Category Archives: Bitcoin
Ask the Sketch Guy: Should I Finally Buy Some Bitcoin? – New York Times
New York Times | Ask the Sketch Guy: Should I Finally Buy Some Bitcoin? New York Times To kick off things, Shawn Cook from San Diego asked a question about Bitcoin. (For an explainer on Bitcoin, see this article by Nathaniel Popper of The New York Times, who literally wrote the book on the topic.) His hipster friend is constantly bugging ... |
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Ask the Sketch Guy: Should I Finally Buy Some Bitcoin? - New York Times
Bitcoin – A Speculative Asset with No Intrinsic Value, Says Business Insider Founder – CryptoCoinsNews
As bitcoin captures the worlds attention while soaring to unprecedented heights, the cryptocurrency has been labelled as an asset primed for a bubble, with no intrinsic value.
Henry Blodget is the founder, CEO and editor of prominent financial news publication Business Insider and was part of CNBCs Squawk Alley, a televised show, recently. Bitcoin was the subject of a segment and Blodget offered his take on the cryptocurrencys soaring gains in recent weeks.
He stated:
Look, this is a perfect asset for a speculative bubbleThere is a finite supply. There is no intrinsic value. If anybody is persuading you that it should somehow be related to some GDP or goldput down the Kool-Aid and back away.
In response, a CNBC host bought up Bitcoins applicability in countries like Venezueala, where new bitcoin miners have imported groceries from Amazon Pantry in the United States by paying with the cryptocurrency.
It has a use, he replied. There is no question. There are uses for it. The transactions are steadily increasing. Thats a good signif you are going to use it.
Finally, he sees the bandwagon of investors getting buying into bitcoin with the hope of striking rich rewards in the long run.
It could literally go to a million. There is no reason why noThe logic of folks who are buying and speculating in it[Theyre saying] All I can lose is a 100%. I could make 10x, a 100x, a 1000xIll take that trade if Im willing to lose that 100%.
With bitcoin in the mainstream, commentators and speculators are likely to see the cryptocurrencies as stocks or commodities, comparing it to the norm of traditional markets.
As for bitcoin having no intrinsic value, over 2 million transactions every week globally between people, businesses, charities and more say otherwise.
Featured image from Shutterstock
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Bitcoin - A Speculative Asset with No Intrinsic Value, Says Business Insider Founder - CryptoCoinsNews
Japan And South Korea To Invest More In Bitcoin – CryptoCoinsNews
Concerns over the low saving rates in Japan and South Korea, the citizens of the two countries are investing more in bitcoin. Comparing to the average 17 percent gain of Asian stocks in 2017, the value of the cryptocurrency increased by 124 percent over the same period (after a 125 percent gain in 2016). Just in May alone, BTC had seen a 60 percent increase during the month.
After a crackdown at Chinas Central Bank earlier this year, more investors in Japan and South Korea turned to the cryptocurrency. According to the media publication Reuters, the increased Japanese and Korean investment had an impact on bitcoins surge in 2017.
Bitcoin exchanges in the two Asian countries are saying they had experienced higher interest in the cryptocurrency over the last two weeks. One reason could be that Japan accepted a bill in April officially recognizing digital currencies, including bitcoin, as real money. Due to strict money-laundering rules, which make it hard for investors to move the cryptocurrency in and out, BTC trades at premium in both countries. While, for example, on May 25, the global average bitcoin price was $2,514, the digital currency was traded on $3,800 in South Korea with a 33.5 percent premium.
After I first heard about the bitcoin scheme, I was so excited I couldnt sleep. Its like buying a dream. Everyone says we cant rely on Japanese pensions anymore. This worries me, so I started bitcoins, Mutsuko Higo, a 55-year-old Japanese social insurance and labor consultant said. Higo bought around 200,000 yen ($1800) worth of bitcoin in March to supplement her retirement savings.
Asia is one of the main supporters of the cryptocurrency with the booming investment culture in the region, where it is common to swap investment tips. According to a ranking by CoinMarketCap, China, Japan, and South Korea are home to several high traffic cryptocurrency exchanges.
Since bitcoin is mostly unregulated in Asia and the laws for the exchanges are uneven, there is a significant risk associated with the trade of the cryptocurrency. For example, in Hong Kong, BTC exchanges operate under money service operator licenses. On the other hand, in South Korea, the regulation for exchanges is similar to online stores, trading physical goods. However, South Korea is planning to introduce regulations on the digital currency in 2017.
