The Math Of Bitcoin And Why One Analyst Says It's Not Yet In A Bubble

Authored by Nathan Martin via Economic Edge blog,

I have read many articles lately claiming that Bitcoin is in a bubble.  Some proclaim it similar to the famous Great Tulip bubble of 1637... but that comparison is only for those who do not understand the significance of what is happening currently with blockchain technology.  If you are new to Bitcoin and blockchain technology, I would suggest that it’s highly important for you to take the time to research the basics of how it works and why it’s different – simply Google “how does Bitcoin work.”

The main argument of those who proclaim it to be in a bubble is that the people buying it at these prices are not buying it for its original purpose – which they believe to be enabling transactions.  Yes, it is being used for transactions, much more than 100,000 businesses now take Bitcoin for transactions.  But instead naysayers believe that others are buying it as an “investment” and thus will surely be burned.

For me, and I believe most who understand what is happening, we are not buying it for either of those reasons.  We own it because we see it acting as a “store of value,” where nothing else priced in dollars is.  With interest rates artificially low (manipulated by central banks), a normal person cannot earn even near the pace of actual inflation with any type of traditional savings account.  Bonds are artificially in a bubble, stocks are artificially in a bubble, real estate is in yet another bubble, everywhere one who understands bubble dynamics looks they see a bubble (but not Bitcoin, people are trading in their worth less and less dollars for them).  The bubble is the dollar – the world’s “reserve” and “petro” dollar is being drowned by central banks all over the globe, not just our own “FED.”

And thus there is no store of value to be found.  This is a terribly ugly situation for people who believe in hard work and saving to get ahead; to someday retire comfortably.  Retirees on fixed incomes simply cannot, and will not be able to keep up as the impossible math of dollar debt continues on its vertical ascent.

We would love to love gold and silver, but those too, are manipulated by central banks who own the majority of it.  They manipulate and derivative the markets to artificially keep devaluation of the dollar hidden.

Control of the dollar is centralized with the banks, that’s why we refer to them as “central” banks.  All the power and control resides with them; as private individuals were wrongly, and illegally, given the power to “coin” money with the Federal Reserve Act of 1913.

What makes Bitcoin a better store of value?

1.  It is decentralized.  This is huge!  It means that it is not under the control of central banks, and thus cannot be manipulated directly by them.  This is THE MOST IMPORTANT aspect, it is a game changer as it changes the WHO is behind it – something that gold and silver do not do because central banks have printed “money” to buy the majority of it.


Caution – Central banks may be able to indirectly manipulate blockchain currencies in the future if they create ETFs and other derivatives based upon them.  This, however, will not change the underlying store of value, and when it happens I would encourage you not to own the derivative, but to instead buy Bitcoin directly, again because it’s not in control of the central banks, is decentralized versus their centralized everything which makes them vulnerable.  Yes - Central Banks can print dollars and use them to buy Bitcoin, but that will only drive the price up and cause others to enter as well.  In the end they cannot manipulate what they don't control.


Even if central banks were to “ban” exchanges in one country, all one will have to do is join an exchange overseas.  This has the central banks trumped, it cannot be stopped.


To better understand the power of decentralization, please take the time to watch the video at the end of this post, or (click on this link).


2.  Unlike tulips, dollars, or even precious metals, Bitcoin is strictly limited in its supply.  This is where the math comes in.  Bitcoin was founded in 2008 and there will ultimately be only 21 million Bitcoin ever mined.  Today we are approaching the 80% mark, the remaining 20% will take years to mine, and the “mining” gets more difficult and slow as we go.


This is a hard feature built into the coding.  It’s what makes Bitcoin a store of value – the more money that comes in, the more each Bitcoin is worth.  As I type, that is $2,774.00 per Bitcoin according to Coinbase where you can go to open an account, much like a brokerage account (there are currently 7.3 million Coinbase users).  Of course you can buy Bitcoin in any increment, you don’t have to buy them in whole units.


People all over the world can buy, own, and transact in Bitcoin.  There are now 7.3 billion people on the planet, so if all 21 million Bitcoin were distributed evenly to every person on the planet, each person would have only .0028767 of one bitcoin!


Another way of stating that math is that only 1 person out of every 347.6 people can possibly ever own a whole Bitcoin.


