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Compare Apple with Bitcoin? Cryptocurrency has its own class

July 11, 2020

A recent article by a contributor to Cointelegraph Markets announced that “Bitcoin is the ‘new’ Apple” and explains how the price of Bitcoin (BTC) could reach $ 60,000 by 2023: “Bitcoin remains close the abyss of the adoption curve and its price is similar to that of Apple in 2008 before exploding with a 520% ​​recovery. “

The technology adoption curve referred to was Everett Rogers’ famous “Diffusion of Innovations” model, published in 1962 and describing the five stages through which technology is “diffused”, i.e. H. generalized: innovators, early adopters, early majority, late majority and laggards.

Everett Rogers' diffusion model for innovation

Compare Apple with Bitcoin? Cryptocurrency has its own classCompare Apple with Bitcoin? Cryptocurrency has its own class

In 2008, Apple’s smartphone penetration in the US stopped at around 11% and was still waiting to overcome the “abyss”, the gap between the “early launch” phase and the “early majority” phase in Rogers’ Lexicon. Any worthwhile technical innovation must cross this threshold. Apple’s smartphone naturally bridged this gap: usage exploded and Apple’s share price rose into the ionosphere. Bitcoin could be in a similar place today.

However, this satisfactory comparison raises some questions. Is BTC a technology like radios, PCs and smartphones, or is it something else: unique, sui generis, ie gender and class in itself? Is BTC’s global penetration really close to 11%, the obvious US penetration rate? While the use of smartphones undoubtedly widened the gap more than a decade ago, how will the future price of BTC be extrapolated from AAPL’s stock price? Shouldn’t that be compared to the price of smartphones?

The similarity between Bitcoin and Apple in terms of growth and acceptance is there, but in summary, is it fair to compare Bitcoin to younger versions of technology giants like Apple?

It is not so easy

Arvind Singhal, professor of communication at the University of Texas at El Paso, whose academic research has focused on the diffusion of innovations, told Cointelegraph that Bitcoin seemed really unique: “It has huge obstacles to adoption for most people and works in a multi-currency family room, and this idiosyncrasy would greatly affect their adoption.”

Michel Rauchs, director of Paradigm, a consulting firm specializing in digital assets, and former research partner for the cryptocurrency and blockchain research program at the Cambridge Center for Alternative Finance at the University of Cambridge, said to Cointelegraph: “Bitcoin is not a technology in itself and not a comparison [con tecnologías tradicionales] It is wrong”. He added: “It is a social / economic system,” a new currency system that uses technology to represent its unit of account. “Technology is just a secondary component, a means to an end.”

In addition, separating Bitcoin from the broader blockchain technology in which it is involved or misusing Rogers’ innovation diffusion theory might be important, suggested Theophanis Stratopoulos, PwC Associate Professor-President at the School of Accounting and Finance at die University of Waterloo, the Cointelegraph further explained:

“When decision makers consider whether they want to implement blockchain in their supply chain, for example, they develop expectations about the cost of the investment, such as paying for the software implementation, compared to the benefits of increasing sales or saving costs. It’s the difference in the expectations among decision-makers who explain the adoption cycle observed by Rogers. “

However, Bitcoin does not behave like other technologies that are normally used by companies, such as CRM systems. “When it comes to Bitcoin, it’s the expected price that gets people to invest in Bitcoin.”. It’s a question of speculation, Stratopoulos continued, closer to a pyramid scheme than to investments. “If I believe that more people will want Bitcoin in the future, the price of Bitcoin will increase. In such a case, it makes sense for me to invest today instead of tomorrow.”

A paradox: more users, less efficiency

Oliver von Landsberg-Sadie, CEO and founder of BCB Group, a financial services group for digital assets, agreed that the BTC adoption cycle was abnormal, and told Cointelegraph: “The reason why Bitcoin’s adoption path has broken the formation with established adoption curves is quite technical: in the short term, the more users there are, the less useful it is as a currency.”

With more users, The Bitcoin network “regulates itself by increasing network rates when the group of members is busy in busy times and relaxes in quieter times.”. However, this makes Bitcoin less effective as a payment processing system. As explained by Landsberg-Sadie: “When prices are high, nobody pays a $ 5 transaction fee for $ 5 coffee.”

