Cryptocurrencies have a significant difference from other investment instruments. Prices are rising so fast that we cannot represent them on a linear scale. As an example, I would like to give the price chart of Bitcoin in 2013 to today.
Due to the scale problem, the prices before 2017 are shown in a straight line on the chart. However, when we show prices on a logarithmic scale, the picture becomes clearer.
Of course, not only cryptocurrencies are subject to exponential growth. The price of all kinds of financial assets increases exponentially, creating a compound interest effect. The difference of cryptocurrencies is that the speed of exponential growth is quite high. To give an example, the price of Bitcoin is increasing approximately twice on average every year, and this has been the case since the day Bitcoin was released.
There is a more dramatic increase coefficient for Ethereum, but let's continue our explanation based on Bitcoin. We are facing an unprecedented situation in the history of world finance. Despite going through periods of extreme enthusiasm and pessimism, the price of an asset doubles on average every year, and this has been going on for over a decade.
The most important question of the crypto world is how long this upward trend can continue. In addition, we can ask whether the strength of this upward trend will decrease over time. But that would be of secondary importance to our discussion, because even though Bitcoin's value does not double rather than double on average every year, crypto will remain the most attractive investment.
We encounter long-lasting strong exponential increases in microscopic living things in nature. As long as the amount of food in the environment supports their population, their numbers can multiply exponentially. How long can the exponential increase in the market last, since the food of cryptocurrencies is the flow of funds?
Currently, the total market of cryptocurrencies is $2.3 trillion. The estimated size of the world financial system is around 400 trillion dollars. What percentage can cryptocurrencies get from the world financial system? Even with a conservative estimate of 10 percent, it reaches $40 trillion, and we see a long way to go.
Bitcoin is often referred to as digital gold. Currently, the total market cap of Bitcoin is $941 million, while the total market value of gold is $11.5 trillion, according to https://companiesmarketcap.com/. Here, too, there is a difference of about 12 times. Of course, when making this comparison, we need to keep in mind that Bitcoin is stored and transferred more easily.
This is not the first time we have encountered strong exponential increases in the world of technology. Moore's law has been valid for over 50 years in computing technologies. We can also attribute the exponential price development seen in cryptocurrencies to the exponential development in computing technologies. Costs in areas such as processing, memory and data transmission have been falling exponentially over the years.
Distributing data and transactions to hundreds of computers instead of keeping them on one server becomes more feasable as the years progress. As such, the real-life application areas of blockchain technologies are also expanding.
Various analyzes have been put forward over the years regarding the exponential increase in Bitcoin price. One was to buy Bitcoin when it was near the 200-week simple average price and sell when it was well above the 200-week average.
According to the famous stock-to-flow model, the price of Bitcoin was closely related to the amount of Bitcoin produced annually. When Bitcoin inflation receded every 4 years, Bitcoin was entering a strong upward trend.
If we go back to the most important question of the crypto world; I think that the exponential increase in crypto prices will continue in the next five years. Benjamin Cowen, in his evaluations on the Youtube channel Into The Criptoverse, expresses the opinion that the Bitcoin price increase coefficient has been decreasing over the years. Although I do not agree with his view, I recommend you to follow his analysis.
Finally, I would like to make a brief assessment on the impact of Bitcoin price developments on altcoins. We all know that altcoin prices are closely related to Bitcoin price. Unfortunately, many altcoins have regularly lost value against Bitcoin and Ethereum over the years. In times like today, when Bitcoin is in an upward trend, it is possible to make serious profits on alt coins. However, when the weather turns bad, the price drops become quite dramatic.
As a result, cryptocurrencies are likely to remain unique investment vehicles for a longer period of time. As long as there is no bubble in prices similar to the end of 2013 or 2017.
Crypto is so young it is hard to "valuate." BUT, I would suspect that there will come a time, but it won't be for quite a long time, when it stabilizes and becomes like any other asset. A slower growth model. And I actually think that is a good thing.