Throughout history we can see that all technological innovations follow a S-shaped adoption pattern. Adoption fluctuates due to disruptions such as wars, economic crises, and emergence of competing technological products. However, apart from the effects of these disruption, adoption always follows this S-shaped pattern only with a differens steepness of the curve per technological innovation.
Because this adoption pattern across technological products is always the same, we can use this pattern to predict (forecast) the adoption of Bitcoin. We make this prediction by fitting an S-curve to US crypto adoption data from surveys between 2017-2019.
As can be seen in the Figure above, the forecasted Bitcoin adoption follows the usual S-shaped adoption curve. We see that the best forecasted Bitcoin adoption S-curve is very steep, predicting that more than 70% of the US citizens will own cryptocurrencies such as Bitcoin in 2022. The increase in number of Bitcoin owners will most likely lead to an increase in the price of Bitcoin. Essentiality five times more people are predicted to invest in Bitcoin in 2022 than in 2019. There is hardly newly mined Bitcoins nowadays (flow), meaning that the new Bitcoin owners have to buy previously mined Bitcoins (stock). As an effect, this additional demand with stagnant supply will increase the price as dictated by the Law of Supply and Demand and as predicted by the Stock-to-Flow model.
Checking assumptions
As with any prediction, the prediction of the future adoption of Bitcoin is only as good as the data and the underlying assumptions used. Therefore, let us first discuss the used data and assumptions. The amount of survey data is only for 4 years. The data is based on sufficient survey data is is much more exact than for example forecasting using bitcoin address on the blockchain, however, the data only comprises four data points which means the forecast published here is only a rough estimation. The data we use are two datasets, one based on surveys done among US citizens one containing historical technological adoption data (Data1) and another dataset on cryptocurrency adoption (Data2), meaning that our predictions are most representative for Bitcoin adoption in the US and not for worldwide Bitcoin adoption. The assumptions are based on two things, which will be explained in details below.
Firstly, we assume that all cryptocurrency owners own at least some Bitcoins, which is rather realistic assumption since most cryptocurrency users start by buying bitcoin and only afterwards consider buying other cryptocurrencies. It should be noted though that cryptocurrency adoption varies largely per country which is not something we can consider in our forecast due to the absence of reliable global data on cryptocurrency adoption. This means that the above prediction can be expected to be most realistic for Bitcoin adoption in the US but might vary in other countries. In comparision, in the US 14.4% of the population owned crypto in 2019, on a global scale an estimate of 10% of the population owns crypto. Asuming the adoption rate being the same, this means that the US is slightly ahead in the adoption of Bitcoin as compared to the global average. This difference between adoption in the US and globally is very minor considering the steep adoption rate of Bitcoin.
Secondly, we assume a maximum adoption rate of 100% meaning that every US citizen will eventually own Bitcoins. This is not always the case for other technological products such as the case of E-readers (refer to the Figure above), which has stagnant adoption at around 30%. We performed an additional optimization scanning for the S-curve and found that due to the lower adoption in 2019, the optimum S-curve predicts 18% adoption at the beginning of 2022 and a maximum adoption of only 20%. See Figure below.
Therefore, the assumption of 100% as maximum adoption might be bullish (positive). The assumption however that the maximum adoption would only be 20% is bearish (negative) since deviations from the S-curve are very normal and in this case only a single time point causes the maximum adoption to be estimated to be so low. The only way to gain more certainty will be to repeat this analysis after adoption data from 2020 has become available. Polls show a great decrease in trust in the banking sector and in the stock market while showing a great increase in the trust in Bitcoin since the Corona crisis. As such, the most likely adoption rate will be somewhere between the Bullish scenarion of >70% adoption by 2022, and the bearish scenario of a maximum adoption of 20%.
Factors that influence Bitcoin adoption
Many technological products such as social media, mobile phones, and internet demonstrate an S-curve adoption pattern, characterized by steep initial curve that somewhat slows down once the curve reaches the 40-60% of adoption. A possible explanation could be a part of the US population, specifically elderly people, are less easily convinced or are not able to adopt new technologies. Using similar reasoning, it is possible that some part of the population might be less easily convinced to adopt Bitcoin. For example, it was found out that the Yuppie elite have 100% trust in the existing system and refuse to consider Bitcoin. Find here a link to an interesting article on this subpopulation which refuses to adopt Bitcoin “Why The Yuppie Elite Dismiss Bitcoin — Citadel21”. However, even the foolhardiest Yuppie would still consider buying Bitcoins if everyone around his circle owns Bitcoins. From a technological adoption standpoint, the Yuppie Elite are considered a late adopter. Taking into account this observed slow down in adoption between 40-60% of other technologies, Bitcoin adoption most likely will also follow a similar pattern.
Another distortion factor might be the emergence of competing technologies. It is highly unlikely that another cryptocurrency will out compete Bitcoin as a store of value. However, the emergence of government Central Bank Digital Currencies (CBDC’s) might influence the adoption of Bitcoin. Currently all governments are in race to develop CBDC’s to strengthen trust in the financial system. If implemented correctly, meaning these CBDC’s will have the properties of sound money, government controlled crypto currencies could slowdown adoption of Bitcoin. If implemented incorrectly, CBDC’s could have the opposite effect and could increase the rate of adoption of Bitcoin and other truly decentralised cryptocurrencies. One thing is certain, the coming years will be interesting for Bitcoin and other cryptocurrencies. Our analysis tells us Bitcoin and crypto currencies are here to stay. In a few years it will be hard to imagine a world without cryptocurrencies, just like nowadays it is hard to imagine that there were no tablets and E-reader before 2010 and that we lived our lives without smart phones and social media before 2000.