Bitcoin's price movement has been pretty sideways in the first quarter of 2021. Given the expectations for a $100,000 price target since 2021, such sideway price movements do seem a bit disappointing for some.
Are we expecting this sideway price movements of Bitcoin to eventually set the stage for an explosive price growth soon?
Before we answer that, let's probably explore some fundamentals of Bitcoin.
In an earlier post that I have on Bitcoin, I explained why the long term trend for Bitcoin is bullish and highlighted a few key metrics which we need to observe about Bitcoin to ensure its viability as a digital currency for mass adoption. So far, things have been looking great with the hash rate reaching an all time high a week ago.
An idea that was probably not covered in that blog post was probably the growth of Bitcoin's adoption in terms of active addresses and how closely that was representing internet adoption in the earlier days.
Here's a diagram to show that.
The internet was already released in 1983 but significant adoption didn't happen until the 1990s. In fact, it wasn't even widespread adoption yet at the end of 2000 with only around 6% of the world's population being internet users. Fast forward today, we already have 60% of the world's population online. It took roughly 17 years since the release of the internet to a world adoption rate of 6% but it took just 21 years for this 6% to grow to 60%.
Why are all of these significant? And what does any of it have to do with Bitcoin?
Well, it was estimated that only about 130 million people use Bitcoin sometime last year. It took about 15 years since the release of the internet for the world to see that number of internet users. It only took 12 years for Bitcoin to reach the same number. Hence, there is constant comparison of the internet adoption rate vs Bitcoin adoption and results are now showing that Bitcoin adoption is happening even faster than that of the internet.
So if all things work out, you are now potentially at a point of time in history to witness Bitcoin's adoption just like anyone else in 1997 was at witnessing the adoption of the internet.
And imagining that you can buy a piece of internet then. Wait, hold on a minute. What do you mean by buying a piece of internet? Why is there a price tagged to this adoption rate?
Let me explain it a bit more.
This has a lot to do with Metcalfe's Law. For the uninitiated, Metcalfe's Law infers that the value of a network is proportional to the square of the number of users in the network. It's commonly and successfully used to evaluate the valuation of FAANG stocks. There was exploration to adopt in evaluating the price of Bitcoin. So far, it has been implied that there is likely a significant correlation between the number of Bitcoin's active addresses and the price of Bitcoin, and hence Metcalfe's Law has a certain effect here.
If we look at the graph of the number of Bitcoin's active addresses against time , we could see that the rapid growth of the number of Bitcoin's active addresses in 2017-2018 coincides with the rapid price growth during the period. Between 2019 and 2021, we are seeing a steady growth of the number of Bitcoin's active addresses which again matches the steady growth (unlike the explosive growth in price in 2017) of Bitcoin's price in the past few years.
Going back to the earlier example of the internet's adoption rate, there's a lot to be excited about if Bitcoin's adoption rate continues to surpass that of the internet. If that is to happen, there is a lot more room for the price of Bitcoin to go according to Metcalfe's Law. And it will be safe to assume that we are all still very early in the game.
In my opinion, the sideway price movements of Bitcoin aren't going to last too long and it won't be long before we see an explosive price growth.
Here's some progress made in the Bitcoin space in less than 100 days of 2022
I also do share additional content in my Telegram channel. Do join the channel if you are interested.