We did a 10-year BTC Price Analysis, Here's What We Found
In this Bitcoin (BTC) price analysis, we will see how Bitcoin transformed into one of the most popular assets; uncover the top factors that influence BTC prices; and try to understand how you can build wealth by investing in BTC today.
Table of Content
- Why Historical BTC Price Analysis?
- Timeline of Key Events and Price Movements
- Top Factors for the Rise or Fall in BTC Price
- Can You Build Wealth by Investing in Bitcoin Today?
Why Historical BTC Price Analysis?
Looking at BTC price charts is like peering into a murky crystal ball. You can find any pattern you can imagine. Many folks use technical analysis to predict BTC prices. But crypto price movements cannot be explained by math. If formulas could predict BTC prices, every mathematician would have been a millionaire. So is there no way to know what will happen?
Historical analysis can help us understand the impact of an event. We cannot predict the price but estimate the likelihood of the price direction. It can give clues to the opportunities to invest for the best possible returns. Learning history can also help separate information that's worthy of attention from the pile of hypes.
History does not repeat itself, but it rhymes.
~ Mark Twain
The past is open to a variety of interpretations. So we will try to present our version without cherry-picking data to prove our biases. However, this analysis is a mix of our economic expertise and opinions.
Timeline of Key Events and Price Movements
2009-2011: Worthless yet popular
After launching in 2009, only nerdy crypto enthusiasts tinkered around with Bitcoin. The wider interest in Bitcoin picked up from 2010. The two key developments that sowed the seeds of Bitcoin’s growth were: Firstly, the release of software that allowed the general public to use GPUs for mining Bitcoins. And secondly, the emergence of Bitcoin exchanges like Mt.Gox that allowed users to exchange BTC and USD.
Early miners and exchanges were pivotal to Bitcoin’s success as a currency. They helped build the launchpad that would skyrocket BTC.
In May 2010, a guy paid 10,000 BTC for two large pizzas. The news shot up the BTC price for a while. But it had a greater significance in the coming decade. This incident, along with many others, regularly made the headlines, reinforcing a notion of lost opportunity. And perhaps it put fear in the minds of those who wanted to sell their Bitcoins.
The Times Jan/03/2009 Chancellor on brink of second bailout for banks.
~ Satoshi Nakamoto writes on the the first Bitcoin block
With low trust in traditional banks and computing advancements, it was the perfect opportunity for cryptocurrencies. Bitcoin could seize this opportunity. Once deemed worthless, it would continue to grow for more than a decade and position itself as competition to traditional asset giants.
2012-2015: Worth about an ounce of gold
BTC crossed the $1000 mark in December 2013. And at one point, 1 BTC was about the same price as an ounce of gold. But more importantly, this period saw a gradual transition of BTC towards becoming money.
By 2014, Bitcoin growth was primarily fueled by payment solutions, acceptance, exchanges, and pop-cultural references.
Bitcoin payment gateways like Coinbase and BitPay partnered with merchants to accept BTC as a form of payments. Popular services like WordPress, Xbox, and OkCupid started accepting Bitcoins. Baidu, the largest search engine in China, accepted Bitcoins for a short while before being banned by the Chinese government. Top consulting firms, news agencies, and techies, put their thoughts on Bitcoin as an alternative to fiat money.
Despite the boom and slow down, we think 2012 - 2015 were critical years. The Mt.Gox failure, thefts, hacks, money laundering scrutinies, criticisms... nothing could permanently damage Bitcoin. It showed how the Bitcoin ecosystem is antifragile — a system’s feature to absorb shocks, failures, and attacks yet bounce back and grow. We keep seeing the antifragile property of Bitcoin in the following years.
Growing acceptance and payment solutions can increase BTC prices in the future. But as we will see, Bitcoin is treated more like an asset rather than a cash system.
2016-2019: Scaringly high and the inevitable dump
In the year 2017, BTC grew as much as 20 times. It was dreadful yet exciting to see BTC cross a crazy high of $18000.
