Everyone seeks to assign a reason to price moves. Early this morning Bitcoin started on a tear on heavy volume moving from $4,800 to >$5,100 on heavy volume. There was no news release that appeared as a catalyst, so it appears that “FOMO” (Fear of Missing Out) is driving price. While I don’t love technical analysis, it can provide useful.
As you can see in the Bitcoin chart below, volume has been growing and is very strong on this last push up. $5,000 is a psychological barrier (people think in big, round numbers) and once through that it started a “buying panic”.
Hedge Funder Mike Novogratz predicted bitcoin $10k is right around the corner based simply on the mass of instituions coming in. While we don’t offer trading advice its clear that Wall Street and their big dollars are pushing into Bitcoin. See here. And here.
Governments will let the private sector develop the technology and then usurp it for their own use
Its not easy for alt-coins to beat Bitcoins lead in credibility and scale
People continue to say that Bitcoins value is in its anonymity – its not really anonymous. The IRS uses software to track people using it now. You can’t discount the value of speed and also owning your own money. This means not having to rely on a bank.
Is the cryptocurrency bitcoin the biggest bubble in the world today, or a great investment bet on the cutting edge of new-age financial technology? My best guess is that in the long run, the technology will thrive, but that the price of bitcoin will collapse.
If you haven’t been following the bitcoin story, its price is up 600% over the past 12 months, and 1,600% in the past 24 months. At over $4,200 (as of 5 October), a single unit of the virtual currency is now worth more than three times an ounce of gold. Some bitcoin evangelists see it going far higher in the next few years.
What happens from here will depend a lot on how governments react. Will they tolerate anonymous payment systems that facilitate tax evasion and crime? Will they create digital currencies of their own? Another key question is how successfully bitcoin’s numerous “alt-coin” competitors can penetrate the market.
In principle, it is supremely easy to clone or improve on bitcoin’s technology. What is not so easy is to duplicate bitcoin’s established lead in credibility and the large ecosystem of applications that have built up around it.
For now, the regulatory environment remains a free-for-all. China’s government, concerned about the use of bitcoin in capital flight and tax evasion, has recently banned bitcoin exchanges. Japan, on the other hand, has enshrined bitcoin as legal tender, in an apparent bid to become the global centre of fintech.
The United States is taking tentative steps to follow Japan in regulating fintech, though the endgame is far from clear. Importantly, bitcoin does not need to win every battle to justify a sky-high price. Japan, the world’s third largest economy, has an extraordinarily high currency-to-income ratio (roughly 20%), so bitcoin’s success there is a major triumph.
In Silicon Valley, drooling executives are both investing in bitcoin and pouring money into competitors. After bitcoin, the most important is Ethereum. The sweeping, Amazon-like ambition of Ethereum is to allow its users to employ the same general technology to negotiate and write “smart contracts” for just about anything.
As of early October, Ethereum’s market capitalisation stood at $28bn, versus $72bn for bitcoin. Ripple, a platform championed by the banking sector to slash transaction costs for interbank and overseas transfers, is a distant third at $9bn. Behind the top three are dozens of fledgling competitors.
Most experts agree that the ingenious technology behind virtual currencies may have broad applications for cybersecurity, which currently poses one of the biggest challenges to the stability of the global financial system. For many developers, the goal of achieving a cheaper, more secure payments mechanism has supplanted bitcoin’s ambition of replacing dollars.
But it is folly to think that bitcoin will ever be allowed to supplant central-bank-issued money. It is one thing for governments to allow small anonymous transactions with virtual currencies; indeed, this would be desirable. But it is an entirely different matter for governments to allow large-scale anonymous payments, which would make it extremely difficult to collect taxes or counter criminal activity. Of course, as I note in my recent book on past, present, and future currencies, governments that issue large-denomination bills also risk aiding tax evasion and crime. But cash at least has bulk, unlike virtual currency.
