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Bitcoin has been the talk of the second half of 2017, but can the digital currency continue to exert the same fascination, and the same obscene (to some, to others it’s undervalued!) valuation as we enter a new year?
Try as we might to gaze into our crystal balls, it is very hard to predict what factors may affect the short term price, long term adoption, or medium term public perception of bitcoin, yet these are the very factors upon which the cryprocurrency stands or falls.
Below, we list 5 things that we think could affect bitcoin fortunes in 2018, and examine what the potential fallout might be. Sadly we cannot tell you what the price of one bitcoin will be at this time next year, but the below may help you frame your own thoughts and predictions.
Ok, we’ll make a prediction. The price of bitcoin in December 2018 will be somewhere in the region of $0.1 dollars, to $100,000,000. If we end up being wide of the mark on that one, we will be most likely be making next year’s prediction from Elon Musk’s rocket ship on our way to Mars – almost certainly without the “Little Rocket Man”, or his flame-haired friend.
Bitcoin Billionaires may struggle to cash out
If you have successfully amassed enough bitcoin to join the “3 comma’s club”, i.e. like the Winklevoss twins, 2 of bitcoin’s earliest investors and evangelists, you are a bitcoin billionaire, the question you may find yourself asking in 2018 is “how do I liquidate some of my holding?”
In 2018, the success of bitcoin as a currency may well be judged on its interchangability with fiat currencies, i.e. the dollar, pound, euro or Iranian rial. It’s all very well owning a huge slice of bitcoin, but if you cannot use it to purchase anything because the vendor won’t accept bitcoin, then the collapse of the price will surely follow.
In other words, if bitcoin does turn out to be a bubble, then holdings with a sky high valuation will be about as useful as owning a billion dollar dotcom company at the turn of the century with no product or customers. An accident waiting to happen, that only a fool would take off your hands.
Tick marks change scale – thousands replace hundreds for 6 figure bitcoin?
First we spoke about bitcoin’s worth in terms of dollars, then tens of dollars, then hundreds, thousands, and today we are talking 5 figures – tens of thousands. Could 2018 possibly be the year we hit 6-figure valuations?
Some have predicted it. This year, the “Nostradamus of the markets”, Tim Draper, who was ridiculed when he suggested bitcoin could hit $10k, has been proved right. But surely to talk about 6 figures is to take things a step to far?
Not necessarily. Remember that reserves of bitcoin, like reserves of gold, are finite. Because of the way the digitally “mined” currency was created by the mysterious being known as Satoshi Nakamoto, who has never been identified, there can only ever be 21 million bitcoins in circulation.
The bizarre creation myth surrounding bitcoin and its early history belies the fact that bitcoins’ creators, or designers, or whatever you want to call he, she, it, or them, put a great deal of thought into the digital currency. Like the blockchain that underpins it, It is sophisticated, clever, and built to last.
Clearly, when all 21 million bitcoins have been “mined”, we can start to talk in fractions of bitcoins – thousandths, or even millionths. Very few people will own one whole bitcoin. When we consider this eventuality, it’s clear the price of a bitcoin, should it maintain its credibility, can keep rising, and rising, and rising.
There is no guarantee that it will, but it has been built in such a way that like gold, or platinum, or saffron, or tulip bulbs, it can become a priceless commodity, but it is not without vulnerabilities.
Too many forks spoil the growth?
One of the biggest threats that bitcoin may face in 2018, is itself. Debates about the best way to mine bitcoin, store it, control its price, and maintain a ledger of bitcoin transactions on the blockchain, have led to different factions emerging within the bitcoin community.
These differences of opinion have led to the most recent downtrends in the currency’s price, which have led in turn to a number of “forks”. The first “hard fork” we’ll concern ourselves with was bitcoin cash.
A “fork” is simply the implementation of a BIP, or “Bitcoin Improvement Proposal”, usually designed to speed up transaction processing times or make minor adjustments to the cryptocurrency software.
When the new software is implemented, a parallel blockchain is created, using the new software – this is what happened when bitcoin cash was created. Ultimately, the longer chain will win the battle of the fork. A “soft fork”, such as Segregated Witness, or “segwit”, is backwards compatible – legacy software transactions will show up on the new software, but not understood by the old software.
It was segwit’s implementation that led to many investors and exchanges turning away from bitcoin and towards bitcoin cash. Ultimately, this has had little effect on bitcoin’s extraordinary bull run, but what if by the end of next year there were, 3, 4, or 100 plus different bitcoin “forks” for exchanges to choose from. Things could get too chaotic, fragmented, and disputed, which could have serious repercussions for the currency’s future.
Many people are waiting for an opportunity to expose the fatal flaw behind bitcoin and consign it to history. “For forks sake”, investors may say, “this is getting too complex!”
The rise or fall of Bitcoin’s digital rivals
As we keep saying, the real value of bitcoin, given that you cannot see it, hold it, or even spend it (you can “exchange” it), is the sentiment it generates amongst buyers and sellers, which is currently, clearly, highly positive. This is the same for any share on the stock market, currency, or even physical good.
The reason bitcoin is currently performing so well price-wise is because it is viewed as the best exponent of a new, exciting, and successful phenomenon. Ethereum, another digital currency, has performed exceptionally well in 2017, as have Litecoins, but in terms of market cap, neither can hold a candle to bitcoin. Indeed, bitcoin cash is now the third most valuable digital currency on the marketplace ($26bn), after Ethereum, ($61bn) with bitcoin way out front ($292bn at time of writing).
But if we try to find parallel examples, it could give us pause for thought. MySpace once had a colossal valuation, but it was swiftly overtaken by Facebook, before it collapsed completely. When Snapchat IPO’d, many thought that Facebook’s days were numbered – but that turned out to be baloney.
Of course, bitcoin has progressed way beyond either of the above two examples, but the point is that bitcoin is a currency at such an early stage in its development cycle, and anything is still possible.
Bitcoins rivals could help it hit new heights in 2018, or conspire to drag it down to earth, or have no effect whatsoever, gradually disappearing and wilting in the white heat of bitcoin’s success.
Whatever happens, it will be the perception of each currency that drives its price, as well as the adoption. At this stage, it is hard to pick a winner beyond bitcoin, but stranger things have, and will happen. If bitcoin has a fatal flaw, in time, it will be revealed.
Bitcoin exits world stage left
Right now, in 2017, bitcoin is one of the most talked phenomena on earth, which helps it grow its price and influence enormously. But what happens if, in 2018, the situation with North Korea deteriorates significantly, or there is another Arab spring, or a civil war in Africa, or the first driverless car rolls off the production line and onto our roads?
Bitcoin relies on the oxygen of publicity to survive and flourish, but if the currency becomes less of a source of fascination to the public, and begins to lose column inches, then its value will drop. Bitcoin is quite possibly at the peak of its hype cycle – when everybody but the diehard loses interest, bitcoin could begin to resemble a house of cards.
We humans are faddy, and we can move on quickly when something ceases to be of interest. Unlike gold, silver, pounds, dollars, or rials, bitcoin has no physical presence whatsoever. The world could move on quickly, and who would really care? A few frustrated cyber-geeks, and yes, the Winklevoss Twins!
Let’s hope they have secured the rights to the movie.