Since in most Asian countries, there are no rules for investor protection, the rise of bitcoins popularity attracts an increasing number of scammers. South Korean authorities reported they had busted the members of a pyramid scheme, which gained approximately $55 million scamming thousands of victims. Because of the lack of regulations, India also sees the number of such pyramid schemes rising in the country.
Leonhard Weese, president of the Bitcoin Association of Hong Kong, who is also a bitcoin investor himself, warned bitcoin investors about the potential risks associated to the cryptocurrency:
Trading carries huge risk: there is no investor protection and plenty of market manipulation and insider trading. Some of the exchanges cannot be trusted in my opinion.
To increase trust and user protection, some of the larger exchanges implemented security measures and compensation guarantees. However, numerous small cryptocurrency exchanges are operating with almost no supervision. Learning from the MtGox fraud in 2014, the Financial Services Agency (FSA) in Japan closely supervises exchanges, but not investors or traders.
The government is not guaranteeing the value of cryptocurrencies. We are asking for bitcoin exchanges to fully explain the risk of sharp price moves, an FSA official said.
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Japan And South Korea To Invest More In Bitcoin - CryptoCoinsNews
The Bitcoin Bubble Boils – Winklevoss Bitcoin Trust ETF (Pending … – Seeking Alpha
Just last week, the price of Bitcoin reached a level that no one thought possible just a few short months ago. In 2010, Bitcoin was trading at around the 6 cents level. At the end of 2016, the price had risen to the lofty level of $960.47. At that point, many people were calling the explosion of value a bubble market in the cryptocurrency.
We are now not even at the halfway point of 2017, and the price of Bitcoin has more than doubled from the level it was trading at on the last day of December 2016. Demand for Bitcoin is growing as the price of the asset is only controlled by bids and offers in the market. If Bitcoin is a bubble market, it could be one of the biggest bubbles in history. $100 invested in Bitcoin in 2010 has grown in value to over $4.5 million at the recent highs. If that is not a bubble, I do not know what could constitute one. In fact, it is now a certainty that Bitcoin will find its way into the history books as either the best performing asset in history or, the biggest bubble ever known to humankind. Right now, the Bitcoin bubble is boiling.
A long history of bubbles
" An asset bubble occurs when the price of a financial asset or commodity rises to levels that are well above either historical norms or its intrinsic value, or both." This definition from Investopedia sums up the current situation in Bitcoin. One of the cautionary signs of a bubble is when market participants suspend disbelief and increasing signals that the price of an asset is irrational. There have been so many bubbles throughout history, but three of the biggest have occurred since the 1980's.
In the early 1980's the Japanese yen surged by 50% which caused a brutal recession in the Asian nation. The central bank and government reacted with a program of monetary and fiscal stimulus that caused stock prices and land values to triple from 1985-1989. The bubble bust in the early 1990's leading to a lost decade for the country in the 1990's and 2000's as the economy tanked.
In the late 1990's in the United States shares in technology companies soared leading to a dot-com bubble. The NASDAQ index climbed from 500 at the beginning of 1990 to highs of over 5000 by March 2000 resulting in a crash where the index lost 80% of its value by October 2002 triggering a recession in the U.S. It took 15 years for the index to climb back and make a new high.
The last major bubble occurred in 2008 when U.S. housing prices jumped to irrational levels leading to the Great Recession in the United States. The economic contraction caused the central bank in the U.S., and others around the world, to stimulate economies via programs of historically low interest rates and quantitative easing or repurchasing of debt by the central bank.
Perhaps the most famous bubble in history occurred in the 1600's in the Netherlands.
Tulip mania and Bitcoin
Bitcoin is an asset like no other. In fact, central banks and regulators around the world are having a hard time classifying the cryptocurrency. The Commodities Futures Trading Commission is looking at Bitcoin as a commodity, perhaps because of its penchant for extreme price volatility. Bitcoin is certainly a means of exchange. The regulators and governments are the reasons for its existence. Many people around the world wish to use an asset that is not under the control of any government or regulatory body. Bitcoin is not like the stocks, bonds, or real estate that caused the bubbles since 1980 it is different. Therefore, we need to go back in history almost four centuries to find another market that is analogous.
