For the seasoned crypto investor, it is common knowledge that crypto time progresses far more rapidly than time in the “real world.” Impactful development in the crypto space can take place in three months, which, in other industries, might take three years. Similarly, Bitcoin’s stages come and go at a much more rapid pace than might be expected.
In the brief 12 years that Bitcoin has existed, distinct eras have emerged with their own stories of parabolic price increases and ever-evolving narratives. Billions have come and gone and then come again as the market attempts to meet demand. A major contributor in distinguishing these stages is the programmed halving encoded into the Bitcoin block reward. That and its repeated catalyzation of a subsequent bull run.
By understanding the past stages of Bitcoin, investors can have a better shot at predicting the future.
A Tainted Past
Bitcoin’s earliest days were an exodus of coins leaving the hands of Satoshi and finding homes in the wallets of cypherpunks and cryptographic experts. During this period, early Bitcoin contributors stockpiled their own coins. These “nobodies” became some of the massive whales that we see in the market today. Not much happened between 2009 and 2011, until the explosion of the illegal underground marketplace, the Silk Road. Bitcoin was the currency of choice for this black market platform, allowing users primarily to buy drugs and weapons. This was the first real use case for digital currency, one that has tainted its reputation. Despite largely diminishing over time, this smear continues to plague Bitcoin in a small manner to this day.
The demand for Bitcoin, driven by a first real use case, shot the value up to $31 per coin. This was an astronomical rise considering the coin initially had a value of $0.
In the very beginning, the small network and minimal interest meant that people were giving away coins in the thousands, in an effort to grow the community.
There was even a Bitcoin faucet website in the early days that rewarded users 5 Bitcoin for solving one captcha. Bitcoin’s role in the Silk Road proved it could be used as a currency. Gradually infusing libertarian philosophies into the early narratives.
The Silk Road was shut down in 2013, the same year that Bitcoin’s first halving occurred. This marks the second stage of Bitcoin, which can be defined as adoption from the early Silicon Valley crowd.
The Winklevoss twins learned about Bitcoin back in 2013 and began to connect with other movers and shakers like Charlie Shrem, Erik Voorhees, Chamath Palihapitiya, Roger Ver, Vitalik Buterin, and more. These men were the early investors in Bitcoin. They facilitated its transition from an underground drug currency to an emerging asset on the forefront of a new financial system.
It was at the top of this cycle bubble that Bitcoin underwent some of its toughest tests. Mt. Gox was hacked, which was the platform that handled about 70% of the total Bitcoin transactions. The result was a +50% drop in price. Shortly after, China cracked down on the currency, and the U.S announced the introduction of capital gains taxes for traders.
Through the devastating bear market that hit over the next couple of years, Bitcoin built tremendous resiliency. It wasn’t long before the asset began to attract retail investors for the first time.
The Retail Movement
Before the retail bubble burst in early 2018, a war brewed among the Bitcoin community. Forking the blockchain became a hotly divisive subject separating the community into different camps that remain divided today. With a growing user base, it rapidly became apparent that Bitcoin does not function akin to “cash” as the white paper described it.
Accommodating the influx of retail investors meant forking the code into a scalable version of Bitcoin, one that the majority of the community to this day fundamentally disagrees with. As the war came to an end and Bitcoin underwent its first fork, the retail market was growing in full force, attracting speculators, traders, and investors around the world.
This led up to an epic price pump to $20,000 on some exchanges. It was a combination of greed, misinformation, and late arrival that left primarily the retail market holding their bags for a devastating 3-year bear market. Through this crypto winter, the largest breakthroughs in innovation occurred. DeFi began to pick up steam, exchanges popped up left and right, and overall accessibility to the vast spectrum of digital currencies that appeared only a few years earlier had drastically improved. Many retail bag holders had invested so deep that they were practically already in the rabbit hole, growing the community over the terrible winter that took place until the market finally turned around. And this brings us to today.
The Institutions Are Coming
This is the story being written right now. For years people have talked of a day that institutional adoption would arrive.
Historians will probably look back at MicroStrategy being the company that drew the line in the sand to carry us into the 4th era of Bitcoin. A no-name software company took the largest leap of faith ever recorded in the crypto community, with a $250M Bitcoin purchase to add to their balance sheet.
MicroStrategy CEO Michael Saylor continued to buy more, becoming a thought leader and advocate for the space. He paved the way for other companies to follow suit. Since his purchase, Square, Tesla, MassMutual and others have joined the movement, adding Bitcoin to their balance sheets.
Simultaneously, PayPal, Venmo, and MasterCard all heavily invested in mainstream adoption and Grayscale continues to purchase Bitcoin faster than it can be mined.
We will likely see more than just a handful of large companies write their name on this era in the near future. However, following suit could become a do-or-die decision.
Beyond these companies lies powerful governments and authorities. Bitcoin’s final boss to prove itself as the 21st-century store of value.
This story is largely unwritten but is believed to be a likely one by Bitcoin believers. It seems inevitable that either governments add Bitcoin to their reserves or the currency starts to stutter. Stopping Bitcoin’s progress in the middle of the journey makes less sense than either achieving nation-state adoption or becoming a worthless digital asset. This era lies on the horizon for Bitcoin.