"Here Are The 3 Questions We Hear Most About Bitcoin Right Now"

As DataTrek's Nick Colas, formerly chief market strategist at Convergex Group, writes overnight, "we’re doing our best to make sure we don’t flood you with bitcoin/crypto information because there are plenty of other issues with broad appeal." However, he finds that hard to do when the topic dominates both financial news headlines and popular imagination... and when it goes from $11,000 to $8,900 in two hours.

To address some of the pent-up confusion, here are the three questions (and answers) Colas it getting most about bitcoin at the moment:

#1 Where is all the new interest coming from (i.e. is it just the US?)

Looking at Google Trends, the top five countries for bitcoin searches over the last 24 hours are: The Netherlands, Australia, South Africa, Singapore, and Switzerland. The US is in 8th place. Searches for “Coinbase” (a popular wallet app) come from Malta, Singapore, the US, Norway and Switzerland (in that order).  Within the United States, bitcoin is strictly a bicoastal phenomenon. Google searches come most from New York, California, Hawaii, New Jersey, and Washington. Searches for Coinbase look the same.

The upshot is that bitcoin is a tech-enabled (and therefore global) phenomenon, which is a critical feature of its price advance. We can’t think of another financial asset in history where the majority of the world’s citizens can invest as easily as they view an Instagram picture or chat on Twitter.  And on that point, one fun (and perhaps telling) statistic: in the US, Google searches for bitcoin are 6-7x greater than those for “Kim Kardashian”. Enough said…

#2 When will the rally stop/slow down, and what is bitcoin’s “Fundamental” Value?

Our best look at bitcoin’s intrinsic worth is to compare it to the total value of American and European high-denomination bank notes in circulation. Both bitcoin and its fiat currency counterparts are portable stores of wealth, which appeals to buyers/holders of each. Yes, fiats are government backed, but you can’t counterfeit a bitcoin. So we’ll call it a draw in terms of relative attractiveness.  There are currently $1.1 trillion in $100 bills in global circulation, and $650 billion in high denomination euro notes. Total value: $1.7 trillion, not counting counterfeit notes that likely add 20-30% (in the case of $100 bills at least).

By comparison, bitcoin’s current total value is $167 billion, and total crypto currency outstanding is $307 billion.

The question is: what is the appropriate share for crypto currencies like bitcoin in a market defined as “fiat+crypto currencies”? At current levels, bitcoin’s share is 8%, and all cryptos combined have a 15% share.

Where could this ratio go? Here is a table to consider, assuming bitcoin remains 50% of the total crypto currency market (a fairly sticky ratio lately):

  • Bitcoin at $20,000: 14% market share of crypto+fiat paper currency market
  • Bitcoin at $50,000: 25% market share
  • Bitcoin at $100,000: 33% market share

The calculus here comes down to adoption rates, just as it does with any new technology. One advantage for bitcoin in terms of price: incremental supply comes on very slowly, unlike other tech-enabled products like smart phones where manufacturers produce as many units as possible.

Our take: bitcoin remains a highly speculative asset – the spiciest thing we’ve seen in +30 years on Wall Street. We can see pathways where it continues to climb, but even a glance at a historical price chart shows this is a highly volatile situation. More on that in point #3…

#3 VERY IMPORTANT: What will the entrance of futures exchanges and bitcoin contracts do to the price?

Both the CME and CBOE are set to launch bitcoin futures soon, and today the NASDAQ threw its hat in the ring as well. Moving bitcoin into a regulated structure will allow more sorts of investors and traders to speculate on price moves in the currency. That, the thinking goes, should be good for bitcoin prices.

One intriguing point: shorting bitcoin is currently a clunky process, but futures markets will make it much easier. The difficulty of shorting bitcoin has been an underappreciated feature of its meteoric rise, limiting true price discovery. Whether anyone is brave enough to put on a sizable short position remains to be seen. But someone who wants to back up their “Bitcoin is a fraud” talk with dollars will soon have a place to express their viewpoint.

* * *

And a final, and deeply cautionary, point: yesterday’s plunge in bitcoin’s price may have been caused by a DDOS (Direct Denial of Service) attack on several exchanges. That’s the color from some market observers, anyway. The speed and severity of the decline certainly points to a technological glitch.

Put together the ability to short bitcoin easily with what happened today, and you see the problem. The financial incentives to disrupt the bitcoin exchange/wallet ecosystem increase exponentially once futures start to trade. Whether the world’s bitcoin exchanges and wallets are up to that challenge is an important – and unanswered - question.

Comments

LetThemEatRand Thu, 11/30/2017 - 23:13 Permalink

#4 what has happened to every other currency that threatened those of the banksters.  Even Libya had lawyers, guns, and money.  Bitcoin has none of the above.