Tulip-mania gripped the Netherlands in the 1630 and is one of the earliest recorded instances of an irrational asset bubble. Tulip prices soared twentyfold from November 1636 and February 1637. The prices then plunged 99% by May 1637. During the bubble, some rare tulip bulbs were worth more than luxury homes. Bitcoin was 6 cents in 2010. In May 2017, it traded at almost $2800.
Is almost $2800 the high for Bitcoin?
There is a fixed amount of Bitcoin available to the market. There are only 16,367,375 Bitcoins in circulation. At 6 cents, the market cap of the entire market was just under $1 million. On Friday, June 2, 2017, the market cap was $40.22 billion at a price of $2450.85. In less than ten years the appreciation has been nothing short of astonishing, and on the face of it, Bitcoin looks like the biggest bubble in history. However, it lacks several characteristics of a bubble market. While lots of people are talking about Bitcoin around the world, few are buying and selling the cryptocurrency. However, the beauty of Bitcoin is that it is a market where the price is solely determined by supply and demand as bids and offers in the market cause the price to move without any governmental or regulatory influence. Bitcoin is a lot like gold; the only difference is that central banks are the world's largest holders of the yellow metal and can affect the price by their buying and selling activity. When it comes to Bitcoin, the central banks, monetary authorities and supranational institutions like the International Monetary Fund and World Bank have been observers rather than participants.
When I was a young trader at one of the world's leading commodities trading houses in the 1980's one of my bosses told me that the only reasons that markets go up or down is when there are more buyers than sellers or more sellers than buyers. When it comes to Bitcoin, that lesson rings especially true.
One of the aspects of the cryptocurrency that has gained widespread appeal is the operations system of recording that tracks ownership of Bitcoin.
Blockchain validates the cryptocurrency and vice versa
Blockchain or distributed ledger technology will change the world of operations in financial markets, banking, and other business disciplines. The computer-based record keeping allows for an instantaneous flow of ownership and will make formerly tedious operations and settlement procedures more efficient. Blockchain will save Wall Street and many other areas of the international economy lots of money and time in the years ahead. Most recently, the CFTC has set up a lab to encourage and spread the technology throughout the commodities futures markets.
In many ways, Bitcoin has validated the existence of Blockchain and vice versa. The growing acceptance of Blockchain or DLT as the norm of the future has confirmed Bitcoin as an asset.
The financial drone that flies beneath the radar has tremendous appeal that is growing- Watch for a split that could boost prices
The appeal of Bitcoin is that it is a financial drone that flies beneath the radar of governments and regulators. In China, Russia, and other nations that do not have freely convertible currencies Bitcoin is a method of electronically moving wealth abroad to regions of the world where the rules allow for money to move more quickly. While there are many nefarious applications for Bitcoin in the world of narcotics, arms, computer hacking, kidnapping ransom and other illegal activities, in Japan Bitcoin is accepted by most merchants for payment and its acceptance in Europe is growing.
Bitcoin is held in a computer wallet by holders and is transferred from sellers to buyers via blockchain operations. No one controls the market. It would make sense, given the current price level for a split of the number of Bitcoins in circulation at this point. A 100 to 1 split would put the price at around the $24 level which would make the market more attractive to a greater addressable market. However, one of the many answers I do not have about the cryptocurrency which is an enigma wrapped in a riddle, is who would arrange for such a split?
When it comes to bubbles, it is almost impossible to identify a top from which the asset comes crashing down. Bitcoin currently as many of the characteristics of a bubble, perhaps the greatest asset bubble in history but where it pops is anyone's guess at this point. The Bitcoin bubble was boiling at $500, $1000, $2000, and most recently $2800. With a market cap of around $40 billion, the total stock of Bitcoin has a current value of just over half of Warren Buffett's net worth these days. As a means of exchange that transcends borders, it is likely that this bubble is not close to inflated yet. The Mount Gox scandal a few years ago slowed the ascent of the cryptocurrency, but now it seems to be full steam ahead for an asset that was born less than eight years ago.
Many people believe that Bitcoin is a Ponzi-scheme. However, it is looking more like a tulip bulb to me these days. That bulb could keep appreciating for a long time before it hits the history books and by that time it could be the biggest bubble in history, and the price after the fall may even be higher than its current level.
