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Last month, the famous venture capitalist and inspiring entrepreneur, Tim Draper, made a prediction that Bitcoin will hit $250,000 by the year 2022.
In 2014, Draper predicted that Bitcoin would be worth $10,000 in three years. Sure enough, Bitcoin hit the $10,000 mark, soaring above and beyond this amount to reach an all-time high of $19,783 last December.
“I didn’t want to make any predictions after that for a long time because I wanted to let the dust settle. Yet last month I thought that it was time for another prediction, while introducing my new book, How To Be The Startup Hero: A Guide and Textbook for Entrepreneurs and Aspiring Entrepreneurs,” Tim Draper told me in an exclusive interview.
Intrigued by Draper’s recent prediction and strong interest in cryptocurrency, I sat down with Draper to ask him about his reasoning behind his latest Bitcoin prediction, his new book and why he believes cryptocurrency will eventually replace fiat currencies completely.
Rachel Wolfson: In your new book, How To Be The Startup Hero, you begin with some definitions of what a hero is. You specifically talk about how a hero “goes long.” In crypto, “hodling” is a term we use for going long. How does this relate to being a hero?
Tim Draper: As a “hodler” myself, I believe it’s important to sacrifice in the short term for a long-term gain. Having a long-term approach to everything goes a long way - from investing to being an entrepreneur to just living your life.
A “hero” takes a long view at a low probability outcome, but the outcome will always be big. In fact, the outcome may or may not happen. In the ICO (initial coin offering) world, the heroes are those who are putting their necks out there to create a new coin or token to transform industries. For instance, ICO heroes are creating a token to transform governments by making them virtual. Crypto heroes have identified a technology that can take on the big monopoly and transform the world.
Wolfson: How did you come up with the number $250,000 by 2022?
Draper: The predication that lead me to come up with $10,000 by 2017 was based on the idea that Bitcoin was going to be easy enough to use in the future and that people would be able to start trading with it and using it as a store of value. That is why I invested in Bitcoin.
Now, I think people are going to be able to spend cryptocurrencies, like Bitcoin, in mainstream situations. Cryptocurrencies will eventually replace credit cards and will be something you can access on your phone. I actually think cryptocurrency will replace fiat currencies entirely.
For instance, right now there is about $80 trillion worth of fiat currency in the world. I believe that cryptocurrencies will expand that market. I think that cryptocurrencies will eventually grow to maybe $100 trillion and fiat currencies will fall from $80 trillion to $30 trillion.
I predicted that Bitcoin might end up with a 20% to 30% market share. I sketched that out and I think the asymptote is somewhere around $130 trillion, but only maybe $100 trillion would be cryptocurrency and 20% of that would be Bitcoin. However, it would take 10-15 years to reach that asymptote, so I’m thinking that along the way we are going to see Bitcoin at $250,000 by 2022. That was one way I looked at predicting it.
I also look at Bitcoin as a network effect. For instance, if I have Bitcoin and no one else does, then its worthless. But, if I have Bitcoin and you have Bitcoin, and we both recognize that, then we have one connection. Then, the connection grows – it’s the square of how many nodes are in the network. Right now there are 40 million Bitcoin wallets. I think that this number will continue to grow and the value of Bitcoin will be determined by the square of that.
Wolfson: Do you really think that fiat currency will disappear entirely?
Draper: I think that in the future fiat will resemble carrying around change. For example, I think we will get to the point where we will go to buy coffee with fiat and the barista will look at us like we are crazy. I also think that soon we will be able to buy coffee and other things with Bitcoin, Ether, Bitcoin cash or any number of other cryptocurrencies all on our phone.
Wolfson: What made you decide to invest in Bitcoin back in 2014?
Draper: I decided to invest in Bitcoin in 2014 after a friend of mine told me in 2004 about a game in Korea that everyone was playing. I think the game was called Legend. The game was a big deal at the time and it struck me that we were living in this “virtual world.” My friend then told me that he was buying his son a virtual sword with fiat currency to advance in these video games. This made me think that we could have a whole economy based on a virtual world.
Bitcoin then came along and I knew it was a huge opportunity. I ended up backing one of the first Bitcoin companies called “Coin Lab.” I invested in the company to get Bitcoin, however, the company ended up making an ASIC to mine the coin so we could get it for much cheaper. The company then handed this ASIC over to Butterfly Labs, they mined it and delivered the Bitcoin to us.
Bitcoin went from $6 to $36 at that time. We mined the Bitcoin and then stored it at Mt. Gox, which at the time was one of the biggest Bitcoin exchanges in the world. Then of course, Mt. Gox disappeared and we lost all of the Bitcoin. I thought that was the end of it, but Bitcoin dropped only 15% following that news and then went up the next day. I thought, “Wow, the biggest exchange just collapsed and then kept going.” This made me realize that the world really needs Bitcoin.
I then jumped at the opportunity to buy Bitcoin that had been confiscated from the people behind the Silk Road from the U.S. Marshals office. There were about 19 bidders total and most of them wanted to bid below market, but I bid above market and got the entire nine lots of Bitcoin. Bitcoin was worth $632 when I bought it and it slid straight down to $180. Following this, I made my prediction that Bitcoin would hit $10,000 in three years. And somehow, we hit the $10,000 mark in three years - exactly on the number. Suddenly, I was the visionary.
Rachel Wolfson: You’ve been quoted as saying blockchain technology is the next Internet. Is this true?
Tim Draper: Blockchain technology is actually much bigger than the Internet. While the Internet did impact the world economy, blockchain technology has the potential to transform industries that have historically been government regulated because they are so big. For example, banking, real estate, insurance, venture capital, health care and government itself can all be completely transformed by blockchain because it is the perfect ledger. The blockchain serves as the trusted third party that we all go to for security and safety. Personally, I feel much safer with my Bitcoin then I do with my fiat currency in Wells Fargo. Wells Fargo gets hacked all the time, but no one has ever cracked the Bitcoin blockchain.
Rachel Wolfson: Do you have an advice for people looking to get started with cryptocurrency?
Tim Draper: The way I look at getting started with cryptocurrency is to get involved a little at a time. I’d suggest purchasing a small amount of cryptocurrency on Coinbase or to put some crypto on a ledger. A ledger is a hardware wallet, so if you are worried about someone taking your cryptocurrency you can put it there. It's amazing that all you need now is a USB port and you are able to hold all your money in your own hands.