Bumpo MGTOW_MONERO_XMR Fri, 12/01/2017 - 03:13 Permalink

If you want Bitcoin, or if you want to sell Bitcoin, you have to deal with the real thing first. There just isn't that much available to be purchased. You can try, and then you can try and short it on the crypto exchanges. But be prepared to be pounded as soon as your done, as others are just waiting to rush in to buy cheaper. Its happened many times, and the shorts get their asses handed to them every time. The writer of this article doesn't seem to get that CME and CBOE are NOT dealing with actual Bitcoin. They're playing with the dollar and other Fiat pretend proxies. Bitcoin doesn't play the unlimited reserve currency game. Its the real thing or nothing.  Wallstreet is playing in two different worlds and will learn the hard way.

In reply to by MGTOW_MONERO_XMR

BringOnTheAsteroid tmosley Fri, 12/01/2017 - 03:55 Permalink

I'm still floundering with all this.A bitcoin is a hash string given to a miner as a reward for validating a transaction or set of transactions? I assume it must be a set of transactions otherwise there could only be one transaction per bitcoin.That hash string has been generated by the bitcoin algorithm?When people buy a bitcoin they are essentially buying a validated part of the bitcoin blockchain? This is where my head starts to hurt because I don't understand why value is attributed to such an abstract concept. Who cares if a bunch of transactions conducted by people are agreed upon by multiple miners. Wallowing is my abject stupidity.

In reply to by tmosley

x86cowboy BringOnTheAsteroid Fri, 12/01/2017 - 04:33 Permalink

> Who cares if a bunch of transactions conducted by people are agreed upon by multiple miners.

Imagine your bank account being seized by government force, maybe then you'll care.

A bitcoin is a hash string given to a miner as a reward for validating a transaction or set of transactions? I assume it must be a set of transactions otherwise there could only be one transaction per bitcoin.That hash string has been generated by the bitcoin algorithm?

Learn more about Bitcoin here: https://www.youtube.com/watch?v=Lx9zgZCMqXE 

In reply to by BringOnTheAsteroid

freedogger BringOnTheAsteroid Fri, 12/01/2017 - 08:33 Permalink

Reward for validating a set of transactions, not single ones. (A block is the term for the set of transactions, and a block has transactions across many coins) A coin is a linked set of transactions. Coin isn't the right term either its more useful to think of sets of transactions between sending and receiving addresses with varying "amounts" all cryptographically signed and provable by independent nodes.Replaying all of the transactions between addresses (the chain of these linked transactions) will tell you what amount is still left at any particular addresses. Having access to the private key for an address will allow you to unlock it and send whatever amounts are left to other addreses.People say bitcoin isn't backed by anything but that is total bullshit. It's backed by these nodes, collectively the most powerful computing resource on the planet. There's been lots of talk recently about how much power this thing consumes. Taking down bitcoin and wiping it off the planet would be similar to destroying the internet. Wiping out the nodes or the internet in just one country or continent wouldn't work, you'd have to take out the entire internet and all the nodes on it. If it turned back on days later, bitcoin would survive and pick up where it left off. Contrast that to the ending scene of Fight Club where the bank buildings are demolished and everyone's debts are wiped out. That wouldn't be possible with bitcoin, the nodes that back the coin can be anywhere and everywhere.These nodes must reach consensus and agree before amounts at addresses with new transactions are able to be spent. Its been years since I've read the whitepaper but I started getting back into it yesterday so what I've said above is probably not entirely correct or perfect.  

In reply to by BringOnTheAsteroid

chuckymcgee Thu, 11/30/2017 - 23:21 Permalink

A better question is what ISN'T being talked about in Bitcoin the most- censorship. A Bildeberg bank backed startup called Blockstream has seized control of most major Bitcoin forums as well as backing most of the Bitcoin Core developers in order to monetize bank-like financial clearing houses on top of Bitcoin. As a result, the developers have abandoned planned transaction capacity increases for Bitcoin in order to bolster demand for these off-chain options. Fees and transaction times continue to skyrocket. All who dissent see their comments covertly removed and their accounts banned for speaking out.In response, the community released Bitcoin Cash, which implements an immediate 8x increase in transaction capacity. Fees are a few cents and transactions almost always confirm immediately. After the Bitcoin Core fork failed, Bitcoin Cash skyrocketed to the third largest cryptocurrency. The extent to which it further destablizes the legacy Bitcoin has still to be seen.

icm63 Thu, 11/30/2017 - 23:23 Permalink

US Hedge funds have been accumulating #BTC.Of size that will hurt #BTC price when sold.Yet they will load up 10x more than they have accumulated with shorts on CMETank #BTC will their holdings,  profits 10x more on the CME MY GUESS  

HRH of Aquitaine 2.0 I_rikey_lice Thu, 11/30/2017 - 23:47 Permalink

Dude, I buy and sell the swings every single day.

I don't need wall streets fucking permission to do it, either. I don't need a license. I don't need a brokerage account. I don't need a minimum amount in A, B, or C account, either.

Fuck them. I hate the CME. Long time holder of PMs here and BTC may turn out to be our ultimate revenge.

30% drop in the price of BTC means one thing, for me. A buying opportunity.