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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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The Bitcoin Bubble Boils - Winklevoss Bitcoin Trust ETF (Pending ... - Seeking Alpha
Bitcoin Is at Risk of No Longer Being the Biggest Digital …
Step aside, bitcoin. Theres another digital token in town thats winning over the hearts and wallets of cryptocurrency enthusiasts across the globe.
The value of ether, the digital currency linked to the ethereum blockchain, could surpass that of bitcoin by the end of 2018, according to Olaf Carlson-Wee, chief executive officer of cryptocurrency hedge fund Polychain Capital.
"What weve seen in ethereum is a much richer, organic developer ecosystem develop very, very quickly, which is what has driven ethereums price growth, which has actually been much more aggressive than bitcoin," said Carlson-Wee,in an interview on Bloomberg Television Tuesday. The San Francisco Bay Area-based fund has received investments from venture-capital firms including Andreessen Horowitz and Union Square Ventures.
The name ethereum might ring a bell because hackers stole millions of dollars worth of ether last year. Still, its piquing the interest of industries from finance to health care because itsblockchaindoes far more than let bitcoin users send value from one person to another. Its advocates think it could be a universally accessible machine for running businesses, as the technology allows people to do more complex actions in a shared and decentralized manner.
QuickTake Bitcoin and the Blockchain
Carlson-Wee wasnt the first to forecast a bright future for ethereum. Fred Wilson, co-founder and managing partner at Union Square Ventures, laid out an even more ambitious timeline for the cryptocurrency in an interview earlier this month.
"The market cap of ethereum will bypass the market cap of bitcoin by the end of the year," said Wilson, who is also chairman of the board at Etsy Inc.
After skyrocketing more than 300 percent in the last year, bitcoin now costs about $2,300 a coin, which is still around 10 times the price of ethereum. But the second-most popular cryptocurrency is gaining market share fast.
Read more on how digital coins are allowing startups to ditch venture capitalist funding
Bitcoin currently dominates a little less than half of the digital currency market, down from almost 90 percent three months ago, according toCoinmarketcap.com data. Meanwhile, ethereum has quadrupled its share, which now represents more than a quarter of the pie. Other virtual coins have also picked up steam. Carlson-Wee is a fan of auger, golem, zcash and monero.
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Bitcoins growth has started to catch up to its fundamentals, which is likely what has been driving its astronomical gain as of late, he said. Others have attributed the surge to speculation, aswell as increased interest in Asia and adoption by established companies. Impressive performance aside, more than $150 has been knocked off bitcoins price since late last week amid concerns about transaction speed, safety and a possible price bubble.
"Were absolutely still in the infrastructure building phase," Carlson-Wee said. "But I do think within one to two years, well start to see the first viral applications that are user facing."
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Bitcoin Is at Risk of No Longer Being the Biggest Digital ...
Survey: Malaysians Warm Up to Cryptocurrencies, Bitcoin Still on Top – Bitcoin Magazine
Bitcoin Magazine | Survey: Malaysians Warm Up to Cryptocurrencies, Bitcoin Still on Top Bitcoin Magazine Investors in Malaysia are increasingly turning to digital currencies as these have become popular investment opportunities. While bitcoin remains the clear favorite, investors are also looking at other cryptocurrencies as well, including ether ... |
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Survey: Malaysians Warm Up to Cryptocurrencies, Bitcoin Still on Top - Bitcoin Magazine
3 reasons why bitcoin’s surge may not be a bubble – MarketWatch
While bitcoin has been on a tear, dont call it a bubble.
So says OfTwoMinds.com financial blogger Charles Hugh Smith in his latest post.
Below are three key points from Smiths take on the hot virtual currency.
1. Bitcoin has an actual purpose: Cryptocurrencies are not like Beanie Babies, because they have utility value namely, they facilitate international payments for goods and services, Smith says.
He is hardly alone in making that point. The Economist notes that bitcoin BTCUSD, +0.36% aspires to be a means of exchange like the dollar DXY, -0.54% , rather than just a form of digital gold GLD, +0.77% .
Chinese investors have used bitcoin to get money out of that country and are seen as helping drive its price higher.
More from Smith: This chart predicts a perfect storm of economic crises
2. Its a WYSIWYG market, not a scam: The primary cryptocurrencies are based on transparent rules and are not a scam, says Smith, whose take served as our Need to Know columns call of the day.
Its a what you see is what you get market, he writes, using a computing term that is abbreviated WYSIWG and pronounced wizzy wig.