Today the market cap of Bitcoin is $45.17 Billion.  The more money that comes in, the higher the market cap, the higher the price of Bitcoin.


Many analysts start to compare Bitcoin’s market cap with that of large companies like Apple, whose current market cap is 18 times that of Bitcoin’s at $810 Billion.


But here’s the deal.  Bitcoin is not a company, it is a form of money.  Unlike dollars, there will not be an endless supply.  In fact, if you took the entire M2 money supply of the United States, currently $13.5 trillion, and put it all into Bitcoin instead, then each Bitcoin would be worth $642,857.  But Bitcoin is not just traded in dollars – it’s traded in every currency in the world.  And right now global M2 money supply is calculated as roughly $72 trillion, or $3.4 million per Bitcoin.


It’s true that other blockchain currencies are springing up like daisies, or tulips.  But their market caps combined are just now rivaling that of Bitcoin’s.  So, yes, they will be “diluting” bitcoin’s math.  Not all crypto currencies have hard limits to their supply, and that will mean that they will always be worth less.  Right now Ethereum is in second place with a market cap of about $24 billion compared to Bitcoin’s $45 billion.  Litecoin is another cryptocurrency designed to be “silver” compared to Bitcoin’s “gold.”  There will only be 84 million Litecoins ever mined, exactly 4 times the amount of Bitcoins.  However, Litecoins are currently trading for roughly 1/100th the price of Bitcoin, I would expect the math to eventually catch up as more people become aware of Litecoin’s also limited supply.


3.  Bitcoin is a better store of value because it is secure.  Decentralization and encryption make it secure.  It can be stored in electronic cyber “vaults” where you keep a hard copy of the encryption cypher.  This means that your exchange can be hacked, your computer hacked, but your bitcoin don’t actually reside in either!  They reside on someone else’s computer somewhere – and only you have the code to get to it.  Thus they cannot be confiscated by a government, a banker, or a hacker.


I liken this to the pursuit of freedom versus the pursuit of security.  When you pursue freedom, you get security at very little cost.  That’s what decentralization does.  Bitcoin is the pursuit of freedom – whereas centralized systems, such as central banking, or even socialism, are the pursuit of security and the abandonment of freedom.

Pursue freedom!


4.  Bitcoin transactions are stored on a public ledger, all confirmed transactions are included in the blockchain.  Again, decentralized bookkeeping is less vulnerable and more secure than centralized legers.  This is where Ethereum, another blockchain currency, shines.  Ethereum is built upon an encrypted ledger and can be used for many purposes, not just as a currency.


One use is that these encrypted ledgers will enable safe and secure online voting one day soon.

Someday Bitcoin will, in fact, be in a bubble.  But that day is not now, not even close.  The great thing about all cryptocurrencies is that they can and do exist alongside of whatever “money” we use for our transactions.  They also exist alongside of gold/silver, and may in fact be drawing money that otherwise would be seeking a store of value there.

So I say, let competition reign!  I will use dollars for transactions because I have to (for now), but I will use cryptocurrencies, gold, and silver to park my dollars so that the central banks cannot destroy their value.  And that in a nutshell is why Bitcoin is NOT in a bubble, and won’t be for quite some time.

That said, do expect many sharp pullbacks along the way.  Remember that NOTHING moves in a straight line, EVERYTHING moves in waves.  You need to pullback to fuel the next push higher – this is true with all waves.   The chart shape is definitely showing parabolic growth, but I expect that when looked at across many more years this will simply be a part of building a base.

So how will we know that a true bubble has formed?  For me I know that cryptocurrencies are the future and that they will trade alongside sovereign currencies and will eventually replace them.  I will NOT own any cryptocurrency created or “managed” by a bank.  Until the market cap of Bitcoin rivals that of the United States, I will not be convinced that growth has stalled.  There are, of course, other signs we can look for.


The late Hyman Minsky, Ph.D., was a famous economist who taught for Washington University’s Economics department for more than 25 years prior to his death in 1996. He studied recurring instability of markets and developed the idea that there are seven stages in any economic bubble:

Stage One – Disturbance:

Every financial bubble begins with a disturbance. It could be the invention of a new technology, such as the Internet (Bitcoin). It may be a shift in laws or economic policy. The creation of ERISA or unexpected reductions of interest rates are examples. No matter what the cause, the outlook changes for one sector of the economy.

