In 2014, Tim Draper famously predicted Bitcoin would rise to $10,000 by the end of 2017. He was right, almost down to the week. Now he’s calling for $250,000 by 2022. So, why was he right in 2017? Well, I think a lot of it had to do with the resolution of the scaling debate and the introduction of Segwit. He couldn’t have possibly knew about that in 2014, but it happened. If the price rises to $250,000 by 2022, there will have to be some sort of a catalyst. No one knows for sure if he’ll be right again, but I can think of one thing that could potentially catalyze a price movement to go to that kind of a level: widespread adoption of the concept of the crypto dividend by the Bitcoin community.
If you’re new to the concept of crypto dividends, I wrote about this concept here and you may be asking, how does this increase the value of Bitcoin? Well, one way people value assets is based on the income streams they produce. Investors may value a stock based on a projection of all future dividends. As an example, the S&P 500 (500 biggest stocks) currently has a dividend yield of 1.83%. Bonds are more directly priced based on their yields and credit ratings as there is no hope for capital appreciation. So, if Bitcoin gives off a consistent stream of income, it will open it up to a new class of investors who are investing in it for that income stream.
The first crypto dividend was the Bitcoin Cash fork of August 2017, so this concept is less than two years old, but since Bitcoin Cash, we have had Bitcoin Gold and numerous other forks and the first airdrop, which was Bitcoin Rhodium. There are some other Bitcoin forks, but most of them have a very low market values which are at most 0.2% of the value of the Bitcoin that yielded them. Bitcoin Cash was at one time worth up to 40% of the value of Bitcoin and Bitcoin Gold was worth up to 5% of the value Bitcoin. Bitcoin Rhodium was once worth nearly 1% of a Bitcoin, but since you got 10 to 1, that would have been the equivalent of a 10% yield. So, let’s just take average values and say you got 50% of their peak valuations on all three top crypto dividends. That means you would have received a 20% yield for your Bitcoin Cash, 2.5% yield for your Bitcoin Gold, and if you had registered for the Bitcoin Rhodium airdrop you would have received a 5% yield. If you do the math, that adds up to a 27.5% yield and this was over the course of approximately 1.5 years. So, your annual return is around 18%. In the investment world, that is a very good yield.
While 18% is good, it’s important to keep in mind that it happened during the longest bear market in Bitcoin’s history and with a Bitcoin community who is almost completely hostile towards the concept because the first crypto-dividend (Bitcoin Cash) was more of an attack on the protocol. So, just imagine what we can do in a bull market and with Bitcoin’s support behind the idea. This is an ENORMOUS opportunity for Bitcoin holders to turn Bitcoin into a great income producing asset.
I hear some people saying, but these crypto-dividends are just scams that will be sold to other people who will lose money and those people should just buy Bitcoin instead. First of all, not all cryptocurrencies other than Bitcoin are scams. The word scam is basically a synonym for fraud. There are definitely some cryptocurrencies that were frauds like Bitconnect which took deposits at their exchange and paid them out as “affiliate fees” in a ponzi scheme like manner, but if the coin itself actually does what it says it’s supposed to do, that’s not a fraud. I certainly don’t put Bitcoin Cash, Bitcoin Gold, or Bitcoin Rhodium in this category. These coins are all trying something that can’t or won’t be done in Bitcoin itself. That’s a legitimate reason to fork off of Bitcoin. And yes, some of Roger Ver’s tactics were questionable, but the coin itself is not a fraud. You might think that these coins are based on bad ideas, but if someone wants to try something and they market it to people and they buy it, I would say that is fair game. I think the people buying these coins genuinely want the product being sold. There is no moral issue with seeing a need in the market and providing a product that meets that need and that’s all I see these coins doing. That is what being an entrepreneur is all about. Will you get a better return by buying Bitcoin? Maybe, maybe not, but as long as people are up front about what the coin does there is nothing wrong with it. I find kind of silly to say all these are scams.
Trying new things has its purpose. The market is rewarding experimentation right now because cryptocurrency is a new technology and the best parameters are unknown. It’s likely that the best parameters will eventually be incorporated into Bitcoin, but speculators want to speculate on which parameters will win out and who’s to say they should be stopped from doing this? As with most things, I usually look at it and ask myself does this violate the non aggression principle? The answer is no, as long as it’s clear what the coin does and no one is tricked (as was the case with Bitconnect).
The other thing that people might be asking is: Won’t we eventually run out of ideas for new coins? It’s likely to take much longer than people expect for that to happen, but when it does, and the technology enters a consolidation phase (because there are dominant coin(s) that are widely considered to be the best), there will always be coins like Binance Coin which is in essence ownership of the Binance exchange. These and future crypto (and non crypto) companies will always be formed and if Bitcoiners demand it, will need to give out a crypto dividend to successfully raise capital in the market.
So, if we have an endless stream of crypto-dividends and we get the community to warm up to this idea and in fact encourage crypto-dividends and eventually demand them I can see this current 18% yield going MUCH higher. But the thing is, when an asset’s yield gets too high, it encourages buyers to bid up the price of the asset. This is why you never see a stock with a yield of 100% because income investors would immediately bid up the price of the stock so that the dividend yield would go down to something more comparable like 3% or so. I actually see such huge potential in this concept that a price of $250,000 could be easily justified solely based on the stream of crypto dividends that Bitcoin holders should be demanding from all companies and alt coins in the market today. Just imagine if Bitcoiners shunned alt coins or companies that didn’t issue a crypto-dividend and even shorted them. I see this as having a much bigger (and better) impact than the current “Delete Coinbase” movements and the like. Maybe we should change the “Delete Coinbase” movement to the “Delete Coinbase unless they ICO and give at least 30% of their crypto-security to Bitcoin holders through an airdrop” movement? Or what if Bitcoiners actively shorted coins (or crypto securities like Binance coin) that didn’t give a crypto-dividend or gave an insufficient amount to Bitcoin holders? Now that would be a productive movement for the Bitcoin Maximalists to get behind.
I guess one thing to compare this crypto-dividend requirement to would be the current system’s investment banking fees paid by companies that want to raise money in capital markets. For the most part these fees can be considered somewhat of a bribe. In this new system we are forming, the bribe could be decentralized at least. You’re trying to bribe Bitcoin holders to favor your offering. I think that’s really a more fair system since Bitcoin is a proof of work system unlike the current fiat based system of banking and finance.
It seems fairly clear that the way forward for doing crypto-dividends is through the airdrop and with standards like BIP 137 emerging, the prep work for this nascent industry to emerge has already begun. The next, missing piece is some huge success stories and that’s what we’re working on doing with MimbleWimbleCoin and what I see happening with Bitcoin Rhodium as well. So, even if you missed out on registering for Bitcoin Rhodium you will soon have a chance to register for MWC. Registration will open on April 20, 2019. I really can’t think of any good reason why anyone would fail to claim these crypto-dividends and those who do will likely regret their decision. If you want more information about MWC, follow us on twitter or join our discord.
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