Bitcoin: How far can the balloon grow before it pops?


Posted on: Dec 21, 2017 by Nicolas Kozakiewicz

Just like fortune telling or reading tea-leaves, there's a bit of faith needed in making wild predictions.

One can and should have an opinion, an opinion built on some knowledge of the facts and some personal beliefs.

So please don’t read this blog as being any more than my personal opinion based on my knowledge of what’s happening and my experience in the tech industry. If I knew what were going to happen, I would be a billionaire by now!

Let's start with what we know about Bitcoin:

  • There will be a maximum supply of bitcoins of 21M.
  • Each bitcoin can be divided into 100,000,000 satoshis.

Let's immediately explore the too-often-made parallel with gold: Bitcoin is not gold, just like Bitcoin miners are not gold diggers. However, there are some similarities between them. - Alongside the fact they both experienced some speculation bubbles due to their limited supply they both have two main usages:

  • Transaction mediation vehicle: both gold and bitcoins are used as counterparts in transactions - one trades something for gold/bitcoins and vice-versa.
  • Savings vehicle: both are bought by people who are betting on the fact that their scarcity will make demand go up, and prices along with it.

Now to explore another misleading parallel: only gold can be considered as having "Secure Value". Hiding some gold bars for future need in case something/anything happens can be a logical move. Hiding some bitcoins (or fiat currencies to a lesser extent) that can drop at any time may be considered as less logical... to say the least.

Without entering into complex explanations, the core of this topic is as follows:

  • There is a clear relationship between Bitcoins and gold: transaction and savings. As, with the amount of each being finite, the more bitcoins in saving vehicles that are taken away from circulation, the less are available for transaction. So the price tends to go up.
  • However, as transactions have fees indexed on the price on the bitcoin; the more the price goes up, the more fees are important, hence the less "interesting" it is to use bitcoins as a transaction vehicle.

It is pretty clear that the relationship between transaction and savings usages will influence the exchange rate of bitcoins. And some financial gurus have implemented and run complex financial equations to try and forecast the evolution of bitcoins.

All seemed in agreement that it would break the $10,000 bar. Check.

Now some are saying it will climb up to $30,000... others $1,000,000 to match the parity 1c / 1 satoshi!

In a nutshell, it's a balance, an equilibrium between the transaction and savings vehicle.

One last piece of information to bear in mind: a Bitcoin transaction is usually worth 600 satoshis to be processed. Why? It's because blocks being averagely created every 10', there is a "limited" amount of transactions that can be put in a given block. So miners tend to prefer the highest paying transactions, i.e. the transactions with the highest fee. Just do the math:  600 satoshis, with a bitcoin worth $15,000 represents… drum roll… $9!

But the question remains, how many transactions would you agree to make with a $9 cost on top? It’s likely that the average daily or weekly purchases would not be large enough to absorb such a high fee.

Place your bet!

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About Nicolas Kozakiewicz

Head of Research & Development and Innovation, Worldline, Atos Fellow and member of the Scientific Community
Nicolas has 20 years’ experience in Innovation and R&D both in big corporations and half founding and funding start-ups, in Europe and the Silicon Valley. Nicolas leads multinational engineering teams, from upcoming trends and technologies to Business-applied services. For the past few years, Nicolas has driven the Global R&D and Innovation at Worldline - the European leader in the payment and transactional services industry - leading teams to concentrate, evaluate, prioritize and drive to market reality all the disruptive technologies/ usages, instilling innovation, igniting new services and increasing performances and efficiency in our portfolio. Nicolas joined Atos group in 2009 and holds a SW/HW engineering degree from EFREI backed up by a Start-up specialized MBA course from HEC in France.

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