2017 was a coming out year for bitcoin.
The same was said of 2013, with its towering all time highs in the $1200s, mainstream media coverage, and growing storefront acceptance.
I first got into bitcoin in 2013, buying near its all time high. I spent the next couple of years watching about 80% of that value disappear.
Early in 2017, I wrote a rough prospectus of the case for investing in bitcoin for a family friend in his 50s. Like 100% of family friends in their 50s who have asked me about bitcoin, he did not buy any.
The tailwinds for bitcoin that I described in that prospectus — (1) hashpower growth suggesting massive opportunity cost interest in bitcoin, (2) transaction count suggesting use and network effect, and (3) market cap suggesting how the entire 24/7-traded-world-open-market values bitcoin as a network — are all phenomenally more bullish now in 2018.
The biggest risk I outlined in 2017 — the scaling debate — morphed into a free market fork competition solution with Bitcoin Cash (far more manageable with less uncertainty and more information).
Because the tailwinds are stronger and the risks are lower, I think 2018 will see more growth than 2017 on both absolute and percentage terms.
Lets look at those metrics again, for Bitcoin BTC:
Daily transaction count did not change at all — because it’s limited by Bitcoin Core’s arbitrary 1 megabyte blocksize, and blocks have been full since before January 2017. Instead of more transactions, we have seen exponential growth in average fees on the Bitcoin network…from only a few cents per transaction before blocks became full to more than $20 per transaction today.
The fee issue is a whole ‘nother can of worms. I don’t see value in exponential fee growth as a metric for success (unlike the over-thinking CTO of Blockstream). If you think exponentially rising fees are a good fundamental for a cryptocurrency, please make your case in the comments.
Well those numbers are certainly impressive! But I have only reported on BTC. Anyone who owned 1 BTC on April 11, 2017 (when I published the prospectus here re-examined, not a date of any specific significance) now has 1BTC + 1BCH (and some other forks, too, but let’s ignore them for today).
So the real numbers (April BTC to Dec BTC + BCH) are even more impressive. Bitcoin Cash forked to a larger blocksize (8MB) on Aug 1, 2017.
Damn! What happens if 2018 sees at least 2017 growth levels on percentage terms?
With a combined $3.3 Trillion market cap, this implies a BTC + BCH end-2018 price of about $180,000 per token.
Surely you can’t be serious
Extrapolation is rudimentary and of course past performance is no guarantee of future results. Yet bitcoin has enjoyed similar growth in most of its years of existence. And network effect is an important metric in crypto…which does largely rely on past performance.
Obviously such absurd growth cannot and will not continue exponentially until the world minimum wage is 5 lamborghinis per hour and beyond.
My bitcoin investment thesis is based on bitcoin seeing S-curve adoption that rapidly outcompetes other forms of human money, before plateauing into more stable growth.
My assumption that cryptocurrency will outcompete and replace most debt-based forms of money and that BTC+BCH is the best positioned to dominate that market is kind of a big assumption. If you don’t buy into this idea, do not buy bitcoin!
[Note: I need to write more about why I have that assumption. For a quick summary of my premise, just ask any of your friends who have a mortgage how they would feel if they had to pay for a $300 plumbing visit.]
But what will the BTC+BCH split look like?
Back in April 2017, I wrote about why I valued transaction volume as a key metric of network use and value. The current stewards of the BTC codebase do not feel the same way, which is why BTC transactions have leveled off. It’s no longer possible to “just try” BTC with $5 or $10, and a lot of people are very upset.
I think Bitcoin BTC will still see crazy growth in 2018 due to network effects, higher market cap attracting institutional money, and battle-tested propaganda tactics. I think BTC will see a 2018 high of at least $40,000.
But I think BitcoinCash BCH is the future of cryptocurrency market dominance and will ultimately overtake BTC in price, market cap, hashpower, and transaction count.
Why Bitcoin Cash?
- BCH potential value is the same as BTC, but it’s current value is much less.
- BCH potential and current utility is much greater than BTC
- Existing BTC infrastructure is easier to convert to BCH than SegWit, and businesses create an order of magnitude greater utility for customers by converting to BCH versus converting to SegWit
- The interests of intellectual elites are not aligned with the interests of the largest potential userbase. No one cares about SegWit the technology just like no one cares about TCP/IP, HTTPS, or Hillary Clinton.
Risks for 2018
- Regulatory apocalypse (say, a total ban on trading in the U.S.) delays crypto growth by at least 3 years
- The Federal Reserve dissolves itself and the gold standard is credibly re-introduced on a global scale
- BytesOfMan is an idiot
- We are pending a massive (>60%) correction since almost everyone who bought BTC in the December run from $8k to $19k to $13k has no idea what BTC even is, and the % growth rates I am using for 2017 should be dramatically reduced [note: in this case I would only extend the timeline of my above forecast by 2 years, I would not retract it]
- BytesOfMan is an idiot because he is missing this obvious point (please leave in comments)
We also have what I like to call anti-risks, or events that are difficult or impossible to predict but could substantially increase rates of return versus my predictions. The biggest plausible anti-risk for 2018 is ETF approval. For 2017, it was the BitcoinCash fork — which removed uncertainty between different Bitcoin political parties and substantially increased the total value of BTC and BCH.
No matter what happens, 2018 will be more insane than 2017.
Disclaimer: investment predictions on assets that did not exist in all of human history until 2009 are both risky and guaranteed to be specifically wrong.
To sum up my Bitcoin and Bitcoin Cash investment advice for 2018, as well as my personal behavior:
At the time of this post, 1 Bitcoin traded for $13,140 and 1 Bitcoin Cash traded for $2,285 on GDAX.
Haven’t bought bitcoin yet? Use my referral link to sign up with Coinbase, and we’ll both get $10 in bitcoin when you purchase $100.