Stage Two – Expansion/Prices Start to Increase:

Following the disturbance, prices in that sector start to rise. Initially, the increase is barely noticed. Usually, these higher prices reflect some underlying improvement in fundamentals. As the price increases gain momentum, more people start to notice.


Stage Three – Euphoria/Easy Credit:

Increasing prices do not, by themselves, create a bubble. Every financial bubble needs fuel; cheap and easy credit is, in most cases, that fuel (central banks creating it still like mad). Without it, there can’t be speculation. Without it, the consequences of the disturbance die down and the sector returns to a normal state within the bounds of “historical” ratios or measurements. When a bubble starts, that sector is inundated by outsiders; people who normally would not be there (not yet with Bitcoin). Without cheap and easy credit, the outsiders can’t participate.

The rise in cheap and easy credit is often associated with financial innovation. Many times, a new way of financing is developed that does not reflect the risk involved. In 1929, stock prices were propelled into the stratosphere with the ability to trade via a margin account. Housing prices today skyrocketed as interest-only, variable rate, and reverse amortization mortgages emerged as a viable means for financing overpriced real estate purchases. The latest financing strategy is 40, or even 50 year mortgages.

Stage Four – Over-trading/Prices Reach a Peak:

As the effects of cheap and easy credit digs deeper, the market begins to accelerate. Overtrading lifts up volumes and spot shortages emerge. Prices start to zoom, and easy profits are made. This brings in more outsiders, and prices run out of control. This is the point that amateurs, the foolish, the greedy, and the desperate enter the market. Just as a fire is fed by more fuel, a financial bubble needs cheap and easy credit and more outsiders.

(I believe stage 4 is still in the distant future for Bitcoin)

Stage Five – Market Reversal/Insider Profit Taking:

Some wise voices will stand up and say that the bubble can no longer continue. They argue that long run fundamentals, the ratios and measurements, defy sound economic practices. In the bubble, these arguments disappear within one over-riding fact – the price is still rising. The voices of the wise are ignored by the greedy who justify the now insane prices with the euphoric claim that the world has fundamentally changed and this new world means higher prices. Then along comes the cruelest lie of them all, “There will most likely be a ‘soft’ landing!”

This stage can be cruel, as the very people who shouldn’t be buying are. They are the ones who will be hurt the most. The true professionals have found their ‘greater fool’ and are well on their way to the next ‘hot’ sector.  Those who did not enter the market are caught in a dilemma. They know that they have missed the beginning of the bubble. They are bombarded daily with stories of easy riches and friends who are amassing great wealth. The strong will not enter at stage five and reconcile themselves to the missed opportunity. The ‘fool’ may even realize that prices can’t keep rising forever… however, they just can’t act on their knowledge. Everything appears safe as long as they quit at least one day before the bubble bursts. The weak provide the final fuel for the fire and eventually get burned late in stage six or seven.

Stage Six – Financial Crisis/Panic:

A bubble requires many people who believe in a bright future, and so long as the euphoria continues, the bubble is sustained. Just as the euphoria takes hold of the outsiders, the insiders remember what’s real. They lose their faith and begin to sneak out the exit. They understand their segment, and they recognize that it has all gone too far. The savvy are long gone, while those who understand the possible outcome begin to slowly cash out. Typically, the insiders try to sneak away unnoticed, and sometimes they get away without notice. Whether the outsiders see the insiders leave or not, insider profit taking signals the beginning of the end.

(This is where I believe Stocks, Bonds, Real Estate, Auto prices, Student loans, etc. are today; although it is wise to remember that the best performing markets in terms of percentage rise are the ones where hyperinflation is occurring - Zimbabwe, Nigeria, and today Venezuela.  An interesting thought is that we may see cryptocurrencies appear to be inflating while real assets move to another round of deflation - dollars seek safety/store of value)

Stage seven – Revulsion/Lender of Last Resort:

Sometimes, panic of the insiders infects the outsiders. Other times, it is the end of cheap and easy credit or some unanticipated piece of news. But whatever it is, euphoria is replaced with revulsion. The building is on fire and everyone starts to run for the door. Outsiders start to sell, but there are no buyers. Panic sets in, prices start to tumble downwards, credit dries up, and losses start to accumulate.