There are several reasons why BTC skyrocketed in 2017. The announcements of Bitcoin Futures Contracts on exchanges run by Cboe Global Markets (CBOE) and CME Group (CME) were pivotal. But the immediate thrust came from Initial Coin Offerings (ICOs).
ICOs lured many investors in hopes of making a quick buck. There were about 800 ICOs in 2017 raising about $20 billion. While some ICOs funded genuine startups, many seemed like pump-and-dump schemes.
We speculate that a lot of those ICO profits were diverted into Bitcoin investments. And later towards the year-end, many investors cashed in, crashing BTC price. Ultimately, the crash didn’t last forever. But it took Bitcoin about 2 years to rise above the 2017 peak.
2020-2021: Reaching new heights, again
A growing number of institutional investors, due to the pandemic-led low economic performance, started diversifying their portfolios using BTC. We think it was the super bullish hype that followed this news which shot up BTC to over $60,000.
Will the BTC price slow down for a few years as it did after the 2014 and 2017 crashes? Or will it grow to reach another high towards the end of this year? It mostly depends on how institutional investors invest in BTC.
Top Factors for the Rise or Fall in BTC Price
We will only look at crucial factors both that have been and might affect the BTC price. We will ignore anything that brings intraday or short-term volatility to BTC. So here are the ones that matter to BTC price in the long run:
Institutional Investments 📈
Several institutions, including publicly traded companies, trusts, and a few governments, have investments in BTC. These institutions hodl a combined of more than an estimated 8% of available Bitcoins. Goldman Sachs is planning to offer crypto financial services for investments in Bitcoin and other cryptocurrencies.
Institutions are investing in cryptocurrencies mainly to diversify. Cryptocurrencies seem to be unaffected by what happens in traditional markets. Crypto prices move differently than gold, stock markets, and so on. So it makes sense to diversify in assets that are disconnected from their traditional investments. If institutional investors see long-term rewards, a lot of investments can flow into BTC.
Payments Acceptance 💵
A rush of payment acceptance drove its price up in 2013. In 2021, Tesla’s announcements rallied BTC's price for a while and eventually pushed it down. While Bitcoin’s acceptance as payments adds more utility as money, the price increase also makes it a lucrative asset to hodl rather than spend. It is an interesting mix of assets and money. So we explored a few hypothetical questions:
- If BTC won’t be used as money, can it survive being purely an asset? No one knows. But governments would try to ban Bitcoin if it becomes a purely speculative asset.
- Does it matter if BTC is mostly an asset? Probably not. It is the present status of Bitcoin and is most likely to remain that way.
- Can BTC become less volatile in the future and help increase payment acceptance? Almost zero chances. BTC has a 24/7 trading opportunity with no regulations or circuit breakers.
Bitcoin has the potential to be the global currency. It was meant to be a peer-to-peer cash system, free from any central authority; and it does make international transfers quite convenient. Currently, you can use Bitcoin to buy a few digital services and goods. Large payments companies like PayPal and Square are bullish on BTC payments. However, we don't know if BTC will be used for everyday payments. Because of a history of price appreciation and high volatility, mass acceptance of everyday payments looks too difficult to happen. Would you pay some BTC for two large pizzas?
Perhaps BTC can find more use for purchasing other assets like real estate, fine art, supercars, luxury yachts, altcoins, and maybe company stocks. Such payments can give BTC enough utility as money and keep the price moving up. But these are just our thoughts.
Bitcoin’s transaction rates are slower than traditional payment technologies like Visa and Mastercard. Yet Bitcoin has a larger market cap than that of Visa and Mastercard combined.
Bitcoin Cash (BCH), a hard fork of Bitcoin, is roughly 15 times faster than Bitcoin. Yet BTC is 40-60 times the price of BCH.
So does Bitcoin’s scalability matter? It doesn’t seem to affect the price. But it could matter in the future. Presently, Layer 2 protocols like Lightning Network aim to solve the scaling issues. It promises to deliver speeds of up to 1 million transactions per second! Albeit Layer 2 solutions are still a nascent technology and only a few organizations are using them. Even if widely adopted for payments, scaling achieved with Layer 2 solutions will do little to increase BTC price.
