Is there even a relationship between the two?
From John McAfee to Warren Buffett, everyone seems to have an opinion on where Bitcoin is headed, with wildly differing views. With the current prolonged bear market, the skeptics do appear to be proven right in their verdict of Bitcoin.
Whereas people who are bullish on Bitcoin are preaching that the bull market will return eventually, citing a few reasons, such as institutional money coming in, the development of the Lightning Network and more merchants accepting Bitcoin as a method of payment. As countries like Venezuela continue to experience hyperinflation and start purchasing Bitcoin, mass adoption will arrive sooner than later.
You have probably heard it all right? And I am going to guess that you have been hearing this for a really long period of time, especially if you have been in this space for a long period of time.
While these are actually valid reasons and can be strong drivers for the ever elusive “mass adoption”, I want to cover an intriguing theory that if proven true can mean that Bitcoin is severely underrated now (The price of Bitcoin as of 10th march was around $3,900)
Take note that the key word in the previous sentence was “if”. No one knows the price of ANY asset class in the next 5 years, much less an asset class as volatile as Bitcoin. With that being said, let’s explore the possible correlation, if any below.
In August 2017, before the bull run of the Crypto market, Business Insider published an article whereby Dennis Porto, a Harvard academic and Bitcoin investor, the price of Bitcoin can get to $100,000 if it follows Moore’s law. The Wikipedia definition of Moore’s law is as follows
According to Dennis Porto, “Moore’s law specifically applied to the number of transistors on a circuit but can be applied to any digital technology… Any technology that is growing exponentially (i.e., ‘following Moore’s law’) has a doubling time.”
Based on this statement, the assumption is that with the evolution of blockchain technology, the price of Bitcoin will follow according to the pace at which the technology advances. If followed through to its natural conclusion based on the chart below, the price of Bitcoin is slated to reach $100,000 in the year 2021.
Chart by Dennis Porto
Is there actually some weight (if any) to his prediction here? Much has been made of the limits of the block size of Bitcoin, and if Moore’s law can be applied here the block size may increase with time. Besides, having an increase in computing power with time is always a good thing right?
Putting aside the fact that an increase in block size may not be the solution (StopAndDecrypt wrote a great article on this) the reality is that technological improvement is not the only factor affecting the price of Bitcoin or any other asset class or product for that matter.
There are still other factors that will undoubtedly come into play, such as the acceptance of Bitcoin as a method of payment by merchants, global economic factors as well as changes in perception towards our current fiat monetary system. Given that Bitcoin overlaps between being a currency and commodity, it may prove useful to assess factors that usually affect these two asset classes.
Bitcoin as a method of paymentA number of merchants globally are already accepting Bitcoin as a method of payment, with a significant number of payment projects working on pushing Bitcoin and other Cryptocurrencies as methods of payment. The most notable project being PundiX.
As part of Starbucks partnership agreement with Bakkt, the exchange backed by the International Continental Exchange (ICE), Starbucks will be accepting Bitcoin as a method of payment, possibly utilizing the Lightning Network.
Bitcoin as a currency and commodity
While all these are positive signs of mass adoption, it is still early days. We currently face the “Chicken and egg” problem, whereby merchants are unlikely to accept Bitcoin as payment if not many users hold Bitcoin. Conversely, users are unlikely to use Bitcoin as a currency if not many merchants accept it as a method of payment.
Bitcoin As A CommodityDespite Bitcoin being created with the original intention of using it as a digital currency, the perception of Bitcoin has been proven to be much more than that. A good number have made their fortune holding and selling Bitcoin, and even more, have lost money with the volatile nature. As such, a good number of users view Bitcoin as a commodity.
As with all other commodities, global economic factors have a huge impact on the price of Bitcoin. For example, commodities like oil and gold are dependent on the public perception of other financial assets such as stocks and bonds. This, in turn, is dependent on the performance of the economy. Events such as Brexit and the US-China trade war have a huge impact on the bottom-line of many companies.
In times like these retail investors, especially the more conservative ones may prefer to invest in asset classes that are not as dependent on government policies and economic factors. This is where I believe Bitcoin will come in.
The price of Bitcoin is too volatile right now to be an asset class where retail investors seek refuge from an unstable economy. However, as the trading volume of Bitcoin scales up and less speculation is in the space, Bitcoin can be a commodity.
More likely than not, the price of Bitcoin has no correlation with Moore’s law, at least not as much as many would like it to be. While Bitcoin is closely linked to its underlying technology, there are many other factors that will affect the price of Bitcoin and the general public perception of Bitcoin. This article from CryptoIQ covers this as well.
As fast-paced as the world of technology is, resistance to change is still very much innate in human nature. How long do you think it will be before your neighbor views Bitcoin as a currency or commodity?
As much as I would love for the current bear market to end and for Bitcoin to reach mass adoption, this is a hard fact that we cannot avoid. Not even a miraculous technology development owing to Moore’s law can change that.
As a Blockchain and Crypto enthusiast, I love writing opinion articles on this topic. If you are a Blockchain company that requires content marketing support, contact me! I would love to hear from you.