It will be interesting to see how the Japanese experiment evolves. The government has indicated that it will force bitcoin exchanges to be on the lookout for criminal activity and to collect information on deposit holders. Still, one can be sure that global tax evaders will seek ways to acquire bitcoin anonymously abroad and then launder their money through Japanese accounts. Carrying paper currency in and out of a country is a major cost for tax evaders and criminals; by embracing virtual currencies, Japan risks becoming a Switzerland-like tax haven – with the bank secrecy laws baked into the technology.
Were bitcoin stripped of its near-anonymity, it would be hard to justify its current price. Perhaps bitcoin speculators are betting that there will always be a consortium of rogue states allowing anonymous bitcoin usage, or even state actors such as North Korea that will exploit it.
Would the price of bitcoin drop to zero if governments could perfectly observe transactions? Perhaps not. Even though bitcoin transactions require an exorbitant amount of electricity, with some improvements, bitcoin might still beat the 2% fees the big banks charge on credit and debit cards.
Finally, it is hard to see what would stop central banks from creating their own digital currencies and using regulation to tilt the playing field until they win. The long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates. I have no idea where bitcoin’s price will go over the next couple years, but there is no reason to expect virtual currency to avoid a similar fate.
•Kenneth Rogoff is professor of economics and public policy at Harvard University. He was the chief economist of the IMF from 2001 to 2003.
Bitcoin is on the move, up around 5% today while Alts (Ethereum, Litecoin, etc) have been stuck in the mud. As you can see here in this chart of Ethereum priced in Bitcoin, Ethereum has been going down. Why is this?
I’m going to add my speculation – my guess is that Bitcoin will continue to move up faster than Ethereum or litecoin for the foreseeable future. Don’t be a fool and trade on my opinion.
Ethereum is “all about the ICO’s”. ICO’s creating selling pressure as people buy tokens, and those tokens are transferred back into Ethereum and sold for fiat. That fiat is used by the “businesses” which issues the tokens. In my opinion this creates major selling pressure on Ethereum.
Litecoin – I just don’t get why we need it. At least yet. This whole pitch of “its Bitcoins silver” makes no sense. Bitcoin is still in its infancy. Yes its the gold standard of crypto but is it really not meeting peoples needs at this point? Lets face it – Litecoin was created as a competitor to BTC and Bitcoin is kicking its @$$.
No other ALT has created that “killer app” or that “must use” case. Therefore its all just speculation. Bitcoin is the household name when it comes to crypto and that’s where the money – the big money – is going to be flowing.
I think the more Bitcoin outperforms the more investors will be running to it as opposed to the alts. However if Bitcoin tanks you can bet selling will happen in the alts. Inherently this boosts Bitcoin the best crypto bet.
Thats my analysis. Could be (probably) wrong, but hopefully thought provoking.
Interesting article, worth posting here. I agree with some of what he says – all too often when a system stops working (like many argue our financial system has) the answer is to go 180 degrees from that system. In this case too much credit almost blew the global economy up in 2008 – so the response from “hardcore” Bitcoin folks is often “lets eliminate all credit.” What’s needed is a happy medium. Responsible lending – responsible risk.
I would say that ICO’s are pretty much either a loan at best or a donation at worst. Participating in ICO’s and buying tokens gives money to entrepreneurs to build their businesses – however all they offer in return is hope and in some case – nothing at all. You could draw parallels to how easy credit was leading into 2008 and how money is thrown at ICO’s today.
Proposals for monetary reform, whether mild or radical, are always and everywhere informed by some underlying theory of money. A week ago I spent two days talking with a group of technologists and lawyers–perhaps I should say digital coders and legal coders–and pressed them on this point. Chatham House rules prevent me from associating views with actual people, but the views themselves are the important thing.
So far as I understand, and it is important to emphasize that there was not consensus on the details, the technologists see themselves as creating a form of money more trustworthy than that issued by sovereign states, more trustworthy because the rules of money creation (whether proof-of-work or proof-of-stake or whatever) limit issue to a fixed and finite quantity. Scarcity of the tokens today, and confidence that scarcity will be maintained in years to come, are supposed to support the value of the tokens today. Importantly, no such confidence can be attached to state-issued money; quite the contrary states are seen as reliable abusers of money issue for their own purposes. Cryptocurrency is digital gold while fiat currency is just paper, subject to overissue and hence depreciation.
