The Gamble of Cryptocurrency Buy-and-Hold (BTC)

BITSTAMP:BTCUSD   Bitcoin / Dolar
We've seen Bitcoin             , unanimously the most widely known cryptocurrency, rise to gains of roughly 730 times its late 2011 market debut. Most of which has occurred in just over 2 years time. Even after its meteoric rise, many call for continued pace of gains. From investing newbies to hedge fund titans, the positive, aggressive sentiment can be heard. But what does a logical assessment produce? Taking a look at the history of bubbles, debut of new asset classes, monetary policy , and wide-spread optimism jumbles this pandora's box into an unclear, cluttered assumption. Universal understanding is seemingly frail at best, news is hard to come by - especially for majority of price movements, fraud and/or undesirable 'bugs' dominate its mainstream news presence. Yet, the calls don't wane. What will make a "cryptocurrency" stable and viable? My knowledge and experience points to feasibility as a transactional asset. If we're able to escape the bars of traditional (fiat) currencies to facilitate trade, the efficiency gain would be worth billions annually. Not only from rate on float, but interest from in-transit funds, the savings could (would) be significant. After all, if an asset is not able to produce value or viable as a form of payment, what use does it have? What do you think? What will make BTC             , other cryptocurrencies a mainstay? Is it worth the projected trillion dollar market cap? What makes it worth the $8,000 USD it has ascended to today?
Hi Nosnooze,
Thanks for the post - it poses some very interesting questions.

One often overlooked attraction of Bitcoin and other cryptocurrencies is their relative safety with respect to some unstable fiat currencies or states - during the early months/years of Bitcoin there was a notable inflow from people trying to shield and preserve capital (from Greece, Syria, Cyprus, Venezuela etc.) who were able to safely do this in a way that had not been previously possible.
It may be misplaced faith, but there is often a perception that Bitcoin/crypto's are a safe place away from increasingly desperate central banks with perverse monetary policies; ultra-low/zero interest rate policies have created all sorts of mis-allocation of capital, leading to massively inflated stock, bond and property (plus other) markets.

Ultra-low interest rates have also led to a massive increase in global debt (some indications are well in excess of $200trillion or 300% of GDP), which adds to the increasingly precipitous financial situation that the world faces; so if stocks, bonds, property and many other assets are a little shaky, and certain states introduce capital controls on banks then crypto's begin to look like a sane choice for even a small proportion of your portfolio.
The idea that it is possible to shelter some capital beyond the realm of this potential financial catastrophe is quite appealing; however, due to an increasing inflow of currency, the crypto market itself has become rapidly inflated and is looking increasingly disconnected from it's original philosophy. Bitcoin (like other cryptos) has encountered a number of issues along the way and there will no doubt be further problems before it either collapses or stabilises, but since there are still a considerable proportion of participants that are "invested" in Bitcoin for capital preservation rather than speculative gain, it is unlikely that the value of all cryptos will fall to zero (unless there is massive co-ordinated government intervention!)

Probably the most critical consideration for the growth of the crypto's (and any market) is that of capital flow - we have seen this clearly within the crytpo market since when Bitcoin encounters a problem (like the recent segwit2x fork) then other cryptos benefited considerably (BCH, ETH etc), as such it is often useful to look at the individual and total market capitalisation. It took nearly 5 years for total market cap to reach $50bn (around May 2017) then 6 months later we are approaching $250bn (have a look at the charts here.. ).

With this in mind, the question "what is bitcoin worth?" is a factor of the amount of capital that it is able to attract. It can be seen that a wobble with the bitcoin price around early November resulted in a 20% fall, and around $25bn flowed out, a lot of which went into BCH, pushing the market cap above ETH (for a time) and the price increased correspondingly. Now if we consider that the total value of all global stocks is in excess of $70trn, a 5% flow from this would equate to $3.5trn or around 14 times the current total market cap of all cryptocurrencies, which would put Bitcoin at over $100,000.

It would be necessary for there to be a lot of technological developments before BTC was capable of supporting this level, however the global financial markets could very conceivably encounter some bumpy terrain over the coming period, which could in turn stimulate capital flows into perceived safe havens such as cryptocurrencies, so as far fetched as it seems there could still be a long way for Bitcoin and other cryptos to climb.

nosnooze AesopsHare
@AesopsHare, I can partially agree with the global economic assessment. I, personally, have been expecting and waiting for a large US market correction for a few years now. Prior to the latest fervor driving US indexes up 10%+, US was staring at an overvalued DJI and IXIC by historical industry/sector norms. Still expecting a large correction, but VIX suggests we're not on our way just yet. But even so, why would people run to cryptocurrencies in lieu of tried and true Gold ETFs or physical gold? We've long had staple currencies that are disconnected from currency markets and economic conditions. Gold and Real Estate (not necessarily REITs) are the most common. Perhaps various commodities as well, though I'm not very involved with commodities and their prices under economic strain.

