I’ve always been rather cautious – bearish even – about bitcoin from an investment point of view. I’ve recommended that you educate yourself about the tech, rather than put significant amounts of capital to work.
I think I was right with the call. When I was writing the book, bitcoin was trading above $500, and it was in a bear market, one in which it remained until late last year. The price ended up falling below $200 a coin.
My outlook, however, has changed. It’s in a bull market now. And I think you should buy in.
There were all sorts of factors that informed my caution, but chief among them was a cycle which research company Gartner has dubbed “the hype cycle”. All new technology seems to go through it.
A simple way to explain it is to look at the rise of the internet and the dotcom boom-bust.
There are so many adjectives we could use to describe the advances we’ve seen since the year 2000. Amazing, breathtaking, mind-blowing – take your pick.
In 2000, only about 350 million people were online. Now it’s more like 3.5 billion. Computers were slow, the internet was slow, Google was only a couple of years old. Facebook didn’t exist, nor did 4G, cloud computing or Gmail. Smartphones? Are you kidding me? Some of us still hadn’t got our first Nokia brick.
Those are some massive changes. And yet the Nasdaq – the US tech stock index – is still trading below its 2000 highs.
How is such a thing even possible? Gartner’s hype cycle explains.
There are five phases. First we have the “technology trigger”. Somebody’s come up with some new tech that piques interest among the few. Some seed money and start-up capital comes in to aid research and development, and we get some first-generation products. Think dotcom in the 1990s.
As the media becomes interested, we move into phase two, “the peak of inflated expectations”. More and more people get excited. This tech is amazing/breathtaking/mind-blowing. It could change the way we operate. Speculative and mainstream money comes in. Share prices start going bananas. Think dotcom in 2000.
That leads to phase three – “the trough of disillusionment”. Prices start to fall, and there’s some negative press as the first-generation products don’t quite match expectation. The realisation dawns that less than 5% of the potential audience has fully adopted. Funding becomes more cautious, and some businesses go under. The thing snowballs into a crash as the speculators rush to get their money out.
Then, with bearish sentiment proliferating, we head into phase four – “the slope of enlightenment”. This is the long, hard slog towards mainstream adoption. A lot of the necessary infrastructure has been built thanks to the preceding boom, so that need is covered. Meanwhile, second and third-generation products are launched. Some of them are not so bad. Belts have been tightened and business practices improved. More and more users are slowly coming on board.
Finally, that takes us into phase five – the “plateau of productivity”. That’s where dotcom is now. Companies such as Amazon, Apple and Google are making big money. Half the world’s population – or thereabouts – has at least some internet access. And the internet is doing all those things that people said it would back in 2000. In fact, it’s probably doing even more than that.