That means both the buyer and seller know all there is to know about the exchange, Smith says. Thats not true of rackets like offloading a package of toxic mortgages as a mortgage-backed security.
Check out: Want to invest in bitcoin? Investors need to be willing to lose it all
And read: 3 reasons to fear the coming crash in bitcoin
3. Everyone hasnt piled in: The pool of potential buyers is thousands of times larger than the pool of present owners, Smith says.
Yes, that does sound a bit like the cash on the sidelines line that stock-market bulls like to use. But hear him out.
Bubbles occur when everyone and their sister is trading/buying into a hot market, the blogger says. While a few of my global correspondents own/use the primary cryptocurrencies, and a few speculate in the pool of hundreds of lesser cryptocurrencies, I know of only one friend/relative/colleague/neighbor who owns cryptocurrency.
Many big institutional investors could start adding bitcoin as a core holding, he writes.
Go here to read his full post.
Read more: Analyst who predicted bitcoins recent surge just made an even bolder call
Also see: Wall Street laughed at a call for bitcoin at $25,000, but the laughter is fading
More:
3 reasons why bitcoin's surge may not be a bubble - MarketWatch
Fretting over savings, Mrs Watanabe turns to bitcoin – Reuters
TOKYO/SEOUL Long the preserve of geeky enthusiasts, bitcoin is going mainstream in Asia, attracting Mrs Watanabe - the metaphorical Japanese housewife investor - South Korean retirees and thousands of others trying to escape rock-bottom savings rates by investing in the cryptocurrency.
Asia's moms and pops, already regular investors in stock and futures markets, have been dazzled by bitcoin's 100 percent surge so far this year. In comparison, the broader Asian stocks benchmark has gained 17 percent over the same period.
Even after a tumble from last week's record $2,779.08 high, bitcoin rose more than 60 percent in May alone - driven higher in part by investors in Japan and South Korea stepping in as China cooled after a central bank crackdown earlier this year.
(For a graphic on bitcoin economy click tmsnrt.rs/2skLZ3c)
Over the last two weeks, and encouraged by Japan's recognition of bitcoin as legal tender in April, exchanges say interest has jumped from the two countries. Bitcoin trades at a premium in both, due to tough money-laundering rules that make it hard for people to move bitcoin in and out.
"After I first heard about the bitcoin scheme, I was so excited I couldn't sleep. It's like buying a dream," said Mutsuko Higo, a 55-year-old Japanese social insurance and labor consultant who bought around 200,000 yen ($1800) worth of bitcoin in March to supplement her retirement savings.
"Everyone says we can't rely on Japanese pensions anymore," she said. "This worries me, so I started bitcoins."
Asia has proved fertile ground for bitcoin due to the region's thriving retail investment culture, where swapping investment tips is already common. China, Japan and South Korea are home to several of the world's busiest cryptocurrency exchanges, according to a ranking by CoinMarketCap.
"Right now, it's a form of speculation, like stocks," said Park Hyo-jin, a 27-year-old South Korean who owns around 3 million won ($2,700) of bitcoin. "I don't think anybody in South Korea buys bitcoin to use it."
The risks, though, are rising too.
Bitcoin is largely unregulated across Asia, while rules governing bitcoin exchanges can be patchy.
In Hong Kong, bitcoin exchanges operate under money service operator licenses - like money changers - while in South Korea they are regulated similar to online shopping malls, trading physical goods. Often there are no rules on investor protection.
BITCOIN WHEN YOU DIE
Park and Higo were drawn into bitcoin by friends. Others are attracted through seminars, social media groups and blogs penned by amateur investors.
Noboru Hanaki, a 27-year-old Japanese web marketer and bitcoin investor, said his personal finance blog gets around 30,000 page views each month. The most popular post is an explanation of bitcoin, he said, noting that when the bitcoin price surged last month, readership of the article doubled.
Rachel Poole, a Hong Kong-based kindergarten teacher, said she read about bitcoin in the press, and bought five bitcoins in March for around HK$40,000 ($5,100) after studying blogs on the topic. She kept four as an investment and has made HK$12,000 tax-free trading the fifth after classes.
"I wish I'd done it earlier," she said.
Not everyone's making money.
The bitcoin frenzy has spawned scams, with police in South Korea last month uncovering a $55 million cryptocurrency pyramid scheme that sucked in thousands of homemakers, workers and self-employed businessmen seduced by slick marketing and promises of wealth.
