its valuation starts to rise, and it keeps rising. Then people start getting ahead of themselves.
Remember, at this point, the technology remains immature and in its early phase, but people start having a very unrealistic kind of projection of its future (aka the “peak of inflated expectations”).
Soon, reality chases up, the bubble bursts, it crashes. And we enter:
Phase II – Trough of disillusion
Here, some believers turn into skeptics, believing that the new innovation is a scam or a fraud. Many lose interest in the innovation. Some sell their holdings at a loss.
But those who manage to hold through this period will eventually move along to:
Phase III – slope of enlightenment
In my opinion, this is where the serious, more sustainable bull run occurs.
Why?
Because it’s when the innovation matures. People are also more sensible when approaching the subject. Reputable institutions and individuals start talking and using the innovation. It moves into real world adoption and gains real traction.
Bitcoin’s current state
In line with the Gartner Hype cycle, Bitcoin seems to be entering Phase III currently.
Back in 2017, people were overhyped about how Bitcoin is going to replace fiat currency. Of course, that hasn’t happen…yet. I tried to correlate the search trends of ‘Bitcoin’ taken from Google Trends, using it as a proxy for interest:
Back in 2018, a lot of people were searching about Bitcoin. The surge is in line with the Bitcoin rally. This means the bull run in 2017 was mostly driven by mass psychology, and probably speculation.
When the masses get interested in Bitcoin over a short period of time, they drive up the price. As Bitcoin crashed, the interest waned accordingly.
In 2019, there was another momentary spike. And again, the interest was in line with the price movement, suggesting that it was driven by speculation.
Will the latest Bitcoin rally last?
Today in 2020, again the price has rallied again. It has surpassed the previous high of 2017.
But when we look at the corresponding search trend, it is so much lower than the previous two picks.
To me, this suggests that the latest rally price run up is not driven by the mass retail investors. In fact, most of them are not even looking at it and not even interested.
Bitcoin is slowly (but quietly) gaining traction
The big institution players are buying up Bitcoins.
Stock markets with more institution participation see stable stock prices simply because institutions do not dump their assets overnight, unlike the retail investors. Likewise for Bitcoin.
Here are some developments in the cryptocurrency scene lately;
1 – Wider Adoption of Cryptocurrency
Paypal has announced recently that their customers will be able to use cryptocurrencies as a funding source to transact with their 26 million merchants around the world.
Now that’s real adoption and potentially high utility.
It’s now possible for the masses to finally utilise cryptocurrencies to make their purchases.
2 – Companies are buying up Bitcoins
Square has announced in October that they had purchased approximately $50 million worth of Bitcoin, because they believe that it’s an “instrument of economic empowerment, allows the world to participate in a global monetary system”.
Likewise, many other FinTech companies have also embraced the idea of cryptocurrency and bringing utility to the masses.
Another company on the bandwagon is MicroStrategy, a business intelligence platform. Note that they are not FinTech nor in the finance space, but they are ditching their cash reserves for Bitcoins. This is unprecedented.
It’s also interesting to note that MicroStrategy’s CEO used to be a sceptic:
Why the latest Bitcoin rally is more likely to last?
If I can link it back to the Hype Cycle, I believe we are near the start of phase III – the slope of enlightenment, rather than a bubble.
Back in 2017, Bitcoin’s rally was bolstered by hype. Today, most retail investors remain sceptical. Instead, the prices are pushed up by big institutional players who are convinced about its potential.
We’re also seeing an adoption of Bitcoin by institutions. This will drive the adoption of cryptocurrencies, making them more available and convenient for people to actually use.
Hence, I do believe this current Bitcoin rally is a lot more sustainable
That said, not all cryptocurrencies are equal. Chris Long shares about both Cryptocurrencies and Altcoins at his masterclass, if you’re new to Bitcoins, you may find it informative.
This is my view, I’m personally vested in a small position of cryptocurrency.