(When this happens to stocks, I expect Bitcoin and other cryptos to benefit).


Stackers Jubal Early Fri, 06/09/2017 - 10:31 Permalink

I dont own Bitcoin as a store of value.I own Bitcoin, becuase I am a blockchain Venture CapitalistVC's speculate on new tech all the time. They see something that has potential and are willing to take the all or nothing risk of being one of the first to speculate on the tech. If you understand just half of what blockchain technology is capable of then, it's a speculative venture worth making.

In reply to by Jubal Early

TwelveOhOne Harlequin001 Fri, 06/09/2017 - 10:46 Permalink

I received the following email from someone trying to disparage Bitcoins.  Funnily enough, he didn't hide his WHOIS info.  Feel free to give him a call if you're in Australia and ask him about his Bitcoin terrorism website.---Dear Member.USA Homeland Security detected that your BTC account and e-mail address [REDACTED] were possible used to fund operations of the Islamic State in Iraq and Syria (ISIS) in preparation for terrorist acts in Manchester (England). Please examine the case materials and your further actions. The documents are attached.View InformationKind Regards07.06.2017---I won't include the "View Information" link as it includes my REDACTED email.  The link goes to the domain -- and if you go to the domain, it loads nothing in the browser, but does download a file called "Information.xlsm".  I did not open this file with LibreOffice, as it may contain malware.Looking at the whois info for that site (below), I see that it appears to have been registered by some loser in Australia, Daniel Grimson, who chose not to use a privacy service!  Perhaps I'll order him a pizza.  Or a call girl., when given his address, shows an image which appears to be residential.Loser is fucking with the wrong people, I think.  He's safe from physical retribution as I'm in the US and not planning international trips any time soon.  But there are likely people in his neighborhood that he has emailed with this scam, and they will have a much easier time contacting him.Oh, also it appears that he registered his domain via -- and that site has a "report abuse" form, so I filled it out.  Didn't give my name or email address -- as the site might be associated with the spammer.  (I'm wondering how he got my email address in the first place.)Be careful out there!---RAW WHOIS DATADomain Name: ABUSEBITCOIN.COMRegistry Domain ID: 2127114919_DOMAIN_COM-VRSNRegistrar WHOIS Server: whois.publicdomainregistry.comRegistrar URL: www.publicdomainregistry.comUpdated Date: 2017-05-23T11:05:32ZCreation Date: 2017-05-23T11:05:31ZRegistrar Registration Expiration Date: 2018-05-23T11:05:31ZRegistrar: PDR Ltd. d/b/a PublicDomainRegistry.comRegistrar IANA ID: 303Domain Status: clientTransferProhibited Registrant ID: Not Available From RegistryRegistrant Name: Daniel GrimsonRegistrant Organization: Registrant Street: 26 Barcoo Avenue   Registrant City: LeumeahRegistrant State/Province: New South WalesRegistrant Postal Code: 2560Registrant Country: AURegistrant Phone: +61.404384356Registrant Phone Ext: Registrant Fax: Registrant Fax Ext: Registrant Email: email@mail.comRegistry Admin ID: Not Available From RegistryAdmin Name: Daniel GrimsonAdmin Organization: Admin Street: 26 Barcoo Avenue  Admin City: LeumeahAdmin State/Province: New South WalesAdmin Postal Code: 2560Admin Country: AUAdmin Phone: +61.404384356Admin Phone Ext: Admin Fax: Admin Fax Ext: Admin Email: email@mail.comRegistry Tech ID: Not Available From RegistryTech Name: Daniel GrimsonTech Organization: Tech Street: 26 Barcoo Avenue  Tech City: LeumeahTech State/Province: New South WalesTech Postal Code: 2560Tech Country: AUTech Phone: +61.404384356Tech Phone Ext: Tech Fax: Tech Fax Ext: Tech Email: email@mail.comName Server: 1a7ea920.bitcoin-dns.hostingName Server: a8332f3a.bitcoin-dns.hostingName Server: ad636824.bitcoin-dns.hostingName Server: c358ea2d.bitcoin-dns.hostingDNSSEC:UnsignedRegistrar Abuse Contact Email: email@publicdomainregistry.comRegistrar Abuse Contact Phone: +1.2013775952URL of the ICANN WHOIS Data Problem Reporting System:>>&gt; Last update of WHOIS database: 2017-06-07T16:05:47Z <<<For more information on Whois status codes, please visit Service Provided By: DOMAINS4BITCOINS.COMThe data in this whois database is provided to you for information purposes only, that is, to assist you in obtaining information about or related to a domain name registration record. We make this information available "as is",and do not guarantee its accuracy. By submitting a whois query, you agree that you will use this data only for lawful purposes and that, under no circumstances will you use this data to: (1) enable high volume, automated, electronic processes that stress or load this whois database system providing you this information; or (2) allow, enable, or otherwise support the transmission of mass unsolicited, commercial advertising or solicitations via direct mail, electronic mail, or by telephone. The compilation, repackaging, dissemination or other use of this data is expressly prohibited without prior written consent from us. The Registrar of record is PDR Ltd. d/b/a We reserve the right to modify these terms at any time. By submitting this query, you agree to abide by these terms.---