In reply to by I_rikey_lice

TheAntiKeynes Thu, 11/30/2017 - 23:30 Permalink

Why would you pay pay ~ $10,000 for a cryptocurrency unit when you can make your own? Isn't the code open source? You could afford many more units of them! Don't think they'll be accepted? I'll volunteer to trade with you...

HRH of Aquitaine 2.0 Thu, 11/30/2017 - 23:37 Permalink

Good luck to the banksters trying to ride a wild tiger! They think they can control this?

To the person waiting for the price of BTC to drop, I have bought @ $9700 and sold at $10050 twice.

Getting ready to sell again in an hour or two. Patience is a virtue.

HRH of Aquitaine 2.0 XBroker1 Fri, 12/01/2017 - 03:14 Permalink

This started off as an experiment. I never thought I would make $2 let alone double my money and actually come out with a profit.

Headache? What headache? Fucking modern life gives me a headache. Did I do this to avoid taxes? No. Did I do this to get rich quick. No.

I wanted to learn about BTC and how to trade it. Done and done.

Try and be a little more happy for someone's unexpected success. No one likes a a fucking grinch. Especially at this time of year.

In reply to by XBroker1

CPJindex One of We Fri, 12/01/2017 - 01:06 Permalink

After joining Coinspot 2 days ago in Australia, and planning to purchase some cryptos next week, I just got an email saying;"Effective Monday December 4, daily AUD deposit limits are being reduced for all customers to $5,000 per weekday.  The weekday limit for new customers will drop down to $1,000 during their first week."They reckon there is problems with deposits clearing in the banks or something like that.I'm not very happy; a sizable investment purchase has to be dragged out over many days, but I suppose this is what I gotta learn.My worry might be down the track if there becomes a limit on withdrawals...hmm

In reply to by One of We

HRH of Aquitaine 2.0 CPJindex Fri, 12/01/2017 - 03:21 Permalink

I opened my bitcoin account with $5.

The Depost and Withdrawal limits change as you establish your account.

If your biggest concern is putting large amounts of cash into an exchange be happy. I don't see what the problem is. Oh, and make sure you read the FAQs. You should have already had that information in advance. I am guessing you did but jumped in without reading the fine print.

In reply to by CPJindex

RabbitChow HRH of Aquitaine 2.0 Sat, 12/02/2017 - 18:44 Permalink

Hey, I thought BTC was expensive when it was $700.  Now $11k?  What do I do?I'll tell you.  I don't worry that it will drop down to $1000 even.  Too much interest and too many possibilities getting into the vehicle for new wealth, the new stock market, and a haven for the hyperinflating USD.One thing I think has a very big chance of occurring is Trump doing something stupid like seizing Russia's gold reserves.  Russia and maybe even China respond by dumping UST's all over the market.  They areon't going to want dollars, they are going to want Rubles or Yuan.  We in the US have a global problem, with nothing to soak up all those excess USD's when countries decide enough is enough.  The people are voting, and maybe early, to get out while they can.  BTC is good for this becuase you can convert to anything, it takes up no space, and is really completely transportable.  Can't do that even with gold.  The rest of the world doesn't care for us that much anymore, and the USD is finished.  Maybe Trump can make America  great again, but it's a very steep uphill battle and he appears to be disenfranchising his own allies.

In reply to by HRH of Aquitaine 2.0

Cabreado Thu, 11/30/2017 - 23:50 Permalink

I'm curious about how the crypto-fanatics expect this to resolve itself.Will it resolve itself in slow-motion, or all at once?Seems to me that slow-motion can't work forever; threats to "legitimate" (USD) currency will be addressed....And an all-at-once resolution is impossible, other than an epic crash.But let's be honest... we're not really talking about a "currency," are we.

Global Douche Cabreado Fri, 12/01/2017 - 01:28 Permalink

You're leaving out one thing. Bitcoin is really the first international store of value which to this point has not been easily manipulated by TPTB, and I emphasize INTERNATIONAL with this! I lose no sleep, even if the American government should decide to make cryptocurrencies illegal. I can still HODL and use it to purchase services where it's accepted. The reason such a thing won't happen here is there's too much value and momentum invested to shove the Genie back into the bottle.Consider too, if our government is concerned enough to insert FUD through DHS & the WhideHau$, then is Bitcoin not already a "currency" even if the fucking alphabet agencies and Congress Critters don't (most likely, WON'T) recognize such in the first place??

In reply to by Cabreado

quesnay slightlyskeptical Fri, 12/01/2017 - 01:15 Permalink

Transaction fees are about $6 on average now with BTC at $10,000. Presumably if everyone is using bitcoin and bitcoin is worth 1 million (which it would have to be in order to accommodate everyone) and assuming the ratio stays the same then transaction fees would be around $600. If bitcoin goes to 100,000 then transactions fees (at same ratio) would be $60.So I guess people won't be buying a pack of gum with it. ;-)

In reply to by slightlyskeptical