From this point of view, current holders/users of cryptocurrency are just early adopters. Once everyone else realizes the superiority of cryptocurrency, they will all want to switch over, and the value of fiat currency will collapse. The (fluctuating) prospect of that eventual switchover shows up today in the (fluctuating) exchange rate between crypto and fiat (as here). And the (fluctuating) prospects of different cryptocurrencies shows up today in the (fluctuating) exchange rates between different cryptocurrencies (as here). According to the theory, one of the cryptocurrencies will be the future global currency, replacing the dollar, but no one knows which one. People who got into Facebook at the beginning are all multimillionaires; early adopters of the future global cryptocurrency will be too, but which one will it be? That’s what the lack of consensus about the details is all about.
One of the most fascinating things about the technologist view of the world is their deep suspicion (even fear) of credit of any kind. They appreciate all too well the extent to which modern society is constructed as a web of interconnected and overlapping promises to pay, and they don’t like it one bit. (One of my interests these days is “Financialization and its Discontents”, and I dare say that the discontent of the technologists is as deep as that of the most committed Polanyian, but of a completely opposite sort.) Fiat money is untrustworthy enough, promises to pay fiat money are doubly untrustworthy. One way around the problem would be to require full collateralization of all such promises, maybe even using so-called “smart contract” technology to ensure that promised payments are made automatically, basically an equity-based rather than debt-based system. In effect, we have here a version of Henry Simons’ Good Financial Society, but with peer-to-peer cryptocurrency taking the place of his 100% reserve money. Simons was of course responding to the global credit collapse of the Great Depression; the cryptos are responding instead to the more recent global financial crisis.
I view all of this through the lens of the money view, which places banking at the center of attention, views banking as fundamentally a swap of IOUs, and views money as nothing more than the highest form of credit. It is view developed not so much around a philosophical ideal but rather as a way of making sense of the operation of the world as it actually exists, outside the window as it were. In that world, the payment system is essentially a credit system, in which offsetting promises to pay clear with only very minimal use of money. And prices arise from the activity of profit-seeking dealers who absorb fluctuations in demand and supply by standing ready to take any excess onto their own balance sheet, relying on credit markets to fund the resulting inventory fluctuations. One can imagine automating a lot of that activity–and blockchain technology may well be useful for that task–but one cannot imagine eliminating the credit element. Credit is not a bug, but a feature.
This point of view draws special attention to the place where markets are being made to convert one cryptocurrency into another, and especially the place where markets are being made to convert cryptocurrency into so-called fiat. Someone or something is making those markets, and in so doing expanding and contracting a balance sheet, in search of expected profit (see here for example). Cryptos fear credit, but I suspect they will soon discover that credit is a feature not a bug, and that will require them to re-examine the implicit monetary theory that underlies their coding. To date, technologists seem to have felt that they have nothing to learn from the operation of the existing monetary and financial system, as their disruption is intended to replace it with something better. But from a money view standpoint, it is the institution of credit that is the real disruptor, which is fundamentally why it is feared, by cryptos and also by the rest of us. The answer, as Bagehot long ago taught us, is not to eliminate credit but rather to manage it, and “Lombard Street has a great deal of money to manage”.
There is a story here about North Korea using excess coal reserves to mine Bitcoin.I’m not really sure what the value of Bitcoin is to them if they lose all of their trading partners. I guess its all Black Market stuff they would be buying – I’m just not sure the Bitcoin black market is big enough to satisfy the needs of a sovereign nation. That being said I’m totally ignorant on the subject.
What I want to note here is the dichotomy between North Korea, our arch enemy, and Fidelity – a darling of Wall street and all that America stands for. Read here about Fido.
They’re both mining Bitcoin! If both the bad guys and the good guys see the utility in Bitcoin then what does that make Jamie Dimon?
