By Mawusi Adiamah on The Capital
Despite its highly volatile nature, bitcoin continues to attract a global following. 11 years on, bitcoin has gone from a humble underground experiment to one of the most significant financial and social innovations of our generation. Never before has the human race been able to freely store, send, and receive value from just about anyone around the world, at any time and without a third party or any government.
The study of the Bitcoin blockchain and the bitcoin crypto-asset is multifaceted and intriguing. To be able to have an understanding of this crypto-asset, one will need to have an understanding of mathematics, encryption, monetary economics and policy, game theory, networking as well as adversarial thinking.
The growth of bitcoin from under $0.10 in 2010 to $20,000 in 2017, with lows of $3,600 in 2018, and its current price of $8,100 shows volatility and growth. The next wave of bitcoin and decentralised blockchain-backed crypto-assets and network adoption will be led by the millennial and Gen X. Bitcoin is currently in its very early stages and over the next decades, the digital currency will develop through the ‘early majority’ stage. This stage will coincide with the transfer of intergenerational wealth from the silent generation to the millennial and Gen X across the US and Europe, meaning over $95T in traditional assets will be transferred to much younger and technologically savvy generation.
Bitcoin and other crypto-assets are highly volatile in their current form. This is similar to all past technological innovations such as the industrial revolution era, the steam age, the steel and heavy engineering age, which led to the electrical, chemical and civil era, the age of automobile innovations, and the dot-com boom.
There comes a stage where the is an irrational exuberance leading to a massive influx of capital and an exaggeration of expectations in the short term.
This leads to the formation of a bubble which pops, resulting in a massive loss of capital, expulsion of speculators, high timeframe retail investors (weak hands). This was the case for bitcoin and the crypto-assets market in 2017, the quick rise and likewise fall led to industry skeptics dismissing the usefulness and disruptive potential of the industry. The image below shows different bubbles that have accompanied major technological breakthroughs in human history, after each boom and bust cycle, the innovation became well-grounded, developers and industry leaders build robust systems and networks, and the industry grows to an even greater proportion than the previous boom cycle.
The disruption of the current financial system due to decentralised financial applications such as bitcoin is inevitable. Let’s put things in perspective, the number of bitcoin wallets containing between 0.1btc has grown from 30,000 wallets in 2010 to 3 million as of April 2020. The number of wallets holding at least 1btc now stands at 804,722.
In the crypto fund management space, the industry total AUM (Assets Under Management) has grown from $190M in 2016 to $18.9B in 2019. The number of daily confirmed Bitcoin transactions has grown from less than 100 in 2009 to over 320,000 in 2020. The bitcoin hashrate has had over 970,000,000% increase from 2011 to 2020.
Several surveys were conducted in 2019 in an attempt to quantify the percentage of Bitcoin holders in the US, we will take a look at two here; a survey of 1,262 adults in September 2019 conducted by YouGov discovered that 14.76% purchased at least one crypto-asset and another involving 2,068 adults in October 2019 conducted by Finder found that 14.4% owned at least one crypto-asset. It is a generally accepted belief within the crypto industry that between 7–14% of adult Americans own some amount of crypto-asset.
Bitcoin is often attributed to being complicated and risky due to its high volatility. It is also assumed to have an uncertain regulatory future, these skepticisms are similar to the inception of the internet, TCP/IP, the underlying protocol that powers the internet was initially met with the same skepticisms and attributes such as complicated, difficult to grasp, unregulated.
In 1990, after the creation of the world wide web, an estimated 0.5% of the world population was online. As of Q3 2019, this now stands at 58.8% of the global population, which is 4.3 billion people worldwide. The growth of bitcoin addresses, which contain 0.1btc, 0.5btc, and 1btc is currently tracking the growth of TCP/IP.
Total addresses holding bitcoin have grown by 24.2% over the past year, addresses with 0.01btc are up 18.5%, addresses with 0.1btc up by 14.6%, and addresses with 1btc also up by 11.4% from 2019. In total, the bitcoin network has had close to 25% growth within the last year.
Ultimately, as Bitcoin charges forward, it offers a fertile ground for vertical growth. Bitcoin is in its very early stages of adoption and data shows that a disproportionate percentage of millennials and GenX will be the driving force for new technologies, including bitcoin. This is due to its characteristics as a portable non-sovereign programmable liquid fungible property with absolute scarcity.
Investors must have the financial ability, sophistication and experience to bear the risk of an investment. This article is intended for those with an in-depth understanding of the high-risk nature of investments. This article is not to be considered as investment advice and tax advice. Talk to your accountant and your investment advisor. Do your research before making any investment decision.