Many technical solutions have been proposed to solve this dilemma, some in the form of bifurcations, others like the Lightning Network project, which uses a second layer, “but none has really gotten into Bitcoin’s core protocol, which was the slowest to develop “. The good news is that it is evolving and the rise in off-chain transactions is lowering the barriers. However, all of this means that, according to Landsberg-Sadie, Bitcoin cannot be expected to follow a classic Rogers technical adoption curve.

Price volatility in 2008 and 2020

When the penetration of smartphones in the US stagnated around the 11% mark in December 2008, Apple’s share price became volatile: the volatility after three months was 92%., according to the July 6th Cointelegraph article. In June 2020, the three-month volatility with a BTC penetration of 11% was 64%, which is also a very high value.

But Stratopoulos was not impressed. “I wouldn’t compare Bitcoin to the performance of Apple, Amazon, or any other high-tech company. Rogers’ adoption cycle applies to innovation, emerging technology, not stock prices.”. Kevin Dowd, professor of finance and economics at Durham University in the UK, agreed with Cointelegraph and said:

Since BTC is a product form, the natural comparison is made with Apple’s smartphone product. Apple’s stock price could have risen significantly, but the best comparison is with the price of smartphones that didn’t. “

“Finding correlations is relatively easy,” said Stratopoulos, for example, between AAPL in 2008 and BTC in 2020. “It doesn’t mean there is a cause,” or it could simply be an incorrect correlation.

At what stage is bitcoin?

Then what can you say about the introduction of Bitcoin? Judging by the recognition “you have already entered the traditional world”Said Rauch. A survey by Blockchain Capital showed that Bitcoin was 89% known in the U.S. in spring 2019. A recent poll conducted by the UK Financial Conduct Authority in December 2019 found 73% had heard of cryptocurrencies, compared to 58% in 2019.

Regarding BTC ownership, the Blockchain Capital survey reported: “A total of 9% of the population [de EE. UU.] He owns Bitcoin, including 18% of 18 to 34 year olds and 12% of 35 to 44 year olds. “The company originally reported 11%, but later corrected itself. The UK survey, by comparison, estimates that “3.86% of the population currently has cryptocurrencies”. This projects approximately 1.9 million adults into the British population (over 18 years) of approximately 50 million.

Rauchs considers the lowest estimate of adoption in the UK to be “more realistic” when generalized. That said, it would associate cryptocurrency ownership with 3 to 5% of the world’s population, including indirect ownership, such as those who participate in a pension fund that invests in Bitcoin. However, this clearly means that all cryptocurrencies are in the first half of the first phase of adoption, far from being near the so-called abyss.

It’s not much different with blockchain technology. Stratopoulos was a co-author of a document on the introduction of blockchain technology, which applies only to cryptocurrencies, and came to the conclusion: “Despite the recent hype, the current adoption rate is relatively low and blockchain is not yet widely used.”

Different applications, different adoption scenarios

Bitcoin clearly means different things to different people. “Today it is most commonly used as a store of value, while in 2011 it was mainly used as a payment method for games.” and other purposes, said Rauch. Depending on your application, different adoption curve scenarios are possible. For his part, Rauch believes that the most likely future use of BTC as a non-governmental alternative value reserve will be.

According to von Landsberg-Sadie, the real pattern will be the introduction of Bitcoin “more like a wave that vibrates higher with every cycle.” From this point of view, “the biggest bets are on the most extreme results: Bitcoin will slowly lose relevance or increase significantly in the traditional world.” My bet is on the latter.

In summary, BTC, following the same growth pattern as Apple, appears to be an entertaining version of what can happen, but ultimately you shouldn’t object that “it isn’t based on a statistically valid experiment”. as Dowd Cointelegraph recalled. However, according to various experts, it makes no sense to compare Bitcoin with conventional technologies “because Bitcoin is unable to create value, neither in the form of increased sales nor in the form of cost reductions,” as Stratopoulous stated. In addition, the global spread of BTC may be closer to 4% than the 11% mark that smartphones were at in 2008, just before they spread.