In reply to by Harlequin001

hedgeless_horseman TwelveOhOne Fri, 06/09/2017 - 10:52 Permalink

 You may have missed this ZH article earlier this week:A Simple Method to Trade Bitcoin Against Gold…

...many people are unwilling to invest in things they do not understand, and crypto curency is certainly one of those things for me.  I am looking forward to the opportunity to dramatically increase my understanding at the symposium.  Lord knows I like to discuss smart ways to aquire physical gold.

In reply to by TwelveOhOne

hedgeless_horseman TwelveOhOne Fri, 06/09/2017 - 11:09 Permalink

 Speaking of backtesting...Rumor has it that lonely cowgirls with hard assets from up and down the Rio Grande and across the high desert are coming to Marfa next week to learn about crypto currency and disintermediation, drink tequila, and listen to some great live music.   PS:  Chumba needs a ride to Marfa from NorCal.  Something about his horse ain't broke, or he is broke, I can't remember which.  Look him up on ZH Chat.

In reply to by TwelveOhOne

hedgeless_horseman Jim Sampson Fri, 06/09/2017 - 11:48 Permalink


Is this the time of year those lights come out at night near Marfa?

Absolutely.  We are going out to take a look, Thursday night, and to hold the Seth Rich Memorial Ranch Water Drink-Off.Ranch Water

  • 2 ounces Tequila
  • Lime wedge
  • Topo Chico, 12 oz. ice cold and in the bottle

Open Topo Chico. Drink off about 2 ounces.Top with Tequila.Squeeze and stuff the lime in the bottle. Su nombre era Seth Rich.

In reply to by Jim Sampson

jaxville sirsmokum Fri, 06/09/2017 - 15:52 Permalink

Good Fucking Grief!!!!  I have been ambivalent towards bitcoin and the other cryptos since I first heard of them some five or six years ago.  I have had folks suggest that I am a Luddite or just a plain technological simpleton for not participating in that scheme.  I am told how it is a secure store of value but everyone I know playing with it are in it for capital gains.  I am told it is money but the only businesses in my community that I know of that accept it are a handful of restaurants and coffee shops. I am certain they do so only so the principles of those businesses can speculate in it.  The online precious metal vendors that accept bitcoin do not pay their employees in it nor do they pay their suppliers with it.  The premiums for those in my community who redeem (or buy) it through the debit machines here are looking at 10-15% premiums or discounts.  We are constantly told of the value of the blockchain technology.  As far as I can tell it is not proprietary and available to all who want to use it , sort of like open source software.  Hard to see that as having a tangible value. I do understand that even intangibles can be assigned value.  The point I am trying to make is that I see the price of bitcoin rising whereas I have seen very little increase in it's value.  Those of you who are acquiring in order to have wealth in a post dollar collapse environment should look very carefully at the mechanics of exchanging it for other currencies and, far more importantly; tangible goods within your community.  You can find someone willing to sell you anything for cryptos online.  Downtown will be a completely different story.

In reply to by sirsmokum

hedgeless_horseman buttmint Fri, 06/09/2017 - 11:57 Permalink

 We're Southeast Texas, a short 10 hour drive from Marfa.… put, life is a journey, not a destination.  If you need more eloquent and powerful versions of this message, then please consider reading these great road trip books...

