April 15, 2024 [crocon media – msc] In the ever-evolving landscape of digital currencies, Bitcoin stands out not only as a pioneer but also as a beacon of how modern financial ecosystems can mirror traditional economic theories. In this article, we delve into the intriguing parallels between Dietrich Gottwald’s “Allocation of exhaustible resources in oligopolistic markets: A dynamic game approach” and the mechanisms governing Bitcoin’s market dynamics. By drawing on Gottwald’s insights into the management of exhaustible resources, we aim to shed light on the underlying principles that drive the valuation and allocation of Bitcoin. From its capped supply influencing market value to the impact of technological innovations and market forces on its trading dynamics, Bitcoin exemplifies many aspects of Gottwald’s theoretical framework. This exploration not only enhances our understanding of Bitcoin’s current state but also offers a predictive glance at its future trajectory in the financial world.
Application to Bitcoin
1. Exhaustibility: Bitcoin is an exhaustible resource, as the maximum number of Bitcoins available is capped at 21 million. Similar to physical exhaustible resources that Gottwald considers, this limitation influences the value and allocation strategy of Bitcoins.
2. Time Preference and Discounting: Investors who hold or mine Bitcoin must decide when to sell to maximize utility. Gottwald’s theory emphasizes the importance of time preference, which is the valuation of future returns versus present returns. In the Bitcoin world, this means weighing potential future price increases against the immediate proceeds from selling.
3. Technological Change and Substitute Technologies: The development of new blockchain technologies or more efficient mining techniques can affect the value and use of Bitcoin. According to Gottwald’s theory, such technological advancements would influence the economic decisions of miners and holders by altering the cost-benefit analysis.
4. Market Mechanisms and Price Adjustments: According to Gottwald, market mechanisms lead to the efficient allocation and use of exhaustible resources through price adjustments. In Bitcoin, changes in supply and demand, geopolitical uncertainties, and regulatory developments cause price fluctuations that impact investors and users.
5. Future Expectations and Uncertainties: The dynamic theory also considers the role of expectations and uncertainties about the future. In the context of Bitcoin, this means that expectations about future regulations, technological advancements, and market dynamics are crucial.
Gottwald’s theory provides a framework for understanding how Bitcoin, as a limited resource, is managed and utilized. Principles of time preference, technological progress, and market mechanisms are critical for decision-making within the Bitcoin community. This theoretical perspective helps to comprehend the complex dynamics behind the allocation and valuation of Bitcoin, akin to those of traditional exhaustible resources.
To project the hypothetical annual appreciation of Bitcoin over the next 12 years, we consider various scenarios that reflect Bitcoin’s potential in response to technological adoption, market dynamics, halving events, and the growing user base. We start with a base value of $50,000 for Bitcoin, leveraging current estimates.
Assumptions:
- Technological Adoption: Integration of AI, Blockchain, and other crypto-relevant technologies.
- User Base Growth: Following the adoption curve similar to the internet’s early days, where user numbers grow exponentially.
- Halvings: Occurring approximately every four years (2024, 2028, 2032), halving the mining reward and historically leading to price increases due to reduced new Bitcoin supply.
- Market Cycles: Including typical boom-and-bust cycles of the crypto market.
The scenarios consider these variables:
- Bearish: Moderate technology adoption and lower-than-expected growth in user base.
- Conservative: Steady growth in technology and user base without major market disruptions.
- Bullish: Strong acceptance of technology and a significant increase in user numbers, influenced by positive regulatory developments.
- Extremely Bullish: Very strong technology adoption and exponential growth in user numbers, similar to the early adoption phase of the internet.
- Hyper Bullish: An ARK Invest-inspired scenario envisioning extremely high growth rates and breakthroughs in technologies like AI and Blockchain, leading to massive expansion in adoption and exponential price growth.
Hypothetical Appreciation – Table
| Year | Bearish (%) | Conservative (%) | Bullish (%) | Extremely Bullish (%) | Hyper Bullish (%) | Estimated BTC Price (Bearish) | Estimated BTC Price (Conservative) | Estimated BTC Price (Bullish) | Estimated BTC Price (Extremely Bullish) | Estimated BTC Price (Hyper Bullish) |
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | +10% | +20% | +30% | +40% | +50% | $55,000 | $60,000 | $65,000 | $70,000 | $75,000 |
| 2025 | +5% | +15% | +25% | +35% | +45% | $57,750 | $69,000 | $81,250 | $94,500 | $108,750 |
| 2026 | +5% | +10% | +20% | +30% | +40% | $60,638 | $75,900 | $97,500 | $122,850 | $152,250 |
| 2027 | +3% | +8% | +18% | +28% | +38% | $62,457 | $81,972 | $115,050 | $157,248 | $210,105 |
| 2028 | +10% | +20% | +30% | +40% | +50% | $68,703 | $98,367 | $149,565 | $220,147 | $315,158 |
| 2029 | +5% | +15% | +25% | +35% | +45% | $72,138 | $113,122 | $186,956 | $297,198 | $456,979 |
| 2030 | +5% | +10% | +20% | +30% | +40% | $75,745 | $124,434 | $224,348 | $386,358 | $639,771 |
| 2031 | +3% | +8% | +18% | +28% | +38% | $78,017 | $134,389 | $264,731 | $494,538 | $882,864 |
| 2032 | +10% | +20% | +30% | +40% | +50% | $85,819 | $161,267 | $344,150 | $692,353 | $1,324,296 |
| 2033 | +5% | +15% | +25% | +35% | +45% | $90,110 | $185,457 | $430,188 | $934,676 | $1,920,230 |
| 2034 | +5% | +10% | +20% | +30% | +40% | $94,616 | $204,003 | $516,226 | $1,215,079 | $2,688,322 |
| 2035 | +3% | +8% | +18% | +28% | +38% | $97,454 | $220,323 | $608,947 | $1,555,301 | $3,709,885 |
Analysis
In this scenario, the rate of adoption of Bitcoin and related technologies steadily increases, particularly in the “Extremely Bullish” and “Hyper Bullish” models, reflected by higher annual growth percentages. These models consider significant technological penetration and institutional acceptance, aligned with predictions and analyses by ARK Invest.
The major uptick starts from 2028, marked by the halving and intensified technology adoption leading to increased demand and decreased supply. This illustrates the importance of incorporating technological trends and macroeconomic factors into the investment strategy to understand the potential long-term impacts on Bitcoin’s price.
Framework : Allocation of exhaustible resources in oligopolistic markets: A dynamic game approach
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