There have been many positive developments during the last five months and a few of the obstacles that were in Bitcoin’s way have been knocked down. An argument can be made that the good news is still not fully reflected in the current price.
That’s what Ronnie Moas, founder of Standpoint Research, said in a note to clients last Monday.
This is probably as good a time as any to remind you what we said on Twitter about Ronnie’s call. To wit:
coming later today:
"Standpoint raises Bitcoin target after price blows through previous target hours after it was issued"
— Heisenberg Report (@heisenbergrpt) November 20, 2017
See that’s the thing about Bitcoin and speculative manias in general. Because the buying is based on the greater fool theory, it can theoretically go on forever. It only stops when everyone independently comes to the conclusion that no one will be willing to pay more than wherever the thing in question is trading currently. That moment can come of its own accord, or it can be triggered by some exogenous event that causes participants to question whether other participants are getting nervous.
Right now, everyone assumes that everyone else is going to be willing to pay up for Bitcoin. Some of this is due to the apparently imminent launch of Bitcoin futures on the CME, a development Thomas Peterffy (known as “the father of HFT”) has warned could collapse the entire U.S. economy if cryptocurrencies are not effectively quarantined and cleared separate from everything else.
Risks aside, some folks are convinced that once CME and Cboe get involved, it’s off to the proverbial races as institutional interest will spike and more products will become available.
Ok, so that’s the backdrop for the latest leg higher in Bitcoin which, just a day after blowing past $8,700, very nearly broke through an incredible $9,200 overnight:
That puts Bitcoin’s market cap at roughly $151 billion
As a reminder, this has been anything but a smooth ride. This thing has plunged by 30% on at least three separate occasions this year alone:
What’s important to understand about that is that the higher the prices goes, the larger the psychological impact of those big drawdowns.
“The volatile price-action isn’t new, but the amounts at stake are growing all the time,” Bloomberg’s Mark Cudmore wrote earlier this month. “The wealth impact of Bitcoin moves is soon going to become large enough to have the potential to spill over to other markets,” Cudmore went on to warn, adding that “in January this year, you may not have batted an eye-lid at a 30% drop in your Bitcoin investment from $10,000 to $7,000, but if you held your investment until now, you may think differently about seeing your investment fall 30% from $80,000 to $56,000.”
And see that’s another manifestation of what the above-mentioned Peterffy is concerned about. These wild swings are fine if they are confined to the crypto space. But if, between futures and the sheer magnitude of the losses on something that can fall 30% at the drop of a hat from nosebleed levels, this gets pervasive enough and big enough to cause a contagion to other assets, well then we have a problem.
But while the risks are myriad, in the near-term speculative manias will be speculative manias and Bitcoin is now up more than 200% from the September “Jamie Dimon low”:
Over that same period, it’s added over $100 billion in market cap:
Of course when you go to make fun of Dimon, don’t forget two things. First, he’s going to be pocketing money when the CME launches futures.
But more importantly, Jamie never said it wouldn’t go to the moon. In fact, I bet his “target” price was higher than yours:
I’m not saying go short… Bitcoin can go $100,000 before it goes down.
Oh, and finally, according to Google Trends, more people are trying to figure out how to buy Bitcoin than gold….
In theory, the value of bitcoin is supposed to be tied to the cost (electrical, hardware, etc) of mining a new new coin. This cost can be computed as in a straight forward mathematical way since a “coin” is a value whose hash starts with a specified number of leading zeroes. As the costs decrease due to Moore’s law, the number of leading zeroes required in the hash increases. During the first few years of Bitcoin’s existence, the mining cost and the “exchange value” were tied pretty closely to the cost of mining a coin using a GPU.
So, basically, I have no idea how these bitcoins can be valued so highly. I ain’t buying.
As with everything an items cost is a mix of it’s cost to produce and it’s utility. An iPhone X doesn’t cost $999 to produce for example. Bitcoin does seem likely to trend higher as multiple countries are taking fairly accommodating stances and other which are not simply present too good an opportunity to use the technology to worry about the laws, Zimbabwe for example. $100k BTC would put it in the realm of Gold for a market cap and we all know gold is a “barbarous relic”, so I guess $100k is a fairly safe bet even if this all ends up being Tamagotchi fever, though I doubt that’s the case.
All I want for Xmas is BTC!
…not
When I was teaching I read about a business prof who tried a really interesting behavioral experiment in his class. Every semester he would auction off a $20bill. The way the auction worked was that the highest bidder would get the twenty in exchange for what s/he bid and the second highest bidder, who lost, would also have to pay what s/he bid. The prof became known for this crazy looking deal and even then he could still make it work because students who heard about it thought they could beat him. On average he would collect at least $75 from his auction. How did this work? On the way to the $20 breakeven bid everyone was fine, you know, just one more bid and the other person would drop …. The second high bidder would keep upping the bid, not wanting to pay for nothing. Trouble is, no one wanted to quit so the price kept going higher. After it reached $20, then the last two bidders would keep going because now the twenty was a way for the winner to offset part of the inevitable loss both of the final bidders would take. In other words, they couldn’t stop. I thought this sounded very interesting so I did it in one of my classes. I got the same result the other prof did. Incidentally, both of us donated the proceeds of our experiment to student organizations in our schools. Later I was giving an after dinner speech to some business leaders on the topic of decision biases (a quiz was involved). After a rousing discussion ensued I decided to see what would happen with a bunch of smart well-heeled business guys. Same result. I ended up getting a total of $100 for my 20$ bill. Feels like the same sort of thing is going on with bitcoin.
The names of some of the cryptocurrencies are every bit as strange and hilarious as the names of some of the WiFi networks in my neighborhood.
Here are a few (except for the last one, I’ve limited this to those having a “market cap” of at least US$1 million):
https://coinmarketcap.com/currencies/bigboobscoin/
https://coinmarketcap.com/currencies/useless-ethereum-token/
https://coinmarketcap.com/currencies/fucktoken/
https://coinmarketcap.com/currencies/unobtanium/
https://coinmarketcap.com/currencies/roulettetoken/
https://coinmarketcap.com/currencies/insanecoin-insn/