I would have thought the news about Fidelity mining bitcoin would have pushed the bitcoin price up a bit more – but some rumors out of South Korea (the “good Korea”) banning ICO’s put a bit of a damper on things. I would note that at the time of this writing Bitcoin recovered to ~$4,200 USD but ethereum had not regained $300. Certainly this ICO news (if verified) would hit Ethereum harder than Bitcoin.
Currently the #1 use for Bitcoin and other crypto is the ability to store and move your money without intrusion. There is no other safer, easier method to transport funds around the world than Bitcoin. Governments are out for your wealth and will seize it first and ask questions later. If you’re caught with a bunch of legit cash you are presumed guilty of some crime pretty much automatically.
I went to the airport today to head to San Francisco to buy a car I’d found on Craigslist. I find my gate and am strolling past it to go grab a bite to eat while I wait to board when I hear my name softly called from behind me. I turn around to see two guys I’ve never met.
They introduce themselves as what I think I remember to be DEA. We step into a stairwell to have words. They ask to search my bags, my person, etc. I complied to all. After a few minutes of them asking what I’m doing and me asking what hell they’re doing, they say they suspect me of dealing drugs. I tell them I’m not a drug dealer, that I don’t do drugs, that I can pass any test they wanna give me, yada yada yada.
They keep pressing and I eventually say something to the affect of ‘Is this about the cash in my bag? Did TSA see my cash and tell you guys to question me or something? I read the laws before coming here and there is nothing illegal about flying domestically with ANY amount of cash.’ They said it’s drug money, I told them they’re wrong and I can prove it. They said the car doesn’t exist, I told them they’re wrong and I can prove that too. I even showed them text messages the seller and I had exchanged. They said I can’t show where the money came from, I told them I can show them whatever transaction receipt they need. The money was pulled from a retirement account. I myself didn’t have the physical receipt on me (because why the fuck would I?), but I assured them that my accounts manager can show them whatever the fuck they wanna see. They didn’t care and took my cash anyway.
I missed my flight, was questioned for nearly 4 hours, was paraded through my hometown airport in fucking handcuffs, was charged with NOTHING, and was STILL robbed of nearly $20,000! Currently waiting to hear back from several different attorneys (it’s 11:00pm where I am).
Anyone have any pro tips on how to get my money back ASAP and also sue the fucking pants off this agency? I’m not a rich man, but I’m willing to spend more than I lost if it means I win and am able to get my stolen funds back while also telling the DEA or Uncle Sam or whoever to kiss my fucking nuts.
TL/DR…DEA (I think) seized my money in what certainly seems to be an illegal seizure. Want to get my money back and hopefully get some people fired along the way.
EDIT—- they called in a search dog while I was being interrogated. The dog casually strolled past 1 bag that didn’t belong to me, strolled past my bags with no reaction, and strolled past a fourth that also didn’t belong to me – no reaction to any bag. The handler took the dog around the corner and out of sight, said or did who knows what, came back in the room, PHYSICALLY PICKED UP MY TWO BAGS AND SHOOK THEM A LITTLE, and then the dog walked over and basically mimicked what the handler did. The dog grabbed my bags individually, shook them around in his mouth, and was then rewarded with a treat of some sort. While waiting for the dog to arrive, the DEA guy said the dog was gonna sniff my money, not my person or whatever. I told him I’d seen a thing on Dateline or something where 4/5 bills $20 or larger tested positive for cocaine traces and that there’s no way they can take my money based on a dog saying it smells like drugs. There’s an 80% chance of it happening. He told me to ‘shut up.’ No joke.
UPDATE — got ahold of a local attorney that offered to take the case pro bono. He said that since I can prove the money was legally earned, was withdrawn from my retirement account just a couple days ago, and that the money was all $100 bills and were still wrapped in the $10,000 bands that had the bank name and the date stamped on them, that immediately throws out the hit or whatever it’s called when the dog grabbed and shook my shit. Attorney told me go get bloodwork done today to show that I’m not a drug user.
