Written by Adam Davies, Solution Architect and Technologist on Monday 10 July 2017
Last July I predicted that Bitcoin would break the $3,000 barrier by the end of 2017. When I wrote this prediction, I based my analysis not on traditional economic calculations, but on the socioeconomic changes that are sweeping through western society and particularly the UK and USA.
These socioeconomics drivers are even more prevalent today than they were a year ago. People no longer trust the government, regulators or financial providers, and are increasingly using technology to do it for themselves.
Like working patterns of bygone ages the 9 to 5 has been swept away, not by management or CEOs, but by millennials who know that in order to be effective and creative you need to be able to work when the inspiration takes you and you need to rest when your mind is exhausted.
Thus it is with investments. The zeitgeist is no longer to look solely to the wisdom of the stock market or an advisor but to use the power at your fingertips to inform and control your own decision making.
Bitcoin Drivers are Changing
Last year, when I wrote about the rise of Bitcoin, my predictions were driven by workings in the gray economy – people trading and moving money around the globe without the viscosity of government and banking regulation. Generally, the analysis I undertook excluded Europe and the USA due to noise introduced by significant high volume low value transactions.
One year later, the gray economy still has a significant influence on the current increase and use of Bitcoin; analysis of the blockchain shows that there is ongoing movement of currency within Asia and other hotspots in Africa and South America.
But one surprise (at least to me), is the large number of high value transactions into and out of Russia. However, on closer inspection we can see some clear catalysts for this activity driven by issues around the Russian economy plus the outlawing of cryptocurrency followed by rumors that a law may now be drafted which embraces Bitcoin. Fitting these pieces together, it seem clear that something must be happening on a significant scale, not just in Russia, but also in the rest of the world.
Bitcoin as an investment
Interesting as it might be to speculate on the causes of geographic Bitcoin trends, the more significant change in behavior over the past year, has been the long-term holding of bitcoin in accounts. Previously, we have seen Bitcoins being moved from account to account prior to their exchange for real-world currencies. Recently, however, we are beginning to see that a growing number of accounts are actually retaining bitcoins. This is to be expected with the steady rise in the value of bitcoin; people are beginning to view Bitcoin as an investment rather than just a mechanism to enable exchange.
The other significant behavioral trend to have emerged is adoptive; a new account is credited with a small value, typically less than $100, and then some time later, credited with a significantly larger values. This suggests a pattern of behavior where new entrants into the Bitcoin ecosystem are exploring the user experience, and then gaining the confidence to make an investment Bitcoin purchase.
What is the Future for Bitcoin
So there are four significant forces shaping the Bitcoin ecosystem. First, the drivers of the gray market are still strong. Second, the currency is now getting traction in real-world retail environments. Third, we are seeing Bitcoin emerge as an investment class in its own right. And, crucially, we are also seeing regulators taking Bitcoin seriously.
These four drivers are hugely significant. It means that Bitcoin represents a significant opportunity for those who want to invest, trade, or move money without reliance on institutions. It means the regulators will, by and large, be supportive. However, most significantly, it also means that the currency, which belongs to no country, is getting wide global traction outside of nation states.
The consequence of this is that power is shifting from central banks to the people. It means that those who support openness, transparency and fairness in the international financial markets have a significant and convincing precedent which can demonstrate that transparent banking is possible whilst maintaining client confidentiality via a publicly available and open Blockchain ledger.
Once regulators and international organizations fighting money laundering and corruption realize that Bitcoin is their friend, then we may see a shift from the Dollar as the international currency to Bitcoin as the supranational currency. In other words; Blockchain will do to currency, as the internet did to communication.