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I've been a skeptic of cryptocurrencies from day one. After all, I trade treasuries. The big problem I've always had with Bitcoin is that it is held up by true believers as a replacement for fiat, which would just be a horrible idea for an economy. However, that is neither convincing, nor helpful towards predicting future movements.
So I went about trying to create a framework to value a cryptocurrency, and predict when it's getting overextended. My indicator adheres largely to the theory of utility. A currency is only worth as much as the utility it gives you. We are willing to pay $15 for a wire transfer because transferring money is useful. Since Bitcoin helps you transfer money it has value. So I've basically been looking at how much Bitcoin is being used compared to the price and the number of coins out there. I don't want to give too much away because I'm trying to offer the indicator for a patreon campaign, but I'll attach a picture of what it looks like today.
I think what we see largely agrees with what people in this thread are saying. The recent surge in Bitcoin is due largely to extrinsic factors. People are buying it because it is going up, and this is driving demand. What the market should be looking at is utility. Bitcoin just isn't moving enough money to justify the price, and when it does move money it is extremely inefficient about it. It has reached this area many times before, and this usually ends in a crash.
I believe things will come down when central banks start to tighten the money supply more, and the public starts to run into the limitations of Bitcoin's utility. I should note at the same time that based on this theory Ethereum is crazy under-bought, even after the huge runup it had last night.
I always loved your post and your thread
very valuable approach but US centric, let me add some more explosive juice
(I am an ex global payment expert after all..)
In Europe, since the creation of the single market space, there have been a lot of initiatives
one of the being SEPA (Single European Payment Area)
What that means is that a domestic (= in the country) payment should be the same cost as a payment
inside Europe. So the result is that European payments costs, dropped to the level of the local payments
and there are also some rules of the time that can take
In belgium this typically means, an electronic wire transfer (one you enter yourself on the webiste
of the bank = called e-banking) is free of charge, to any other Belgium account or to ANY other SEPA
member country, The netherlands, France, italy, spain, germany, etc....
While the time it was allowed to take was 2 days in the past the systems are moving toward next day
and new initiaves are growing towards near real time payments
All of that
just to add that with billions of payments per day
at near zero cost
there is a long long long way for crypto currencies to go to compete with the existing infrastructure
None of those systems have the resilience of bank-grade systems..
and i can add a few chapters
Block chain is a great technology
the technology will stay
but that position as the new "gold" is largely exagerated
A few people will get very very rich
a few people will get ruined
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
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Interesting piece over at seeking alpha. Author makes no prediction on bitcoin value or direction, just discusses the lack of futures delivery mechanism. I don't buy his "to much risk in exchange bitcoin warehouse" theory, as not all commodities even have exchange warehouses. Sure Gold may, but Crude doesn't.
SeekingAlpha :- Digital Currency Derivatives And A Delivery Mechanism
by Andrew Hecht