Seminars in Tokyo, Seoul and Hong Kong promote similar multi-level marketing schemes that require investors to pay an upfront membership fee of as much as $9,000. Members are encouraged to promote the cryptocurrency and bring in new members in return for some bitcoins and other benefits.
One such Tokyo scheme offered members-only shopping websites that accept bitcoin, 24-hour assistance for car and computer problems, and bitcoin-based gifts when a member gets married, has a baby - or even dies, according to marketing materials seen by Reuters.
Leonhard Weese, president of the Bitcoin Association of Hong Kong and a bitcoin investor, warned amateur investors against speculating in the digital currency.
"Trading carries huge risk: there is no investor protection and plenty of market manipulation and insider trading. Some of the exchanges cannot be trusted in my opinion."
Some larger exchanges have voluntarily adopted security measures and compensation guarantees, according to their websites, although there are dozens of smaller platforms operating more or less unchecked.
In South Korea, the Financial Services Commission (FSC) has set up a task force to explore regulating cryptocurrencies, but it has not set a timeline for publishing its conclusions, an official there said.
In Japan - where memories are still fresh of the spectacular 2014 collapse of Mt. Gox, the world's biggest bitcoin exchange at the time - the Financial Services Agency (FSA) said it supervises bitcoin exchanges, but not traders or investors.
"The government is not guaranteeing the value of cryptocurrencies. We are asking for bitcoin exchanges to fully explain the risk of sharp price moves," an FSA official said.
Some professional investors say bitcoin can be a useful hedge to help diversify a portfolio, but investors should be cautious.
"This is an extremely volatile and innovative asset class," said Pietro Ventani, managing director of APP Advisers, an asset allocation strategy firm.
(Reporting by Minami Funakoshi in Tokyo and Joyce Lee in Seoul, with additional reporting by Michelle Price in Hong Kong and Yoshiyuki Osada, Takahiko Wada and Hideyuki Sano in Tokyo; Writing by Michelle Price; Editing by Clara Ferreira-Marques and Ian Geoghegan)
TOKYO Japan's Mizuho Financial Group will start a venture next month to create new businesses using "fintech," an executive said, joining a global race in financial technology that threatens to unsettle traditional players.
NEW YORK Kik Interactive, which created the chat platform Kik, said on Thursday it was launching a crypto-currency or token called Kin that would enable customers to use a whole range of digital services.
NEW YORK Financial and technology companies led by Bank of America Corp, SBI Holdings Inc, HSBC Holdings Plc, Intel Corp and Temasek Holdings have invested $107 million in R3 CEV, a startup which runs a big bank consortium seeking to develop blockchain technology, it said on Tuesday.
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Fretting over savings, Mrs Watanabe turns to bitcoin - Reuters
Bitcoin Goes Berserk – Seeking Alpha
The price of Bitcoin is up 19% since I wrote about cryptocurrencies just two days ago. In two days! Oh wait, no it isn't. It's just fallen 11% in the past couple of hours. This is classic bubble stuff, meaning the price could skyrocket further or collapse in the blink of an eye. Whether or not you own Bitcoin, today I have some ideas about what to do now.
Bitcoin's price was $2,250 (US dollars) when I wrote on Tuesday (see here). When I looked a couple of hours ago it was $2,685. At the time of writing it's $2,396, down 11% from the earlier reading. At your time of reading it could be anywhere.
The world of cryptocurrencies is back in full hype and bubble mode. Wences Casares, the CEO of bitcoin wallet Xapo and a member of the PayPal (NASDAQ:PYPL) board, is reported to have said the Bitcoin price will go to $1 million in the next five to ten years.
Later on I'll come back to whether this suspiciously round, attention grabbing and huge number makes any sense. For now let's just accept that there's plenty of hype and nonsense floating around.
This seems like an apt time to bring out a famous chart of the stages in a speculative bubble. It was produced by Dr. Jean-Paul Rodrigue at the Hofstra University in New York many moons ago.
Bitcoin and other cryptos look like they're somewhere in the mania phase at the momentin Bitcoin's case it's the third time already since it was sparked into existence in October 2008. But each time dizzying delusion was followed by depths of despair it turned out to be temporary. Higher lows and higher highs followedat least so far.
