Bitcoin (CRYPTO: BTC) is many things, but you can never call it boring. The oldest, largest, and most mature cryptocurrency is still finding its sea legs in the market, rolling through roughly equal amounts of good news and bad.
The road ahead is as murky as ever. As I write this, Bitcoin’s market price stands 62% below the all-time high of November 2021. At the same time, Bitcoin has tripled in three years and gained 1,500% in six years. About half the value of the total crypto market comes from Bitcoin alone. So there are plenty of Bitcoin bulls out there, but also lots of bearish investors.
So where is Bitcoin headed in the long run? Let’s consider the best of all possible outcomes, the ultimate bear case, and then find a more realistic middle ground between those extremes.
A Bitcoin bonanza: The best-case scenario
Bitcoin maximalists, like MicroStrategy (NASDAQ: MSTR) chairman Michael Saylor, believe that Bitcoin is the future of money. He expects the price to go up “forever,” with some volatility along the way but a reliably positive trend in the long run. So MicroStrategy has converted most of its cash reserves into Bitcoin and keeps buying more whenever it finds more spare cash to invest. In Saylor’s view, that’s the only reasonable way to manage your company’s cash in the long run.
So what will it take to fulfill Mr. Saylor’s ultra-bullish dreams of massive price gains? Well, let’s imagine a world where absolutely everything works out in Bitcoin’s favor:
- Global adoption: From Starbucks (NASDAQ: SBUX) to Tesla (NASDAQ: TSLA), businesses of all shapes and sizes embrace Bitcoin as a standard payment method. Your morning latte? Bought it with Bitcoin. That new electric car? Yep, Tesla charged me in Bitcoin.
- Government approval: Governments worldwide not only tolerate Bitcoin but actively promote its use, ushering in a new era of supportive regulations and acceptance. Since this is the tip-top ideal outcome, we’d even see most countries adopt Bitcoin as legal tender, like El Salvador did two years ago.
- Technological triumph: Without abandoning its anti-inflationary ideals and fundamental philosophy of effective value storage, Bitcoin’s technology evolves to enable faster, cheaper transactions. Its blockchain becomes as dependable and efficient as any payment processor. This giant step forward would make Bitcoin-powered cash register checkouts work better, too.
- Institutional investment: Wall Street’s titans, from Goldman Sachs to BlackRock, start treating Bitcoin like a regular asset class, adding credibility and boosting demand. Investors of all shapes and sizes adopt this platform to protect and grow their long-lasting wealth.
- DeFi expansion: Given the successes listed above, Bitcoin would clearly become the bedrock of a flourishing DeFi ecosystem.
Now, this hypothetical scenario paints a rosy picture indeed, but remember, it’s the best case. We’ll need a sprinkle of luck and a whole lot of development to get there. But hey, who doesn’t love a good daydream?
A total Bitcoin bust: The worst-case scenario
On the bearish side of the Bitcoin argument, many investors argue that this digital currency — and all digital currencies — are fundamentally worthless. For example, master investor and Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) CEO Warren Buffett has called Bitcoin “rat poison squared.”
Buffett and like-minded critics see zero value in cryptocurrencies, so they expect the Bitcoin token to lose all of its value over time. This could happen in many different ways:
- Global ban: Governments worldwide unite against Bitcoin, effectively reducing its value to $0.00. The digital coin isn’t worth anything if nobody can use, trade, or own it.
- Unplanned obsolescence: A new digital currency could emerge with superior technology, rendering Bitcoin obsolete overnight. The superior solution could bring tighter security, faster transactions, stronger privacy protections, or even lower energy consumption — or maybe all of the above. Ouch!
- Catastrophic technical flaw: A major flaw could be discovered in Bitcoin’s underlying technology, undermining the entire network’s security. For example, the transaction system may turn out to be vulnerable to attacks by quantum computers. Whether anyone actually exploits the newfound security hole, the mere existence of it would make investors, consumers, governments, and businesses lose trust in Bitcoin. A sharp price drop won’t be far behind.
