What does the Future Hold for Bitcoin?

Somehow, the cycle of news about Bitcoin seems to be stuck in a loop. Every time you hear the “latest news” on bitcoin, it seems to follow the same pattern. First comes the hyperbolic reports of a “new” competitor or technology or regulation or the like that could topple the very foundation of Bitcoin. This is generally used to explain a drop in Bitcoin price, which is then generally followed by an increase in the price. Then the news becomes about the volatility, along with a continuation of the discussion about whether Bitcoin is in a bubble or evolving into a new paradigm.

Recently though, the possibility that there might be a good blueprint to explain the present and future of cryptocurrencies has begun to emerge.

Despite all the talk of the new paradigm, Bitcoin and cryptocurrencies seems to be following the process that every new product follows. The new product life cycle begins with conception, requiring high levels of developmental and technical capabilities. This originator will also develop new manufacturing processes and the like, to then bring the product to market. Once on the market, there is then the time period when the market begins to purchase the new product at a sustainable level. As sales increase, production becomes more efficient. Now competition enters the market, developing their own “me too” product, which erodes the originators market share. Competition fights to simplify and improve manufacturing efficiency, prompting a handover to lower cost manufacturers.

This can be overlaid on cryptocurrencies. After a few years of limited interest from the market, the market finally assimilated, showing recognition of cryptocurrencies proposition as a new paradigm in currency transactions. As market values increased, Bitcoin, the ersatz originator, grew significantly. This prompted competition, which swiftly began to emerge. And with further market growth, more and more “competitor” products emerged, culminating in 2017, dubbed the “year of the ICOs” by Bitcoinist’s Allen Scott. Efficiency created a simpler development path, prompting more ICOs than ever before. These new cryptocurrencies have moved the market towards saturation, deflating the value of Bitcoin.

Despite this seeming competition, most of the new ICO’s were not effective in directly competing with Bitcoin in its unique market space. Instead, the most successful ones focused on developing crypto and blockchain solutions to complement or enhance cryptocurrencies like Bitcoin. As a result, Bitcoin’s ongoing viability does not seem likely to be impacted by competition. The short term development of Bitcoin’s lightning network is also expected to improve Bitcoin’s value proposition for everyday consumers, by enabling the sending of “instant and near-zero fee payments” via phones. This should further strengthen Bitcoin’s hold on the market.  

This improved access will likely cause a stronger focus on regulation for cryptocurrencies. The challenge faced by cryptocurrencies will be to address these elements effectively. To date, the inclination of ICO projects to address security concerns and provide transparency has not been strong, particularly as the incentive is to get ICOs to market rather than provide a value service. As this incentive shifts, cryptocurrencies will begin to address this in greater depth.

Bitcoin has been the leader of cryptocurrencies since its inception, with the market share to prove it. With more activity in this space and a bigger market interest in cryptocurrencies, Bitcoin needs to keep delivering the best product on the market. Currently its moat is strong and its short to medium term prospects look good. But it must continue to stay one step ahead to avoid becoming the next in a long line of fallen market leaders.