As bitcoin prices zoomed to new highs, amid a continued regulatory vacuum in India, first-time

investors and traders have flocked to exchanges. Alongside, reports of ponzi schemes have also
reemerged, underscoring the importance for Indian authorities to finalise a framework for
cryptocurrencies. The total market value of cryptocurrencies surpassed $1 trillion for the first time
on Thursday, acco

Bitcoin has seen a great run, both in recent months and over broader history. Yes, it roughly
tripled in 2020, but let’s not forget it’s also up around 30-times over the past 5 years. Focus
on medium-term price swings, which are undoubtedly extreme, should not obscure
that Bitcoin has been one of the great assets to own in recent history. For example, even if
the recent rally were to entirely reverse, Bitcoin would still show a strong medium-term track
record as an investment asset.
However, all this comes with a catch. Bitcoin is challenging to value. Here, the Lindy effect is
useful in assessing valuation for the cryptocurrency.

The Lindy Effect

The Lindy effect, or Lindy’s Law, named after a New York delicatessen where comedy shows
were discussed, argues that for a non-perishable object, its life expectancy increases with
how long it has lasted. This is true for comedy shows, but also perhaps digital currencies.
For example, its reasonable to think that the Great Wall Of China at over two thousand years
old, will continue to be around for many centuries. However, we can’t say the same for the
iPhone 12 launched last October, which has just been around for months, and it’s a fair bet
will be obsolete in just a few years as technology moves on. As things exist for longer, so their
life expectancy increases according to this theory.
This matters for Bitcoin. Early in its life there were fears it could be hacked or the technology
would fail. This hasn’t happened. Yes, Bitcoin wallets and other means of storage have seen
various issues and failures, but the underlying technology has not.
As Bitcoin continues to exist for longer, following Lindy’s Law we might, therefore, expect it
to be around for longer. This suggests that all else equal, the value of Bitcoin may trend up
over time as it proves itself.
MORE FOR YOU

Bitcoin: Time To Exit

Bitcoin Could Soon Hit $70,000, And That Has Nothing To Do With Currencies

As Bitcoin Blasts Past $25,000, Here’s Why This Investor Made The Surprise Decision
To Sell
Indeed, this is broadly what has happened, though Lindy’s Law can’t account for quite as
extreme price swings as we’ve seen. In fact, in the 2017 rally, Bitcoin was one of many
cryptocurrencies surging in value. Indeed Bitcoin was actually a relative laggard for some of
the 2017 run-up compared to other digital currencies. Those seemed hotter at the time. Now
many are burned out. This time around in the 2020-2021 rally it’s mostly about Bitcoin,
there’s lots of innovation in the space still, but many other cryptocurrencies have fallen by
the wayside in recent years.

The Downside
That said, this same argument also gives us reason to pause for Bitcoin. Bitcoin has only
existed for a little over a decade. That’s not long in investment terms. If it existed for merely
another decade, then many investors would be devastated and today’s valuation would make
little sense.