During late December, hitting $25.000, Bitcoin officially surpassed VISA in terms of market capitalization, getting to 0.5 $trillion in value.
By Matteo Pecar.
Focus on the bigger picture
Despite the news, the goal is not to keep analyzing the weekly price movement of Bitcoin. The goal would rather be to offer perspective, and try to understand how much value the Bitcoin network has the potential to capture. When discussing Bitcoin, the first step is to study what it is about, how it works, and if and how it can find its place to either improve, complement, or replace the current financial and monetary system.
Comparison of Markets
Reaching Visa is certainly an important milestone; however, a borderless, decentralized network like Bitcoin, which can be seen as an Internet native deflationary currency, can hardly be compared to only one centralized payment system. To what, then?
- Gold – around $10 trillion;
- The amount of USD, the reserve currency, in circulation – $19 trillion according to the FED;
- The amount of all money in the world – estimated in $80 trillion;
- The derivatives market – measured in ($) quadrillions.
Obviously, the latter is out of discussion (and it is just crazy to think that a solid financial system would have such massive exposure on leveraged derivative products). It risks being a mistake to limit its nature to one of the markets above, but it is useful to have a general idea of all dimensions to be able to discuss Bitcoin’s true potential.
There are many possible scenarios: from the extremes where Bitcoin could be outlawed, and have its value drastically depleted; or become a new monetary reference because of its unique characteristics, and meet some of the craziest price predictions. More likely, it is going to be somewhere in the middle. The maximum number of available Bitcoin is already known to be 21 million (in reality, a good 5 to 10% has already been lost due to losing private keys). Divide a market value that is plausible to you by the BTC supply, and you get your first personal raw price prediction.
As always, it depends on one’s understanding of reality. Bitcoin may resonate with some; while being completely off putting to others. In my personal experience, I met many skeptics (I was one of them, and I think that we should always start skeptical and do our own research); nevertheless, I have never met anyone who after spending time trying to understand the mechanics of Bitcoin ever said: “this is worthless”. Attempting to pinpoint its worth is the million $ question, and the truth is that no one can know for sure because Bitcoin is a completely new asset class in full price discovery mode. Only time will tell the answer, but we are free to guess.