  • On the Road, Jack Kerouac
  • The Stand, Stephen King
  • Fear and Loathing in Las Vegas: A Savage Journey to the Heart of the American Dream, Hunter S. Thompson
  • The Motorcycle Diaries, Ernesto Guevara
  • Lonesome Dove: A Novel, Larry McMurtry [one of my most favorite books]

In reply to by buttmint

Bunga Bunga mtl4 Fri, 06/09/2017 - 13:55 Permalink

Cryptos will be in a bubble, when the bubble heads on CNBC talk it 24/7 like they talked tech stocks in the dotcom bubble. Cramer will have his own show on cryptos, at least 50 different crypto ETFs will be trading, there will be a crypto IPO each week, there will be a Dow Jones crypto index, retirement funds will invest into cryptos aso. There will be also several crypto Enrons, most cryptos will go down in flames or just be revealed as outright scams. Only a few cryptos will be left over after the giant crypto massacre, but they will be here to stay. Which one? You have to understand the technology behind it to be able to sort out the good from the bad. So learn it, now is the time.

In reply to by mtl4

El Oregonian TwelveOhOne Fri, 06/09/2017 - 11:47 Permalink

I have changed my mind on Bitcoin. I, like mostly everyone here, disparaged bitcoin for the past 18 months. But upon DOING MY HOMEWORK I have come to realize that this is new technology and you have to rethink it in a new context, a new paradigm. You can not view it as a 1850's blacksmith who produces horseshoes to understand the functionality of 2017 automobile. He would not understand it UNTIL he read up on it to give him an informed understanding of how it works.It is exactly the same with crypto currencies. You have to take the time to truly understand them. But remember, there are just as many scammers out there as legitimate crypto's out there. It is your responsibility to do your homework. 

In reply to by TwelveOhOne

hongdo Stackers Fri, 06/09/2017 - 11:09 Permalink

OK maybe you can explain.1.  It is decentralized  I read somewhere that the majority of miners are in China at about 25% and could achieve >50% which means that Bitcoin would be centralized and open to control.  If there are a total potential of 21 M Bitcoins possible and they go to $1M (per Cramer), that's a capitalization of $21T.  Has anyone done a time frame calculation on the cost of the computing power to achieve >50% miner domination versus the Bitcoin capital that would be controlled?  Or am I all wet.  Lets see some numbers and logical arguments.2. Bitcoin is strictly limited in supply.  And therefore a store of value.  Non sequetor.  So what.  And what about forks?3. Better store of value because they cannot be confiscated.  Similar to cell phone passwords.  If the gov wants it, you give it, or go to jail.  Remember 4th amendment is not recognized by gov at borders which extend 100 miles inward.4. Bitcoins stored in a more secure public ledger.  Although a better  more secure form of encrypted ledger has already been developed that Bitcoin does not use.Forgive me, I just don't see the magic here.  I would really like to have a secure anonymous form of money that easily crosses borders and can be converted from/into various fiats without observation or taxes.  But I don't see it yet.  Feel free to straighten me out with rational fact referencing arguments.

In reply to by Stackers

hongdo kochevnik Fri, 06/09/2017 - 12:09 Permalink

I get some of the gen differences, but the author is describing the advantages of Bitcoin.  My point is I don't want to buy Bitcoin just to see it become obsolete to the new gens or co-opted by a miner mafia or forked.  So what do you recommend?So you love your gov where you are from?  As to the bombing, I get your point.  But I came from a gen that protested war.  Current gen protests micro-agressions.  I voted for Trump cause he promised to get out of wars.  Not so sure he is any better than Obama but I believe he is better than "We came, we saw, he died" and "Give up your guns" Clinton.  But I don't see what that has to do with Bitcoin?

In reply to by kochevnik

divingengineer Stackers Fri, 06/09/2017 - 13:25 Permalink

I have made a $200 initial test of this, I am watching the mechanics of how Coinbase works, and have to overcome my skepticism to even experiment.
We shall see.
In theory, I get it.
In practice I would like to see prices stabilized before getting serious about any crypto.

One big problem I see with crypto is people don't understand it.
My wife is a professional, not an unintelligent person, and cannot grasp the basic concepts let alone the technical details of blockchains, encryption, price appreciation, etc.
She, undoubtedly, is not unique.

In reply to by Stackers