Does Bitcoin Have a Future?
Bitcoin is, for many years now, the king of cryptocurrencies. For its price, what it represents, and the economic situation. In this post, we analyze six possible future scenarios.
The main question we ask ourselves is the following: What is the future of Bitcoin? It isn't easy to imagine it and stay confident about conclusions. There is no doubt that it has incredible potential and several risks to consider.
For this reason, we will analyze six scenarios that could occur for the future of Bitcoin. Any of them could happen ten years from now. Although obviously, not all are equally likely.
1) Bitcoin as a global currency
The most optimistic scenario of all is that of Bitcoin becoming the global reference currency in the future. In such a case, Bitcoin would replace the US dollar as the main currency in which citizens, companies, and governments carry out a large part of their transactions.
That doesn't mean that the other currencies were necessarily going to disappear. They can continue to coexist. But the money that exercises a dominant power would be Bitcoin, so that the issuers of the main currencies, especially the United States and the Eurozone, would lose the possibility of expanding their monetary mass with little consequence.
As a global currency, this would entail significant social, economic, and geopolitical changes. It would make the world so much fairer. The era of large public deficits and debt would have an end. All countries would be the same when it comes to trading internationally. And saving would begin to be a priority to get into debt.
Some examples of things that could happen if Bitcoin became the global reference currency:
We travel all over the world and can pay in Bitcoin almost anywhere.
China buys oil from Saudi Arabia and pays in Bitcoin.
Bitcoin is the main currency in which countries have their foreign reserves.
A British company listed on the London Stock Exchange presents its annual results in Bitcoin.
Consequences for the price of Bitcoin: extremely positive.
2) Bitcoin as a store of value
Another option is for Bitcoin to unseat the major currencies, but people begin to use it as a value store. In this scenario, people would continue to operate primarily euros, dollars, pounds, or yen.
Governments and central banks would maintain their power to expand the money supply as they please, meaning that public deficits would continue. And inflation would continue to reduce the value of savings and wages of the population.
Nonetheless, people would be able to invest their money in Bitcoin to protect it from currency devaluation. While its price would fluctuate continuously, it would have ceased to be so volatile. And the long-term trend would be bullish. The capitalization of Bitcoin and its liquidity would have increased to such an extent that large institutions, including governments, could buy and sell large amounts without hardly moving the market.
In this second scenario, Bitcoin would have a similar role to that of gold today. It is a diversifying reserve asset capable of maintaining its long-term value. We would still have the option to pay with our Bitcoins in many places, but people would typically use another currency.
Gold would likely retain its current role. In fact, in a scenario like this, there would be room for the two assets. We will see that gold represented a much smaller percentage in investors' portfolios today than usual many decades ago if we look at historical data. The probable monetary problems of the future tell us that there would be room for both.
Consequences for the price of Bitcoin: very positive. The price of Bitcoin would have multiplied several times to equal the world price of gold, which is currently lower than what historical data tells us it should be.
3) Speculative asset
In this third scenario, Bitcoin would continue to be an asset very similar to the one it is in 2021. By speculative investment, I do not mean that it is terrible. We don't know where things will go in the future yet.
Ten years seems like a long time. The unknowns around Bitcoin will still be present, so we would have to wait even longer.
Changes in the regulation of countries [PDF], prohibitions, adoption by companies and individuals, the state of the world economy, and monetary policy all would generate both positive and negative news about the future of Bitcoin.
This uncertainty would probably mean that its price volatility would remain very high with its potential and risks. So there would still be opportunities to generate significant profits and suffer losses if we enter at the wrong time. However, the long-term uptrend will most likely continue.
Consequences for the price of Bitcoin: quite positive.
4) Bitcoin replaced by another cryptocurrency
What if another cryptocurrency replaces Bitcoin as a "reference cryptocurrency." Historically, Bitcoin has represented between 60 and 80% of the joint capitalization of all cryptocurrencies. Far ahead of Ethereum and light-years from the rest.
