Quote from: Numberless on November 18, 2013, 05:35:56 AM

Quote from: freebird on November 18, 2013, 12:07:52 AM

Hello all,

As I've been enjoying the recent rally, I've been trying to think about the big picture to keep from getting an itchy sell finger.

I think there are four phases of growth of bitcoin, from its creation to mass adoption. Here they are and the price ranges for each.

Phase 1. Libertarian Utopians and Techno-Geeks.
Price range: 0 to $250.
Explanation: These are the very early adopters, mostly comprised of two types of people (somewhat overlapping): idealistic folks who believe in the cryptocurrency movement as a way to reduce the power of government and the corrupt banking establishment, and software/web developers and others who are way ahead of the curve on studying and adopting revolutionary new technologies.
Timeline: This phase ended in the spring/summer of 2013.

Phase 2. Hedge Funds and Accredited Investors
Price range: $250 to $2,000.
Explanation: Starting in fall 2013, when bitcoin was in the $100s and $200s, the Bitcoin Investment Trust launched on Second Market, enabling high-net-worth investors to invest in bitcoin more easily and with less risk, through a credible fund. We can expect this kind of investment to keep increasing as more smart money flows in and bitcoin goes up in value over the next several months. Meanwhile, wealthy people in other countries, especially China, are also getting in, since they don't have as many investment opportunities there compared to Americans. This will sustain the momentum. There could be big corrections during this phase, but probably not any huge crashes anymore like what we saw in 2011 and early 2013 -- unless the government steps in and tries to over-regulate bitcoin or some major countries ban it. However, expect there to be at least some increase in government regulation as the big money players will want this because it would be bullish for their investment (i.e. making a safer environment for bitcoin to become part of the mainstream financial landscape). Some of the uber-libertarian types may take their profits and get out in this phase, as they discover that bitcoin is not going to be a way to overthrow the government, but instead that making money will take precedence over ideological motives for most people involved in bitcoin from this stage onward.
Timeline: This phase began in mid to late 2013 and will continue until the first bitcoin ETF is launched on the mainstream stock market, perhaps sometime before the end of 2014.

Phase 3. Ordinary Investors
Price range: $2,000 to $10,000.
Explanation: When the first bitcoin ETF is approved and available for trading on the New York Stock Exchange or Nasdaq -- most likely the Winklevoss Bitcoin Trust -- that will be like bitcoin's IPO. It will enable the average person to feel comfortable buying bitcoin in a way they are familiar with, i.e. through their mainstream online brokerage account, and they will be able to use their 401(k) funds to do so. This will open up a huge amount of new capital to flow into bitcoin, driving up the price by several more times in only one or two years. Bitcoin will be marketed to ordinary investors as "the new gold," a "digital gold" which is a better store of value than the traditional metal, and it will likely capture an ever-increasing market share of investors looking for an alternative to gold, for a few percent of their portfolio. It's quite likely that at some point in this phase we'll switch to using mBTC (millibitcoins) as the unit, because this will make it easier for people psychologically to invest smaller amounts of money and will set the stage for more user-friendly and widespread use of bitcoin in commerce.
Timeline: This phase probably starts sometime in 2014 and goes at least a couple of years.

Phase 4. Mass Adoption for Commerce
Price range: Something over $10,000. Who knows how much higher it goes, but eventually it will level off and grow more slowly.
Explanation: Once bitcoin has established itself as a totally mainstream investment and store of value, owned by hundreds of millions of people, and the price growth has slowed down to something less than a "hot tech stock" and more like a steady 10-20% increase per year, then people will start using bitcoin en masse for commercial transactions. Of course at this point the transactions will be in mBTC, since BTC would be extremely cumbersome by then for making normal purchases (people will prefer a unit that is closer to the value of a dollar or a euro, rather than dealing with amounts like 0.0001 to buy a book on Amazon or whatever). I suspect that mass use of bitcoin for commerce won't really materialize until the phases of rapid price gain have ended -- until then, bitcoin will be for hoarding, as a premier store-of-value asset. But eventually the point of saturation will be reached and people will feel like the era of massive gains are over and they'll feel more comfortable actually spending bitcoin.
Timeline: This phase will probably start anywhere from 2015 to 2018, depending on many factors -- and assuming that everything goes according to the outline above in the previous phases, without any major bumps in the road.

So, what do you think of this phase-by-phase prediction?

This captures my thoughts almost exactly; I just never got the chance to type it all out. I'm sure the people currently pouring money into the exchanges right now expect a similar timeline to play out. When I first bought in I always felt as though phase 2 was many years away instead of 500 or so days, and that phase 4 was at least a decade out. Your timeline compresses the timeline that was originally in my head by half, which I'm liking a lot lol. Anyways thanks for the post!

Glad you liked it! I wanted to write this up so that I can come back to it every once in a while when I get tempted to sell, to remind myself to keep seeing the big picture and realistic long-term potential.

I've found that if something is a really good investment, most of the price growth tends to come more quickly than most people expect. That's why I think 2013 through 2015 are likely to be the years when most of the profit potential of bitcoin as a high-ROI investment will be realized. I got in at an average price of about $120 in April and May, and I'm amazed at how much the price has already gone up since then, but when I look at the facts objectively, I realize that it actually makes perfect sense. When I bought, I had to take wads of cash to Wal-Mart to send MoneyGrams to BitInstant. How many ordinary people would be willing to do that? Very few. And that's why the price was low, since very few people were willing to take the crazy type of risks to actually buy some bitcoins. Now, only a few months later, people can buy bitcoin through a Silicon Valley VC-backed multimillion-dollar company (Coinbase) using bank transfers. And there are already hedge funds and trusts for groups of very wealthy people investing in bitcoin. No wonder the price has gone up 5x since I bought. Similarly, it should not come as a surprise when one year from now, the price has gone up another 5x, because by then, any hedge fund worth its salt will have at least a couple percent of its assets in bitcoin. Looking back, the rise will be breathtaking, and much faster than expected, and many people will sell too soon along the way, because they will erroneously conclude "it can't possibly be going up this fast, I'd better get out now!"

I think the one thing that could really slow down my timeline is if the ETF approval is delayed. But, at most, maybe that could add one or two more years in Phase 2 before we reach Phase 3 (assuming the government eventually approves some bitcoin ETF).

Of course, the thing that could derail the whole thing is if a major government, especially the U.S., decides to impose extremely crippling regulations on bitcoin. But I'm guessing that's unlikely, because enough rich and powerful people have already decided to buy in, so the government will not screw them over. In the U.S., the rich reign. If they want bitcoin to succeed, then they'll make sure it will, and they'll just buy off ("lobby") the politicians to make sure it doesn't get stopped. The train has left the station, and we're on it! Grin