In the next five years, Bitcoin (BTC +2.78%) will probably trade significantly higher than where it's at today. Nonetheless, it'll also be facing a couple of big new challenges that are a bit hard to solve, and the odds of it taking a major tumble are going to be larger than ever before.
One way to look at it is that the next five years might feel less like an open highway where the coin's price reliably rises over time, and more like driving through a construction zone with a troupe of impatient passengers -- getting to the destination of much higher prices could entail significant detours. Let's take a look at what's going on right now and why it'll likely portend some (probably temporary) tumultuous times ahead.
Image source: Getty Images.
The quantum computing test is here
As many in the Bitcoin community have said, quantum computing is a risk to Bitcoin that sounds like something so out there that it might as well be from a science fiction novel -- right up until the risk it poses actually happens and it subsequently makes the sky fall.
In a nutshell, Bitcoin relies on digital signatures, which are like tamper-proof wax seals that prove you own the coins you're spending. If a future quantum computer can forge that seal, the threat is realized, and the market will reprice the risk quickly -- and for Bitcoin, the risk could well be an existential one. And that's why you should think of this issue as a slow-moving story that can flip into a fast-moving one and wreck the entire chain.
CRYPTO: BTC
Key Data Points
That probably won't happen in the next five years (though some claim that it's just a couple of years away) but the longer time drags on, the more likely it will be that such a quantum computer will be developed, and in the very long run, it's inevitable that quantum computers will become powerful enough to crack the coin's security. So Bitcoin will need to be upgraded to guard against this threat as soon as possible if it wants to remain viable, and the upgrade process will entail a significant amount of discussion within the developer community before any mitigations can be implemented. It could take a few years. If the mitigation plans are rushed, the chances of there being a critical oversight are far higher, so it's widely understood that Bitcoin's developers will effectively have one shot to get it right.
The real challenge is coordination. Even if engineers can design an upgrade, Bitcoin still needs crypto exchanges, custodians, wallet providers, financial institutions, and regular holders to actually move their coins onto the new safer setup. If that migration plan looks confusing or easy to delay, big institutions may decide the headache is not worth it and reduce their exposure to the coin.
On the other hand, if the ecosystem rallies around a widely supported upgrade path, this becomes a manageable engineering transition rather than an existential drama. Through 2030, investors don't need to predict the exact year quantum computers become sophisticated enough to be actually threatening so much as they need to watch whether Bitcoin is steadily building a solution that people can use, and preferably long before anyone is forced to reach for it to avoid imminent disaster.
Competition is getting more intense
Even if Bitcoin navigates quantum risk well, it will still face a more crowded competitive landscape in the domain of digital stores of value.
One serious contender is Zcash (ZEC +2.36%), which more or less pitches itself as "Bitcoin, but with privacy." Zcash keeps a Bitcoin-like fixed supply policy while also offering features designed to hide the sender, receiver, and number of coins in transactions.
Zcash's privacy utilizes a type of cryptographic proof called zk-SNARKs which let the network verify a transaction is valid without revealing the sensitive details. Notably, such privacy features were originally desired for inclusion in Bitcoin, but zk-SNARKs hadn't yet been invented at the time. So Zcash is in a sense a real improvement over Bitcoin, and that means it could attract more capital than its older brother over the next five years.
CRYPTO: ZEC
Key Data Points
So, where will Bitcoin be in five years?
Assuming it builds a credible quantum migration plan and executes it decently, the base case is that it'll be priced higher than earlier epochs, with a bigger market cap and more institutional ownership. But moving forward, it'll have more competition, so it'll likely yield fewer periods of multibagger returns compared to the past. If the migration plan doesn't pull together quickly enough, it might not necessarily collapse, but it'll definitely be priced at a discount more and more aggressively as time drags on.
I'll almost certainly still be regularly buying Bitcoin through 2030. Still, if the quantum computing issue isn't in progress to be addressed within a few years, it won't be something I'll be willing to accumulate at any price anymore.