Other than that, I have two contests -

If people are using BTC as a hedge to their local currency, wouldn't they want to be able to spend it in some way? While daily market trading data supports the claim of majority holding on cryptocurrenties (>200B market cap, less than 6B on daily exchange or ~3% compared to USD market's 10.6%). Yet, hardly any transactions happen in cryptocurrency and there doesn't appear to be a huge demand for it, just yet. So it does seem majority are holding, but how are they paying for daily expenses if this is the case? Speculators could make up a large portion of the hold position.

Second, money in does not equal money out, and vice versa. Just because we pay 200B into cryptocurrencies (or any asset) doesn't mean 200B is stored there. We could wake up tomorrow and decide it has absolutely no value and try to cut our losses.

I think it's definitely a bubble. With historical knowledge of how bubbles came to be and subsequent burst, I'm just hoping unsuspecting people don't get burned. But generally it is the unsuspecting which are left holding the bag.

As a take away, hopefully communities can build to spread/share real news that drives these prices to what they are. After all, for cryptocurrencies to attain a staple status, they'll need to be reliable and widely trusted - which requires a cohesive community.
majic92 AesopsHare
@AesopsHare,sorry but bitcoin isn't the only cypto and more bitcoin is really outdated, plenty crypto can do better, this plays against him, bitcoin has made turn the money board (directly) 2 time this year,it's the hospital that does not care about of charity, must I remind you than bitcoin is consider like crypto-money, so what do we do with money!? we exchange goods and services against this money, now do you think that is easy to use bitcoin ?! ithink not, do you think that is cheap to use bitcoin !? i think not, and do you think bitcoin market is indépendant!? sorry i think not, there others reasos which made bitcoin is overvalued but i will not add more, for all this i think bitcoin is just speculative crypto hold by troll and FOMO hyiper.

.i want not fud but i think the reality is obviously enjoyed when we talk about bitcoin, surely by the sames that have interests that bitcoin rise whatever the price.
just what makes bitcoin worth so much more than anything else in this world? Sure it has a limit but so does all the resources on this planet. You don't see oil prices go up like this or gold. IMO once the institutional investors get a hold of BTC it will play out like the rest of the stocks and a bubble will burst sending BTC into a major correction.
nosnooze davidlxchen
@davidlxchen, Curious - are you active in BTC? Hold or trade? I have heard this guiding-light argument, but to say institutional investors will normalize the price seems a long shot - their goal is to appreciate their accounts. I don't know of many hedge funds that invest in currencies. But even so, what is the point? Does Bitcoin, et al, eventually become a common transactional (point of sale) currency? Gold has a long history and is largely not valued based on its usefulness. However, its origins are easy to understand (extracted from Earth, produced under natural volcanic and pressure activity), it's common - present on all continents, it's -NOT- relatively used in production, the gain/loss in circulation is minimal. It's civilizations best tool to date, but tangible and finite assets pose issues for expansion. Thus we have fiat currencies. Stocks on the other hand have companies behind it - with potential of dividends, voting power, etc. Appreciation based on earnings - enabling the company to sell shares to raise capital for a market supported product. BTC doesn't have much in common with stocks, bonds, or even gold. So I'm very skeptical of an institutional adoption for investment purposes. Volatility may be its biggest draw, which is currencies biggest enemy.
davidlxchen nosnooze
@nosnooze, I'm actively trading. It's not a secret that everyone is in this for the gains. BTC is trading like a commodity. At the moment it isn't even viable as a payment option due to its technical limitations and it won't be any time soon due to the conflict within the community/major holders which is the reason for altcoins to exist. Gold is very widely used nowadays maybe not for bartering but electronics demand for it is higher than ever before. We live in a world of materialism and it's importance out weighs everything in the digital world. In fact our very existence depend on the ever rare but tangible goods. Anyway going off topic. As you can tell there are various factors that makes me sceptical of btc futures including the fact that some people see a digital creation which there are multiple copies of as a store of value.
+1 Balas
nosnooze davidlxchen
@davidlxchen, Are you long on any of the coins?
davidlxchen nosnooze
@nosnooze, long on eth since it looks stable and gets frequent updates. And BCH because of how closely related to the original, I'm guessing if anything were to happen to bitcoin there will be an influx towards BCH. For now, I'm short BTC and wait to see what happens after the euphoria die off. I'm pretty sure no matter institutional trader or not, they would be better off entering from a position of low price where the risk is small and outcome more predictable.
+1 Balas
nosnooze davidlxchen
@davidlxchen, Interesting :)
Johnsonysu davidlxchen
@davidlxchen, agreed
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