Bitcoin's value has been continuously increasing since its public introduction in 2009. Its price skyrocketed from almost $0 to $7200 as of the time of writing. Other cryptocurrencies have also seen similar outcomes. But is this growth rate sustainable and will it continue in the future? To understand the past and future reasons behind the cryptocurrency's price movements, we would have to examine the underlying incentives pushing the demand for this innovative assets.
Extrinsic & Intrinsic Incentives
“With the total amount of coins usually predefined, the price equation is set to find continuously higher equilibrium levels”
The uniqueness of cryptocurrencies relies not only their decentralized concept but also on their limited supply. With the total amount of coins usually predefined, the price equation is set to find continuously higher equilibrium levels. Thus, the more people witness their friends benefit from the constant rise in cryptocurrency prices, the more they will be prone to investing for their own individual reasons.
As a result, the constant inflow of new investors will keep raising the prices. However theoretical, this theory might illustrate well the future outcome of the digital economy, if no external restrictions are imposed.
Explained differently, as the demand for a particular cryptocurrency increases, while the supply remains limited, its price will continue growing until a new equilibrium level is found. As an example, imagine how much someone would be willing to pay for a glass of water knowing that the total amount of water in the world was extremely limited.
In the case of cryptocurrency, this concept could extend to unimaginable levels. The easiness to set up a wallet and acquire cryptocurrency is at an all-time-low, which eliminates unnecessary barriers for the average investor to get hold of their favorite coin. Consequently, it is now entirely possible for anyone to own speculative assets. Plus, who doesn't want to make money? These are all factors contributing to the constant inflow of newcomers to the digital economy. Never has the world witnessed such a big and unrestricted market, and this is a very underestimated aspect of this industry.
“bubbles after bubbles, the ones bigger than the others will persist”
Ultimately, this creates a world-wide and free-for-all market for people to participate in. Additionally, the limited supply of cryptocurrency helps raise the stake as nobody wants to "miss the train". Thus, as long as people are aware that the demand for cryptocurrency will continue increasing, bubbles after bubbles, the ones bigger than the others will persist... until there is a loss of speculative interest.
On the other hand, for a demand, there has to be a necessity. As of today, the necessity for decentralized currencies is existent and prevalent. We have come to live in a time when it is possible to make a million-dollar transfer from Canada to China in a matter of seconds, with almost no fees. A time when we can maintain the true ownership of our monetary belongings. The time of smart-contracts and peer-to-peer systems. The future has come, and it is happening now.
At the rate that technology is evolving, we can remain assured that blockchain and its derivatives will find their place in the economy. Smart cities, the Internet of Things and the inevitable globalization will open the doors wide for cheap and decentralized money transfers. As the global economy grows and benefits from decentralization, the crypto-economy will flourish thanks to the individuals involved in it.