Of course, Bitcoin was something genuinely brand new when it appeared. It's money, but not as we knew it. So the people involved were and are a different crowd to past manias. Still human though, and hence still prone to the same human foibles and vices.
Who's blowing the bitcoin bubbles?
In this case the "smart money" in the chart's stealth phase was a ragtag group of tech savvy anarchists and anti-banksters. Likewise the "institutional investors" don't feature in Bitcoin world. Instead they're replaced by fringe financiers, the odd venture capitalist, and libertarian leaning technophiles.
As for the "public", forget about it. Yes, there are more and more individuals buying cryptos, but they're still a tiny minority. At least in relation to, say, the mania around dot com stocks in the late '90s. But during each Bitcoin boom and bust cycle more people in more countries are drawn in. At least so far.
Here's what they looked like:
It seems pretty clear that Bitcoin is once again in the mania phase of the cycle. But where exactly in the mania phase? I'm guessing "Greed", "Delusion" or "New Paradigm".
But it's hard to know how far we are from the tipping point. In the coming days and weeks, the price could rocket to $4,000, or $6,000, or $10,000. Or it could sink over coming weeks and months to $1,500$1,200$800.
Nobody - and I mean nobody - knows what happens next. No self-proclaimed guru. No independent analyst. No hopeful speculator. No regretful latecomer to the party. Not you. Not me. Nobody.
But that doesn't stop more and more outlandish claims and self-interested hype. Like Seor Casares (he's Argentine) and his outlandish claim that the Bitcoin price should hit $1 million in five to ten years.
Million dollar Bitcoinreally?
Of course he could be right. But I'm going to have a stab at seeing whether it's likely, using nothing but common sense. Here goes
Currently there are 16.3 million Bitcoins, and I estimate this will reach around 19 million in five year's time. The growth rate slows down as the ultimate limit of 21 million approaches.
If a single Bitcoin is worth $1 million then all Bitcoin would be worth $19 trillion. In the past article I showed that Bitcoin was 46% of the total value of all cryptocurrencies, which in total were worth $80.3 billion.
On the (perhaps generous) assumption that Bitcoin maintains its market share, in the face of unlimited crypto competition, that implies the total crypto market would be worth $41.3 trillion when Bitcoin is priced at $1 million.
According to estimates by Credit Suisse, total global household wealth was $256 trillion in 2016, of which $157 trillion was financial assets. Wealth has grown at an average 5% a year since 2000. Assuming that growth rate continues, total household financial assets would be around $200 trillion in five year's time.
Financial assets include bank deposits (and a little physical cash), stocks, bonds, investment funds, precious metals and so on. For Bitcoin and other cryptos ("Altcoins") to take off they basically have to replace a large piece of bank deposits.
A necessary condition of anyone getting involved with cryptos is that they have internet access. Even today around half of the world's population is offline completely. And many of those supposedly online don't have regular and easy access, so perhaps the true percentage of people with regular and easy internet access is only 35-40%. It keeps growing, but still has a long way to go.
Of course most of those without access are poor, meaning they control little wealth. The combined household wealth of North America, Europe and Asia Pacific is 85% of the total. Strip out the poorer parts of Asia and let's say cryptos' potential market consists of people that control roughly 75% of global wealth.
That indicates $150 trillion of relevant financial assets in five year's time (75% of $200 trillion). Americans have just under 20% of their financial assets in deposits, Europeans just over 40%. Add in wealthy countries from Asia Pacific, in particular Japan, and let's say 35% of those financial assets are bank deposits. That comes to $52.5 trillion.
In other words, if the Bitcoin price hits $1 million then all Bitcoins would be equivalent to 36% of the bank deposits of people with the internet ($19 trillion divided by $52.5 trillion). And if Bitcoin has the same market share of all cryptos at that time as it has now, then all cryptos would be equivalent to 79% of those bank deposits ($41.3 trillion divided by $52.5 trillion).
My numbers are just rough estimates. Even so, looked at this way it becomes pretty clear that $1 million Bitcoin is a fantasy. Like me becoming an astronaut at the age of 45 and both coming from and living in a country with no space programme.
A couple of days ago all 16.3 million current Bitcoins were worth $37 billion. Making the same assumptions as above, current bank deposits of people with internet access would be $41.2 trillion.
That means Bitcoin is equivalent to about 0.09% of potentially convertible household deposits. Put another way, that deposit base is about 1,100 times bigger than the value of all Bitcoins.
