Why I am bullish on Bitcoin
Bitcoin is lousy as a medium-of-exchange (due to its volatility & slow transaction speeds) but great as a store of value.
Bitcoin started out as the world's first virtual currency… and on 7 September 2021, El Salvador became the world’s first country to recognize Bitcoin as legal tender.
In my personal opinion, Bitcoin is lousy as a medium-of-exchange (due to its volatility & slow transaction speeds) but great as a store of value.
What is a store of value?
A store of value is an asset whose value either remains the same or increases over time. Durability or shelf life is an essential characteristic of a store of value. That's why metals like gold work well. You can bury gold in the ground and it will remain intact a few centuries later - unless of course, a meteor crashes into the Earth!
This lack of durability makes perishable stuff like milk or coffee unsuitable as a store of value.
Some of the most popular stores of value are precious metals, real estate, treasury bills, and even art.
Is Bitcoin durable?
This is a tough question to answer. Unlike any other store of value in the world, Bitcoin is totally dependent upon technology. If a major flaw is found and exploited, then Bitcoin will immediately lose its value and would crash to zero.
While blockchain is a robust technology, it has been hacked in the past - on 15 August 2010.
Block 74638 was found to contain a transaction that created 184,467,440,737.09551616 bitcoins. That's more than 184 billion. Yes, you read that right. We all know that the total number of bitcoins that can ever exist is 21 million. But here we suddenly had hundreds of billions of bitcoins!
Two addresses received 92.2 billion bitcoins each, and the miner of the block got an extra 0.01 bitcoin which did not exist before this transaction.
Technically, this is what happened - the code used for checking transactions on the blockchain did not take into account such a large number of bitcoins. Within 5 hours, a soft fork came into effect and changed the consensus rules. Many nodes did not upgrade and continued building on the "bad" blockchain. 53 blocks later, the "good" blockchain overtook the "bad" one.
At which point all nodes accepted the "good" blockchain as the authoritative source of Bitcoin transaction history.
This "bad" transaction does not exist on the blockchain anymore. Neither do the billions of bitcoins created by the hackers. But 0.5 bitcoins that were consumed by the transaction still exist and are indelible proof of bitcoin's hack!
Can another successful hack take place? Of course, it can.
What should Bitcoin be worth?
If Bitcoin becomes globally accepted as a store of value, then in my personal opinion, its total market cap would equal that of gold.
Depending upon your source of information, the market cap of all the gold in the world is between 8 to 10 trillion dollars.
In my personal opinion, the long-term marketcap of Bitcoin would be between US$ 8 to 10 trillion.
Considering a maximum supply of 21 million bitcoins, I think a fair long-term price would be somewhere between US$ 380,000 and US$ 476,000. I expect to see this price by 2030 AD.
This is subject to two critical caveats - the blockchain technology is not "broken" and no meteor crashes into our lovely planet :-)