With the recent rise in popularity of cryptocurrencies many investors are now trying to determine how to invest into this new asset class. As bitcoin investment into a new technology there are many factors to consider when assessing their future.
In order to make an informed decision one must look at the origins of the technology as well as the potential applications and limitations in the foreseeable future. This paper aims to evaluate what the price (in USD) of Bitcoin (BTC) and Ether (ETH) will be in the next 5 years using thorough quantitative and qualitative analysis. From this evaluation a decision will be made on an appropriate investment allocation between the two currencies for this crypto-portfolio.
Bitcoin investment is the most widely known and used cryptocurrency in the world. The current market capitalization of just over $10 billion (USD) (Crypto-Currency Market Capitalizations, 2016). Bitcoin was originally developed by Satoshi Nakamoto as a strictly peer-to-peer electronic payment system and a solution to the problem of double-spending (Nakamoto, 2008). It is primarily designed to eliminate the need of financial institutions or ‘trusted third-party’ entities. Bitcoin does this by eliminating the possibility of fraud, increasing efficiencies, and providing objective proof-of-work to guarantee validity and security in any transaction (Nakamoto, 2008).
The use of a public ledger as well as digital signatures allow for a secure and anonymous transaction without the need for trust, as the public network of nodes validates transactions through finding a consensus among a majority of nodes. Thus far, the primary use cases for Bitcoin revolve around increasing efficiencies and eliminating unnecessary time and costs that The Future of Cryptocurrency | An Investor’s Comparison of Bitcoin and Ethereum | Page 6 arrive from using multiple trusted third parties to facilitate transactions (Tapscott, 2016). Bitcoin is highly adoptable in markets that are lacking in traditional financial infrastructure but have access to mobile data, as well as markets with highly inflated currencies that require tools to allow for the mobilization and exchange of currencies (Magee, 2015). Bitcoin’s multiversion concurrency control is unique and allows for safe concurrent transactions without significant delay (Greenspan, 2015).