Take a look at Bitcoins historical prices. I call what we’re experiencing right now the “Third Rise.” At the beginning of each, I thought there was no way the price would double or triple. Yet each time it did. I’d suggest if looking at history before you make such strong statements about Bitcoin’s price possibilities.
Is there any price, any price at all, where you would say “bitcoin is not worth this much, I should cash in before it goes down”?
Σ(all bitcoin) = 0.1% world money supply? 1%? 10%? 100%? Even more? At some point it will go down. If you have a rational model for what value is too high, great! But if you don’t, you’ll gamble yourself into poverty, like so many other speculators over so many centuries.
I think a fair market cap target to work with is $7.7 trillion market cap for all of bitcoin. This probably seems high but there are a lot of lost bitcoins.
This is 27x the current market cap so if the current price is $16704 a good target is $451,008. Prices above that would seem excessive to me.
You are not going to get 1000x higher prices than the current price, my opinion. It's not justified. On the other hand, 3x, 5x and so forth prices are easily justified given what bitcoin "is" and the role it can serve. This remains so even if transaction prices are very high, the blockchain is very slow, and there are more liquid and easier alternatives. This is because bitcoin serves as a kind of "gold" for various usages of that term. The only difference is that when you hold a piece of gold in your safe, there is no physical possibility that due to a coding error in the fabric of the universe, it disappears from your safe.
However there is a very large possibility of bitcoins disappearing entirely, due to a coding error. It is very important to hedge against this or account for this possibility.
The average transaction fee was more than $40 today¹.
I think a transaction fee of more than $1000 could be a problem.
I also believe that the bitcoin core developers have painted themselves into a corner where (urgently necessary) hard forks are super hard. Every hard fork by them will have a huge risk of a group of people staying on the old branch and calling themselves "the true bitcoin" and the forked instance a "shitcoin" or "altcoin" or "not the real bitcoin".
Thus, unable to change and adapt, bitcoin is likely to stagnate and eventually die.
I don't see any problem with any transaction price around the prices you're talking about. (Obviously if it were millions of dollars per transaction that would be an issue.)
Storing or transporting any amount of gold must be ridiculously expensive and inconvenient security-wise.
The transaction fee always applies, even if you are trading $1 worth of bitcoin. I guess you didn't know that.
With a transaction fee of $40, trading less than $2000 worth of bitcoin at a time gives you a rather high percentage of fees of more than 2%. You couldn't even buy most flights with bitcoin.
If we wanted gold bars, we would use gold bars.
One of the fundamental ideas behind a digital currency is that it's cheaper and faster to transfer than physical goods/physical money.
Please excuse my ignorance - how does that not translate to Bitcoin? i.e. why is that not a possibility, if Bitcoin is worth $400,000+ per bitcoin, but transaction fees are very high? What stops credible institutions from making bitcoin certificates? Genuinely curious, I'm not sure what your answer will be.
Nothing stops anyone from doing that. But you’d now have a 3rd party saying you own the bitcoin but your ownership is not recorded in the blockchain. So do you really own it? You could get fancy and issue another cryptocurrency backed by bitcoin too. I think the recording keeping just gets difficult. There are also forks of bitcoin to introduce lower fee and faster transactions but who knows if they will take over. For bitcoin to continue you need miners to validate transactions and they will only do so if it makes economic sense.
The essential property of bitcoin versus every other currency is that in an essential way it is deflationary: there are only so many bitcoins. It's not minted by fiat.
This is the essential property it shares with gold. So if we use worldwide gold market cap to set some kind of standard, why shouldn't we use certificates as is used for gold?
By the way, again excuse my ignorance, but what keeps gold certificates from being inflationary? Why can't Goldman Sachs physically own 100 gold bars, and sell me a certificate for 50, you a certificate for 50, and Tom a certificate for 50? Where is the limit? After all, they have enough money to buy gold on the market even if you, I, and Tom all ask them for the physical gold at once. What keeps them from inflating gold certificates out of thin air?
Nothing stops the except the law. What they are doing in your scenario is fractional reserve banking. They could create more "money" in this case up to whatever leverage limit they would be allowed by law. So at some point your gold hits a max value and your economy can't grow beyond that point. This causes deflation. As far as I understand it deflation means that something that cost $5 now costs $2.5 in real terms. However, producing that thing may still cost $3 so unless you've made productivity and efficiency gains you are losing money. More importantly there is no incentive to spend money today because your money will buy more tomorrow. So then you only buy what you absolutely must.
Your analysis seems very reasonable, but John McAfree thinks it will go to $1 million. And the reason I think it's not impossible is that only a very small percent of the float is actively traded, so the total market cap really doesn't matter that much.
The higher it goes the less the people invested in it need to sell at all, because they don't have anything better to do with the money.
>The higher it goes the less the people invested in it need to sell at all, because they don't have anything better to do with the money.
