Bitcoin has been the talk of the town for some time now. From its meteoric rise in value to its recent price crash, it’s safe to say that plenty of people are interested in what the future of bitcoin will look like. To help answer this question, I’ve developed a list below outlining my predictions on where bitcoin is headed over the next decade.
1. Bitcoin will be seen as a store of value first and foremost
I think it’s safe to say that most people see bitcoin as three things: an investment, currency, or digital cash. However I believe the answer is more complicated than just one of these options. As someone who holds bitcoin in their portfolio, I tend to view it as a store of value, much like gold. The beauty of bitcoin is that you can choose what role the currency will play in your life. That’s why I think as the price keeps rising and flirting with $10k, people will come to see bitcoin as an investment asset first and foremost. This will be especially true if governments decide to crackdown on the currency.
A store of value is exactly what it sounds like, an asset that maintains its purchasing power over time. When I think about investment assets, I typically think about things like stocks, bonds or real estate. These are all valuable assets because they produce cashflows in the future (dividends, coupons or rent) and have a certain amount of scarcity to them.
2. Transaction fees will be a driving factor in the purchase price of bitcoin
If you’ve been following the news this year, you likely know that transaction fees are at an all-time high for bitcoin transactions. In fact, earlier this year when the price of bitcoin was over $2k, fees were averaging around $30-$50 per transaction. This has caused many people to re-evaluate their relationship with the digital currency.
The good news for investors is that I know a major catalyst that could drive further demand for bitcoin: a drop in the number of transactions being processed. You see, when transactions are processed on the blockchain, miners receive a set fee for mining the transaction. These fees have been rising in recent months due to an increase number of transactions taking place. If this trend were to continue over the next decade, I could only see it pushing up demand for bitcoin because investors would have to purchase more coins to fund a transaction. This in turn would push up the price, and then we have a feedback loop that would be difficult to stop.
3. More people will start using bitcoin as a currency in everyday life
About six months ago I wrote about how I don’t think bitcoin is being used enough yet as a medium of exchange for goods and services. Well, I’m happy to say that I believe this is changing and will continue to change over the next decade. All of the major payment vendors (Stripe, PayPal, Square) are looking into bitcoin integration for their businesses because they know it’s important for consumers to have an alternative form of payment if things go south with credit cards.
The key to remember here is that as more merchants accept bitcoin, the currency will go from being a store of value first to being a medium of exchange second. Once this happens, I believe it will be much easier for everyday people to start seeing bitcoin as a legitimate medium of exchange and not just an asset you HODL.
4. Bitcoin will continue to be a medium of value transfer but not necessarily money
One thing I want to make clear before moving on is that while bitcoin could be used as both a store of value and medium of exchange it won’t truly become money until more people start using it for transactions. The reason being, only when the majority of citizens within a country use bitcoin will the government be forced to acknowledge it as legal tender. If we look at what’s happened with e-commerce over the last decade, online retailers like Amazon and Ebay are now major parts of our economy, but they aren’t taxed like normal retailers because they don’t take cash for their goods.
The only way the government will truly accept bitcoin as money is if more people are using it, even if they’re doing so for buying goods online. Even if large retailers like Walmart began to accept bitcoin directly for payment, this still wouldn’t be enough because there would need to be widespread adoption at a consumer level within everyday life. This means using bitcoin for buying coffee, tipping your Uber driver, or purchasing goods on Ebay.
5. There will be another major correction
At the moment, I don’t think anybody can predict with any certainty where the price of bitcoin is headed over the next month or year. That being said, if we look back at every major asset bubble throughout history, we will notice a trend: they always burst. The good news for those who bought bitcoins as the price was climbing to $5k is that you’re going to have a better entry point next time it corrects.
While I’m not saying bitcoin will hit $0 anytime soon, I would expect some sort of correction in the coming months. This is because there are still a lot of speculators who have entered the market during this bull run, and they will likely start to cash out profits when the price reaches new highs.
This correction could last for several weeks, but it could also be shorter if, say, bitcoin doesn’t rise above $10k for a few months. The reason being that people will begin to lose faith in bitcoin as a currency and sell their coins at a loss, knowing it’s going to be difficult for the price to hit new highs anytime soon. It all depends on how big this bubble is now and how easily market sentiment can change.