What if, in five years, it gets to 1%, or 1-in-100? Which is to say 11 times its market share of relevant household deposits today? That would be $525 billion, split across those 19 million projected future Bitcoins, giving a price close to $28,000.
That's still over 11 times today's price, but it's a hell of a long way from $1 million. It's also not a prediction. I'm just trying to show a more realistic potential level. But don't forget that Bitcoin faces plenty of new competition, most recently from Ripple and Ethereum.
Where does it go from here?
Personally I don't think that cryptocurrencies will replace fiat currencies in a meaningful way. At least not for a very, very long time. Instead, governments and banks will come up with ways to use cryptos' blockchain technology - the wizardry that makes it all function - to improve fiat currency transaction infrastructure.
That said cryptos will probably have a larger niche than today. But my guess is it will still be a niche, and life will be viciously competitive within that niche. Picking winners and losers will be hard, and the ride will be wildly volatile.
In these bubbly times, here's what I recommend you should do today, depending on your situation:
One final thing. The whole crypto world is a prime location for fraudsters. Crooks swarm towards bubbly markets and the prospect of easy money like flies to doo doo. Always have. Always will. It's even easier to get away with when you can wrap everything up in high falutin' techno babble.
Most crypto websites are packed with serious sounding jargon, ideological fluffiness, pretty pictures and general hype. But a great many provide no or few details of who's involved or where they are in the world. They just hover in the internet ether.
When the greedy humans behind some of them run off with their customers' money, as has happened already and is bound to happen again, there will be little recourse. As with all things, caveat emptor ("buyer beware").
As Bitcoin and the other cryptocurrencies go berserk make sure you ignore the more outlandish claims made by their cheerleaders. Even so there's still a good chance many prices rise substantially in future, even if there's a crash in between. View all cryptos as speculation and good luck if you choose to get involved.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
The Bitcoin Bubble: Deciphering Digital Currency46:23 – WBUR
wbur
With guest host Sacha Pfeiffer.
The skyrocketing price of Bitcoin, and the appeal of alternative currencies.
If you bought a thousand dollars worth of Bitcoin in 2010, youd be a multimillionaire today. Alternative digital currencies like Bitcoin were once on the fringe of finance. But theyre gradually gaining acceptance. Theres also Litecoin, Ethereum, Zcash, and others. So-called cryptocurrency has been associated with online crime, but its being embraced by some major retailers and investment firms. This hour On Point: the appeal of alternative currencies. --Sacha Pfeiffer
Paul Vigna, author of "The Age of Cryptocurrency: How Bitcoin and the Blockchain Are Challenging the Global Economic Order." Reporter for the Wall Street Journal, editor of the Journals MoneyBeat blog. (@paulvigna)
Felix Salmon, senior editor at Fusion. (@felixsalmon)
Ben Lee, digital cryptocurrency enthusiast.CEO and co-founder of the mobile app development company Neon Roots. (@BenLeeNR)
Wall Street Journal:Why Bitcoin Is Surging, Again, Up 130% This Year "Bitcoin traded above $2,200 on Monday, according to the news and research website CoinDesk. That was up about 9% on the day and more than 15% from Fridays closing price of $1,913, which itself was a fresh high. Bitcoin is up more than 130% this year alone, and about 397% from one year ago."
Felix Salmon:The Bitcoin Bubble and the Future of Currency "There are a couple of reasons why the bubble is sure to burst. The first is just that its a bubble, and any chart which looks like the one at the top of this post is bound to end in tears at some point. But theres a deeper reason, toowhich is that bitcoins are an uncomfortable combination of commodity and currency. The commodity value of bitcoins is rooted in their currency value, but the more of a commodity they become, the less useful they are as a currency."
Forbes:The Rise And Fall Of Bitcoin (And The New Kid On The Blockchain) "Nobody is denying that bitcoin was disruptive. It was the first cryptocurrency of its time and has made a humongous splash and thats putting it lightly. Every super-government tried to shut it down and none of them could. J.P. Morgan tried to file patents for the exact technology of bitcoin and failed. Bitcoin is (or was) the cool kid at school that everyone wanted to be friends with but no one was sure how to ask for their number."
This program aired on June 1, 2017.
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The Bitcoin Bubble: Deciphering Digital Currency46:23 - WBUR