But you could say the same thing about gold. I don't have a fantastic historical understanding, but I thought that the price of gold tends to spike as there are issues with fiat currency (war, hyperinflation, and so forth).
On this front there are vast differences: investors in gold and investors in bitcoin are just hugely different groups of people. Switzerland doesn't have a bitcoin reserve the way it has a gold reserve, nor does any other state.
so the comparison is kind of premature on my part, still, if we want to have a price target we need to base it on something.
[sincere question] aren't cryptocurrencies creating new money supply, though? I often hear "market cap raised by X billions", but it's not just that fiat billions are used to buy bitcoins, it's also that existing bitcoins are gaining value against fiat. Am I making any sense?
Market cap is not what you think it is. If there are X amount of bitcoins with the last one traded at price P, then the market cap is X * P. However, if people attempted to liquidate these bitcoins into 'real' currency, P would continuously go down. Market cap hence is not the amount of 'real' money that's contained within the bitcoin ecosystem.
Assume that certain yellowish metal is worth nothing. It's pretty much useless. It's pretty but there are prettier materials. Has some nice physical properties (also some bad ones) but you can't use it in mass produced items in large quantities because it's too rare.
That is redeeming quality though. It's rare so you can be pretty sure people won't dig out 10 as much so its value won't drop rapidly. It's durable so it won't corrode away, combust or fly into space if you don't handle it carefully. You can hold it in your pocket or under your materace. This makes it excelent store of value. Not perfect though. If you own it you need to keep it physically secure. If you buy it you need to know how to not get duped. To sell it or buy it you need to physically meet with the buyer or a third party you both trust. Risk of all those operations grows with the value of your holdings.
Now this new thing comes up. It's also rare. You can store it perfectly securely without anyone knowing that you do. You can sell any fraction of it to highest bidder on Earth, from your home and that only requires you trusting sigle third party (that you can choose out of few) that trades over billion dollar's worth of this stuff every 24h.
I think you can easily see that half of value that humanity currently keeps in gold is very safe bet for bitcoin max market cap.
> Now this new thing comes up. It's also rare you, can store it perfectly securely without anyone knowing that you do.
That doesn’t describe bitcoin
> You can sell any fraction of it to highest bidder on Earth, from your home and that only requires you trusting sigle third party that trades over billion dollar's worth of this stuff every 24h.
That describes gold — depending on what you count as a “single third party”.
That said, at least it is a number… just one I don’t agree with, because at $7.5 trillion I think that makes Bitcoin so valuable that it becomes worthwhile doing anything to gain 51% control, including high-altitude nuclear EMPs over everyone who isn’t you.
>> Now this new thing comes up. It's also rare you, can store it perfectly securely without anyone knowing that you do.
> That doesn’t describe bitcoin.
Yes it does. You can buy it on exchange (or buy a miner and mine it yourself paying with electricity) and transfer it to your wallet. Encrypt the wallet and put it in multiple places online with cryptic name.
If you ever need money you can download it, decrypt it, send btc to exchange, sell it and get the money.
My point is that between the moment you buy bitcoin and moment you need the money nobody knows you have any bitcoins. Exchange or mining pool will know of course if you got your bitcoin from them but that's about it. Also you can mine other cryptocurrency with just your own hardware even just GPU that you conceivably could have bought to play games (no need for mining pool) and exchange it anonymously, then nobody knows you have any BTC.
>> You can sell any fraction of it to highest bidder on Earth, from your home and that only requires you trusting sigle third party that trades over billion dollar's worth of this stuff every 24h.
>That describes gold — depending on what you count as a “single third party”.
Please elaborate. Let's say you are a student from Isfahan and have a gold coin under your materace. How would go about selling 1/10 of it and how it compares to process of cashing out 1/10th of 1 BTC in cold storage?
> Yes it does. You can buy it on exchange (or buy a miner and mine it yourself paying with electricity) and transfer it to your wallet
Wherever you buy it, that purchase is traceable. Wherever you sell it, that sale is traceable. Oh, just realised now even though you didn’t say this: Unless the thing you use to buy it, or for which you sell it, is also anonymous… of course, at that point it is no longer a benefit of bitcoin compared to the other thing.
> Isfahan and have a gold coin under your materace. How would go about selling 1/10 of it and how it compares to process of cashing out 1/10th of 1 BTC in cold storage?
Physical gold? OK, but I was thinking gold in a bank account, which is a thing you can get (“Glint”, I think is the name).
1) go to cash-for-gold corner shop, of which there seem to be far too many at the moment
2) divide coin into 1/10ths
3) exchange 1/10th coin for other financial token
From my history lessons, this is pretty much how money worked in the old days when it wasn’t just backed by gold but literally made from it, except 1) wasn’t needed because the shops just weighed your coins.
