All of the talk around Bitcoin and cryptocurrency revolves around trying to make money. It’s easy to forget how Bitcoin and cryptocurrency have fundamentally changed the world and how we view and exchange money.
Before cryptocurrency took hold, the vast majority of us could never even conceive of a non-commodity backed currency as a major store of value. Bitcoin and cryptocurrency were shrouded in the Silk Road times and have (and continue to be) viewed as just an investment vehicle rather than a transformation in the way money works. In the last 30 years we have seen technological advancements by way of computers and the internet that have fundamentally accelerated how we exchange information and develop technology. We’ve seen since the late 2000s the beginning of a seismic shift in the way money works as a technology, rather than a currency. But – time and time again the news, the internet, and people in general seem to miss the point about Bitcoin in particular – we are watching the monetization of an entirely new concept right before our eyes. Let me explain.
The above image is called a Gartner Hype Cycle. These cycles demonstrate how a technology behaves as it matures. There are five aspects of it (Credit Gartner):
- Innovation Trigger: A potential technology breakthrough kicks things off. Early proof-of-concept stories and media interest trigger significant publicity. Often no usable products exist and commercial viability is unproven.
- Peak of Inflated Expectations: Early publicity produces a number of success stories — often accompanied by scores of failures. Some companies take action; many do not.
- Trough of Disillusionment: Interest wanes as experiments and implementations fail to deliver. Producers of the technology shake out or fail. Investments continue only if the surviving providers improve their products to the satisfaction of early adopters.
- Slope of Enlightenment: More instances of how the technology can benefit the enterprise start to crystallize and become more widely understood. Second- and third-generation products appear from technology providers. More enterprises fund pilots; conservative companies remain cautious.
- Plateau of Productivity: Mainstream adoption starts to take off. Criteria for assessing provider viability are more clearly defined. The technology’s broad market applicability and relevance are clearly paying off.
As you can see, it isn’t just a “chart” or advanced concept. The adoption of nearly every major everyday technological development has followed numerous hype cycles in the manner, as stated by Michael Casey in The Speculative Bitcoin Adoption/Price Theory.
It’s not one cycle – it’s many iterations of this. The earliest buyers in a hype cycles are the true HODLers. As Vijay Boypati states:
“Each Gartner hype cycle begins with a burst of enthusiasm for the new technology, and the price is bid up by the market participants who are “reachable” in that iteration. The earliest buyers in a Gartner hype cycle typically have a strong conviction about the transformative nature of the technology they are investing in. Eventually the market reaches a crescendo of enthusiasm as the supply of new participants who can be reached in the cycle is exhausted and the buying becomes dominated by speculators more interested in quick profits than the underlying technology.
Following the peak of the hype cycle, prices rapidly drop and the speculative fervor is replaced by despair, public derision and a sense that the technology was not transformative at all. Eventually the price bottoms and forms a plateau where the original investors who had strong conviction are joined by a new cohort who were able to withstand the pain of the crash and who appreciated the importance of the technology.
The plateau persists for a prolonged period of time and forms, as Casey calls it, a “stable, boring low”. During the plateau, public interest in the technology will dwindle but it will continue to be developed and the collection of strong believers will slowly grow. A new base is then set for the next iteration of the hype cycle as external observers recognize the technology is not going away and that investing in it may not be as risky as it seemed during the crash phase of the cycle. The next iteration of the hype cycle will bring in a much larger set of adopters and be far greater in magnitude.”
The most important part of this is that almost no one is correct in guessing or speculative the price peaks during a hype cycle. Each time a hype cycle takes hold the prices reach values that were never thought to be possible. When the cycle ends, the media and internet sleuths find something to correlate it with (or blame) for the crash that follows. These cycles happen because everyone reachable during that cycle was reached.Think about that last statement.
The first cycle (2009-2011) of Bitcoin was just “computer hacker” type people – cryptographers, scientists and the like. The second cycle (2011) was ripe with early adopters (many of whom became the Bitcoin Millionaires we know today). The third cycle (circa 2013) saw early retail and institutional investors get in. By the time the fourth cycle started (2016-2018) most investors could easily buy Bitcoin on exchanges.
The fifth cycle happened earlier this year with the boom of social visibility and increased institutional participation. We are currently in the plateau. Look at the news – the developments across crypto are staggering.
The final Gartner hype cycle will begin when nation-states (as stated by Vijay Boyapati) start accumulating Bitcoin as part of their reserves. Bitcoin has become liquid enough (thanks, Tesla) for most states to enter the market. Once this happens we will see world leading countries accrue it (as it becomes a global currency). But – lest we forget – there aren’t that many Bitcoins left to go around.
It is inarguable that Bitcoin still moves the market. What happens to Bitcoin happens to the rest of the market. We are in the Early majority currently, and as we are preparing for a simultaneous shortage of Bitcoin during the next major hype cycle, I’ll be sitting here rolling in all my coins. I’m the Master of Coin for a reason.
