In 2016, Zafar Khan, CEO of RPost, wrote a fascinating article concerning Bitcoin’s price movements and its correlation to Gartner’s Hype Cycle. Mr Khan noted that in late 2013, a hype cycle began which quickly materialized into a major bubble, reaching extraordinary heights, before crashing back down. The ‘crash’ however didn’t quite bring Bitcoin back to the same price it had been prior to the hype cycle. In fact, the price generally remained well above what it had been prior to this hype cycle.
This hype cycle had already occurred twice before in Bitcoin’s history, with an almost identical chart pattern each time. The first ‘bubble’ in July 2011 reached $31 USD. Two years later, a second price bubble reached $266 USD. Not too long after, Bitcoin experienced a major price bubble which saw the price reach $1242 USD.
Now we are literally experiencing a fourth bubble. It is important to note that each time each “bubble” has dwarfed the previous in comparison, and this one is looking to be no different. In fact if we follow the ratios of increases against the timeline, this rally could very well see the price reach anything from $4000 to $6,000 USD. But as I have mentioned many times in the past, “correlation does not equal causation”, and when markets are involved, anything can and does happen. This “unknown” factor that crashes markets is referred to as a ‘Black Swan’ event – a phrase made famous by statistician Nicholas Taleb.
But regardless it is interesting to take note of what is actually causing these ever inflating hype cycles. The answer is two pronged. On one hand we have the ever growing popularity of Bitcoin, which is now seeing the involvement of billionaire investors, and on the other hand the drying supply curve of minted coins.
At the first hype bubble the mining reward was at 50 Bitcoins per block. Today the mining reward is only at 12.5 Bitcoins per block. This means that only a quarter of the original minting supply is coming in to today’s eco-system.
The real intriguing point is that Bitcoin continues to grow in the face of much negative publicity, and decreasing payment utility. Transaction fees are at all-time highs, making small payments on the network absolutely non-viable. Instead, Bitcoin’s utility is seeing a major shift, and is being perceived more as a safe store of value, as opposed to a common payment system.
Today, Bitcoin is the most secure, safest store of value among all crypto-currencies. At the time of writing, Bitcoin’s Hashrate stands at a whopping 4,023,560,568 GH/s. It is virtually impossible to attack.
With both increasing popularity and increasing scarcity, Bitcoin’s hype cycles may very well remain a growing, recurring, fact of the system.