He was a prosecutor for 23 years before going into criminal defense. He said there’s only like 1 or 2 scenarios where someone has a legitimate shot at suing the DEA, and that my case falls into that very unlikely category. He said I could likely expect a 100% return of the forfeiture within the next few weeks, or that we can forgo that option and instead attempt to sue the agency (which could end up taking a couple years).
Bitcoin prices are heading higher today which some are attributing to the ECB (Euro. Central Bank) saying that Bitcoin and crypto was outside of their jurisdiction. I’d point out that regulating and taxing are two different things. I also don’t think that regulation is bad per se – there are a lot of scam artists out there.
I was at an airport killing some time talking to a random guy. He mentioned his neighbor was robbed the previous night. The story he told me was that this guy was “big into trading Bitcoins” and met some strangers at the local Starbucks to give some bitcoins in exchange for cash. Well, these guys followed him home and robbed him at gunpoint.
This highlights some of the problems when using LocalBitcoins.com or other such site. Yes, the transaction is anonymous but you run a really high risk of dealing with criminals. Plus if you’re a seller you could be in legal trouble as the government might label you a moneytransmitter, which requires extensive licensing.
Curiously the story was in the news, but doesn’t mention anything about Bitcoins.
While the world tries to figure out what China is doing in regards to Bitcoin I think there is one serious threat that is not being reflected in the Bitcoin price. While its been widely reported that China is essentially closing all Bitcoin exchanges another news source is reporting that Bitcoin “executives” are forbidden from leaving the country and makes a note that all Bitcoin businesses in China are under threat. Including miners.
Chinese dominate bitcoin mining, and therefore are the engine of the Bitcoin network. If they shut off tomorrow who is to say exactly what would happen – but the Bitcoin network would most certainly slow way down.
While its certainly possible for other countries to pick up what China drops, it wouldn’t happen overnight.
I really do not know how real this threat is, but its important to be aware of what may lie ahead.
Disclaimer: These are just my thoughts, don’t trade on my speculation.
When trying to set a bottom price in Bitcoin – the price I view as “the bottom” I like to look at Bitcoin mining (go here to learn about mining). The process of mining itself isn’t what matters for this topic – just the cost to mine Bitcoin. Miners run computers which complete complex calculations to earn bitcoin. Computing takes electricity which is the “cost” to produce Bitcoin. When the price is high enough then miners make money. If any of the following happen then mining could become unprofitable:
Bitcoin price drops substantially
The price of electricity increases dramatically
The complexity of the calculation increases dramatically, requiring more computing power and therefore more electricity – aka Difficulty and Hashrate
Dramatic increase in mining competition
In a very dramatic scenario if the cost of mining Bitcoin was way above the price, then Bitcoin Miners would stop mining and the Bitcoin network would shut down.I want to stress at this point its highly, highly, highly improbable.
Bitcoin Miners Run the Show
Cutting to the point – many sites like this one allow you to enter in a bunch of variables and calculate “mining profitability”. The variables are very important for actual miners. I like to use the Bitcoin Mining breakeven price as the “bottom” in Bitcoin prices. For this exercise I just try to get a baseline.
My view is that the miners are the guys with millions of dollars in hardware aka major skin in the game. Therefore their breakeven price should be “defended”, meaning the Bitcoin price should stay above that mining breakeven level. Looking at it a different way (I am generalizing here) – if you can buy something for less than it costs to produce – thats a good deal, right? This is assuming there is major demand for that product/asset.
If the Bitcoin price was to stay below this level for an extended period then I think Bitcoin prices could fall further.
Bitcoin Price Breakeven Math
Currently CryptoCompare shows a 15% per day profitability in Bitcoin mining. This indicates that the breakeven price for miners is around $3,600 USD with Bitcoin currently trading at ~$4,000 USD.
In the last bitcoin selloff we went below this $3,600 number but bounced back and hung around that price. Could just be coincidence, who is to say for certain..
There are obviously hundreds of other things to consider when determining the price of Bitcoin. Because its such a new market it can be tough to get a baseline value, and thats why I decided to post this outlining what I use.