The most significant point in favor of Bitcoin is that it was the first cryptocurrency created, so it has had greater adoption. And the network effect (the famous network effect) makes it very difficult for another cryptocurrency to unseat it. It would be like replacing Facebook or Twitter now that they already have hundreds of billions of users. However, we cannot rule out that this could happen since the future of cryptocurrencies is a great unknown.
If another cryptocurrency replaces Bitcoin in the future, the new money could exist today or not yet exists. What there is no doubt that it would probably improve some of the aspects of Bitcoin, thus managing to become the new winner.
Consequences for the price of Bitcoin: negative. Bitcoin would continue to exist, and the cryptocurrency market would likely continue to grow. But Bitcoin would take a backseat.
5) The need for Bitcoin disappears
This option may sound like science fiction but is not. Bitcoin was born from the need to have a fair currency. Bitcoin is supposed to respond to the interests of a country or a government. In other words: a currency that would serve its users.
Some of the ideal properties of having quality money are that no one can unilaterally devalue and that, therefore, it maintains its long-term value. Historically, people used gold and silver as money.
However, we must understand that the use of gold as money has not been uninterrupted throughout history. Societies used gold (quality money) regularly alternated with fiat currencies of all kinds. From Ancient Greece to the Romans, Imperial China, interwar Germany, or the United States after 1971, virtually every society has had fiat money at some point.
The reason people have always turned to gold because the value of fiat currencies always ends up being 0 in the long run. When the discipline disappears, money begins to be printed uncontrollably (or created electronically) and ceases to have value. Some famous examples are those of Germany in 1923 or, more recently, those of Zimbabwe and Venezuela.
But that doesn't mean those disasters have to happen in the short term. A fiat currency can perfectly fulfill its role for many decades. And while things are going well, practically no one thinks it would be better to put their savings in gold than in fiat money. After all, everything is going well, and on top of that, they give you interest.
When the United States abandoned the gold standard in 1971, inflation got out of control, and American confidence in the dollar disappeared. Between 1971 and 1980, gold prices multiplied by 24. But between 1980 and 2000, gold fell more than 65%.
Why? Well, because in 1980, the Federal Reserve raised interest rates above 20%. And if the bank gives you 20% interest and inflation, thanks to that, starts to drop significantly, having gold loses much of its appeal.
And while it is true that in the long run, we already know how that monetary experiment will end, most people are not aware of it. And even if they were, that may take some time to come. It makes sense to put our money in a fiat currency in the short and medium terms.
Although it seems impossible that the governments and monetary authorities of Western countries can change their current policy, the truth is that in the long term, anything is possible. So we should not completely rule out this future scenario for Bitcoin. However, be aware that other things would need to happen first for interest rates to go up.
Consequences for the price of Bitcoin: very negative. We have already seen what happened to the price of gold, even though the yellow metal also has non-monetary demand. So for Bitcoin, the fall could be much more robust.
6) Bitcoin disappears or is irrelevant due to bans
Finally, the sixth future scenario for Bitcoin is the most negative, both for the cryptocurrency and the world. We are talking that practically all governments prohibit the use or possession of Bitcoin and begin to prosecute crypto holders.
I am aware that many people think that governments cannot confiscate Bitcoin, but that does not matter. Governments can put all kinds of measures to make it practically impossible for people to buy or sell Bitcoins. In addition to that, they can impose potential penalties and regulations.
True, it is probably still possible to go to a third-world country and use Bitcoin there. However, we must be aware that most people would not. If the government announces bans and jail time, people and businesses will obey.
In such a scenario, the price of Bitcoin can practically fall to 0. Although the most severe thing would not be the patrimonial loss suffered by many, the perpetuation of the current system in which a group of politicians and bureaucrats exert tremendous power over the system economic world to benefit specific groups at the expense of the majority.
Consequences for the price of Bitcoin: extremely harmful. And even worse implications for general citizenship and economic freedom.
Calculating a target price for Bitcoin is a highly complicated task. We could even say that impossible. The socio-economic situation is constantly evolving due to the many factors at play. We can try to project the price of Bitcoin in each of the six future scenarios we just discussed and then calculate the probability for each of them. It sounds simple, but it is not.