1/ While there are no a priori rules for the path a monetary good will take as it is monetized, a curious pattern has emerged during the relatively brief history of Bitcoin's monetization.
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2/ Bitcoin's price appears to follow a fractal pattern of increasing magnitude, where each iteration of the fractal matches the classic shape of a Gartner hype cycle
3/ In his article Speculative Bitcoin Adoption/Price Theory, Michael Casey posits that the expanding Gartner hype cycles represent phases of a standard S-curve of adoption that was followed by many transformative technologies as they become commonly used in society
4/ Each Gartner hype cycle begins with a burst of enthusiasm for the new technology, and the price is bid up by the market participants who are "reachable" in that iteration.
5/ The earliest buyers in a Gartner hype cycle typically have a strong conviction about the transformative nature of the technology they are investing in.
6/ Eventually, the market reaches a climax of enthusiasm as the supply of new participants who can be reached in the cycle is exhausted, and the buying becomes dominated by speculators more interested in quick profits than the underlying technology.
7/ Following the peak of the hype cycle, prices rapidly drop, and speculative fervor is replaced by despair, public derision, and a sense that the technology was not transformative at all.
8/ Eventually the price bottoms and forms a plateau where the original investors who had strong conviction are joined by a new cohort who were able to withstand the pain of the crash and who appreciated the importance of the technology.
9/ The plateau persists for a prolonged period and forms, as Casey calls it, a "stable, boring low." During the plateau, public interest in the technology will dwindle, but it will continue to be developed, and the collection of strong believers will slowly grow.
10/ A new base is then set for the next iteration of the hype cycle as external observers recognize the technology is not going away and that investing in it may not be as risky as it seemed during the crash phase of the cycle.
11/ The next iteration of the hype cycle will bring in a much larger set of adopters and be far greater in magnitude.
12/ Very few people participating in an iteration of a Gartner hype cycle will correctly anticipate how high prices will go in that cycle. Prices usually reach levels that would seem absurd to most investors at the earliest stages of the cycle.
13/ When the cycle ends, a popular cause is typically attributed to the crash by the media. While the stated cause, such as an exchange failure, may be a precipitating event, it is not the fundamental reason for the cycle to end.
14/ Gartner hype cycles end because of an exhaustion of market participants reachable in the cycle.
15/ It is telling that gold followed the classic pattern of a Gartner hype cycle from the late 1970s to the early 2000s. One might speculate that the hype cycle is a social dynamic inherent to the process of monetization.
16/ This thread is an excerpt from my new book The Bullish Case for Bitcoin, which is now available on Kickstarter (the beautiful artwork by @bitcoinultras in the book is also available for sale as prints for your home):
kickstarter.com
kickstarter.com
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