- Environmental impact: If Bitcoin’s energy consumption continues to rise, it could draw more criticism and potential regulatory restrictions due to environmental concerns. If the complaints grow loud enough, Bitcoin could lose plenty of market trust and value this way.
Remember, this scenario is as relentlessly pessimistic as the best-of-all-worlds discussion was shamelessly optimistic. The chances of these doom-and-gloom factors materializing are just as slim as all the pieces falling into place perfectly for a Bitcoin utopia. You should always pay attention to the potential risks of any investment, especially one as volatile and unpredictable as Bitcoin.
But the sky isn’t falling on Bitcoin yet. So, with the most extreme possibilities out of the way, let’s explore the more likely middle-ground for Bitcoin’s future.
The middle road: The most realistic way forward
The extremely Utopian and dystopian reviews above are interesting thought experiments, not firm forecasts. In reality, Bitcoin and other cryptocurrencies will surely see both good and bad news over the next few years. Digital currencies seem ready to reshape the financial markets on a global scale, but the road ahead looks rocky and packed with unexpected twists.
So here’s what I see as a more realistic outlook for Bitcoin:
- Regulatory uncertainty: Governments worldwide are likely to continue grappling with how to regulate cryptocurrencies. Some will embrace Bitcoin and similar technologies, while others continue to impose restrictions. This tug-of-war may lead to periods of extreme volatility as the market reacts to regulatory news.
- Gradual adoption: More businesses and consumers will probably start using Bitcoin and other cryptocurrencies, but the pace of adoption will likely be gradual. Some companies might resist due to volatility risks, transaction costs, and regulatory concerns. Nevertheless, the trend toward greater acceptance seems inexorable.
- Competition from other cryptocurrencies: Bitcoin will likely face stiff competition from other cryptocurrencies. Some will offer faster transaction speeds, others come with lower fees, and a few should focus on enhanced privacy. While Bitcoin is by far the biggest fish in the crypto pond so far, it’s far from the only one, and its long-term dominance is not guaranteed.
- Technical improvements: The Bitcoin network is likely to see further improvements, but these may be gradual and not without controversy. Remember, changes to the Bitcoin protocol require consensus among miners and node operators, which can be hard to achieve.
For example, will Bitcoin ever move from Proof-of-Work validation to the less power-hungry Proof-of-Stake system, like Ethereum (CRYPTO: ETH) did in recent months? And if so, could Bitcoin still hold on to its lifetime cap of 21 million possible coins? And if not, rival coins might eventually use that foot in the door to topple Bitcoin from the crypto throne.
- Continued volatility: Bitcoin’s price is likely to remain volatile, with significant price swings being the norm rather than the exception. This volatility might decrease as the market matures, but expect roller-coaster rides in the meantime.
In conclusion, while Bitcoin’s future is uncertain, it’s likely to be somewhere between the extremes of becoming the world’s dominant form of money or disappearing entirely.
Many years down the road, cryptocurrencies should become as uncontroversial as stocks, bonds, or savings accounts, with solid and consistent legal and regulatory rulebooks in every country. But that future is a long way away from 2023 and nobody knows exactly what those fully settled directives will look like, or what Bitcoin’s specific role will be.
Understanding Bitcoin and the broader crypto market is a journey, not a destination. Stay informed, keep learning, and make sure to adapt your investment strategy as this exciting new field continues to develop.
For now, Bitcoin and its crypto kin are still high-risk, high-reward investment assets. They may play a part in a diversified portfolio, but only for investors who can stomach their roller-coaster-like ups and downs. I’m cautiously optimistic about Bitcoin’s future as a long-term winner. Just tread lightly in the cryptocurrency field, keep an eye out for bear traps, and manage most of your nest egg in more traditional forms such as stocks, cash, or index funds.
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Anders Bylund has positions in Bitcoin, Ethereum, and Tesla. The Motley Fool has positions in and recommends Berkshire Hathaway, Bitcoin, Ethereum, Goldman Sachs Group, Starbucks, and Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
