If my $1,000 doubled yearly, how many dollars would I have in 10 years? It is easy to guess that it will be pretty high. $512,000 to be exact. Those who bought $1000 worth of Bitcoin in 2013 had more than this amount ten years later. Of course, if they were patient for ten years.
The rate of increase in Bitcoin price has been decreasing over the years. The increase rate of the total value of the crypto market does not change. This situation occurs due to the decrease in Bitcoin's share of the total. During the bear market of 2019, Bitcoin's share of the total rose to 70%. In the bear market that we have reached the end of, Bitcoin's share increased to 53%. Even if the 53% level is not the peak, the long-term trend will not change. It is difficult to imagine today, but in the second year of the bull market, Bitcoin's share may fall below 25%.
In the chart above, the downward trend of Bitcoin dominance attracts attention. On the other hand, the rise in 2023 breaks the downward trend. However, this year's peak will likely be a lower high, and the trend will continue where it left off.
A study I conducted in 2021 showed that the total value of the crypto market was doubling every year. When I was doing the study, the total value of the crypto market had reached $3 trillion, and things were going well. The new calculation I made today showed that the total value of the crypto market has increased by 90% every year for the last ten years. The logarithmic scale chart below from Coingecko reveals the situation. I added the red trend line to the chart.
It is too good to be true that the value of an asset class increases by an average of 90% every year. Such an event has never been seen before in financial history. Could there be an error in the calculation?
The fact that the crypto market's value has increased rapidly in the past ten years does not guarantee that this trend will continue in the coming years. We know that exponential increases lead to rapid depletion of resources. Is there liquidity in the world that can sustain a 90% annual increase?
Statista estimates the world real estate market will rise to 613 trillion dollars in 2023. If the crypto market's value reaches a tenth of this amount, the 90% upward trend could continue for another five years. Then, we can see that the increase begins to slow down. By the way, I know the differences between bull and bear markets. The increases I mentioned represent the average over many years.
What could cause the crypto market's value to increase by 90% every year? The value created by crypto infrastructures must grow simultaneously to talk about sustainable growth. The pace of technological development is increasing every year. This situation became more evident after 2000. New developing technologies are added to existing ones and create synergy.
In information technology, unit costs are decreasing exponentially. That enables the cost of transactions made on blockchains to decrease exponentially. Thus, as the years progress, relatively small added-value transactions become possible on blockchains. Exponentially decreasing IT costs also supports decentralization because we can increase the number of computers involved in consensus.
We also know that the value of a network grows exponentially with the number of people participating. According to Statista data, crypto users, which were 5 million in 2016, increased to 425 million in 2022. Users whose relationship with crypto consists of buying crypto money on a central exchange should be excluded from the statistics. A study I conducted in 2021 showed that the crypto population was around 100 million at that time. So, there's still a long way to go.
Innovation also plays a vital role in the growth of the crypto market. In the previous bull market, categories such as DEFI, NFTs, GameFi, and metaverse created excitement among investors. There has been no notable innovation in the crypto market this year, but the user experience provided by decentralized applications is improving. Additionally, the crypto community learned a good lesson about financial sustainability.
TL;DR
The chart showing the total market value of cryptocurrencies indicates that the industry's future is bright. The total value of cryptocurrencies increases by an average of 90% annually. We see similar logarithmic increases on Bitcoin's price chart. As Bitcoin's share of the total decreases, its value increase slows down over the years. Such a trend has yet to occur in the total value of cryptocurrencies. If the next bull season is weaker than the previous ones, we can argue that the crypto industry's growth is slowing down.
In an environment where the risk-free interest rate is 5% in developed countries, the total value of the crypto market increased from 1 trillion dollars to 1.5 trillion dollars. This price movement shows that the industry maintains its attractiveness. The fair value of the crypto market is currently around $3 trillion. That means current valuations are half of the long-term average.
It is necessary to be patient for the exponential increases to take effect. Even though the total value is increasing, there are still many coins that are burning brightly. In this context, investing in constantly developing, robust ecosystems is necessary. History will write the rest of the story, and we will read it when it comes. Let's see what the coming years will show us.
Thank you for reading.
Cover Image Source: Midjourney App