Competition from Altcoins 👊
Despite speculations that a few altcoins will take over Bitcoin, there’s just no way of saying what will happen. Sure, some altcoin investments can help balance the portfolio. However, for major events, all cryptocurrencies eventually follow a similar price direction as Bitcoin. So the volatility of all your cryptocurrency investments can tank at the same speed they went up. A crazy high growth rate of an altcoin, in a bearish market, can vanish within a few hours.
Ether (ETH) is a good alternative investment to Bitcoin. The Ethereum network has a better developer network, NFTs, and DeFi with billions of dollars in investments. That said, Bitcoin is still more popular than Ethereum or any other altcoin. Maybe the “network of belief” matters much more than technical progress in the crypto world.
We like to think that Bitcoin is a gateway crypto investment to the rest of the cryptocurrencies. So we doubt that BTC is neglected in favor of ETH or any other altcoins.
Stricter Government Regulations 🏛️
Governments can have a negative outlook or carefully observe cryptocurrencies. They cannot ban or stop people from hodling Bitcoins. However, they can block institutional investments and crackdown on mining operations. But why would governments take such drastic steps? Here are a few possible scenarios of stricter regulations: increasing cases of ransomware, money laundering, and tax evasion.
Reduced Energy Consumption 🌱
Bitcoin’s carbon emission has been in the news. It is often used to see how green Bitcoin is compared to other investments. Environmental friendliness. Though it does not look like an important factor for BTC price today, it can be a big concern in the future, especially for institutional investments.
Bitcoin currently consumes around 110 Terawatt Hours per year. That’s 0.55% of global electricity production. If you compare with producing gold jewelry or brick-and-mortar banking operations, Bitcoin still consumes far less energy. However, when compared to Visa: One Bitcoin transaction consumes around 8 times more energy than 100,000 Visa transactions. Sure Bitcoin is decentralized and extremely difficult to hack which makes it technically valuable. Except, Bitcoin is yet to prove that it is a valuable and sustainable technology for society.
Note that energy consumption is not equal to carbon emissions. Because calculating carbon emissions for Bitcoin mining is quite complicated, we can use energy consumption as a proxy measure to estimate Bitcoin’s carbon emissions.
If there’s enough commitment and consensus among the Bitcoin community, greener mining is a possibility. An eco-friendly Bitcoin would not only take away the guilt from trading Bitcoins but also promote more investments.
Can You Build Wealth by Investing in Bitcoin Today?
Sorry, we do not have a clear Yes or No answer. But we will show some basic math on building wealth by investing in Bitcoin.
Since we can’t define what wealth is for you, we will consider the standard measure of wealth for all — a Lamborghini.
Say you want to buy the most affordable Lamborghini in the US, which will cost you around $200,000. Using this yardstick of wealth, here are a few possible options for investing:
- Invest $200 and wait for a 1000 times returns
- Invest $2000 and wait for 100 times returns
- Invest $20,000 and wait for 10 times returns
This example is only to show what you can expect for your Bitcoin investments. We think the first two options are unlikely to generate wealth. The third option—even with some possibility—is too risky for most. All these options would work out only if you know the right time to buy low and sell high.
Does that mean you will never get rich investing in Bitcoin? Should you stop dreaming about Lamborghinis?
Well, there’s another option: make low-risk recurring investments in Bitcoin for a decade. This approach is known as Dollar Cost Averaging. Instead of a lump sum investment, it calls for regularly investing small amounts over a long period no matter how the price moves.
It is amazing how Bitcoin transitioned from a hobby to an alternative store of wealth. As we saw in our historical BTC price analysis:
- From 2012 we consistently see Bitcoin being antifragile
- By end of 2017 Bitcoin was more like an asset rather than a P2P cash system
- In 2020 we saw a greater use of BTC for asset diversification
- Institutional investments are most likely to drive BTC prices higher in the future
- We observed that asset qualities are important to BTC price than increase in payments acceptance or scalability
- There’s no certain way to say how altcoins, strict government regulations, and eco-friendliness will affect BTC price
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