Bitcoin in a hyperbolic bubble

[tecate]

Who are 'they'?

Oh, dear. Wolfie - I'm sorry to have to break this news to you but you've been pidgeon-holed as part of a group of partisan crypto scoundrels. Had you made better choices in life, you could have been part of a 'neutral' group that can see both the positive and negative attributes of bitcoin (posting those attributes in equal measures, at a ratio of 0:100).

@Duke of Marmalade : I feel that you have a lot of explaining to do and must insist on your participation in this discussion. Didn't you tell us not so long ago that bitcoin wasn't in any way scarce as it was practically infinitely divisible?
I must say I'm troubled by the thought of there not being enough bitcoin to go round. More troubling still is that I checked Nouriels twitter feed and not a mention of it. Surely, he - if anybody - would have comprehensive detail on this looming crypto crisis?

Maybe I've misunderstood though - is the take here that people are going to demand bitcoin to the point of it melting? I feel a bit light headed - I'm off for an ice bath.
Do come back with your comments as I'd really like to see someone post a solution to this problem. As a show of solidarity, I'm making a commitment right now that I will not hoard my btc and will make it available in its smallest denomination (0.00000001 BTC) to anyone who is in need. That makes for a usd value of $0.00059 - and yet neither rounding up or down is going to help with that. I suppose as this crisis reaches melting point, we can be thankful that can get resolved at the very least.

 

[DazedInPontoon]

Isn't this fundamentally the opposite of what BTC is aiming to do? i.e. Replace the current fiat system?

BTC doesn't really have a concrete aim, it just *is* and people can use it as they desire, and people's opinions differ on what it should aim to be. Personally I don't think bitcoin needs to replace anything, it can just exist alongside. In practice I think it *is* probably replacing precious metals use as money, and sucking some allocations out of other stores of value too. If Bitcoin didn't exist I would have the money I have in bitcoin in something else, for me that's probably equities.

However, given there are only 8m coins available at a market cap of roughly ~500m or so the entire supply could be easily purchased by a handful of companies today.

You mean 500b surely. But anyway, all of the supply could not easily be purchased, because the price would raise proportionally to the demand.

 

[DublinHead54]

The above comment. I don't it should be top of the list for discussion.

There will of course be an issue with trying to obtain the desired amount of bitcoin.

Liquidity is not an issue.

There will be an issue obtaining the desired about of bitcoin, but liquidity is not an issue? That is the very definition of liquidity, can you not see that?

I get your point on your own personal ambitions, but I was asking on the basis of Institutional adoption, and this is what Tecate has been providing updates on over the last year that adoption rates are increasing. Even considering your own approach if there is mass retail adoption that will further impact liquidity.

The issue I see is that by design bitcoin is scarce and the first use case was as a currency. In use as a currency the market will be liquid as coins are continually circulated and can be divided into satoshis. However, over the last 24 months as adoption as a store of value has increased (Micro strategy holding as a Treasury Assets) there has been a decrease in the coins circulating on the market.

The argument being made by @DazedInPontoon is that firms should price BTC in terms of $ so if they want to convert $100m to BTC that could be 10 BTC today and 5 BTC tomorrow, the amount of BTC being irrelevant and just the $ amount. I see the logic but not really the use case given BTC is a volatile asset and that argument only seems to hold true with a high BTC price. For example if BTC were to fall back to Jan 2020 levels, the $100m would have much more purchasing power against the same amount of BTC on the market.

So a high $$ BTC price limits the amount of BTC an individual can buy but given that corporate/Bank Cash reserves > total circulating BTC $ value, the entire supply could be purchased tomorrow. For example Goldman Sachs alone has $400bln dollars in reserves vs $500bln BTC circulating supply.

In this event, I am not sure how the market would function because the number of transactions on the network would surely drop and if there are no transaction fees being generated what is the economic incentive for the nodes to stay operational?

I hope this question in bold can be answered by either @tecate @WolfeTone @DazedInPontoon or anybody else? I am trying to understand this market dynamic and I thought this was a forum for discussion and learning! I believe Tecate has made a point of saying he wants to help educate people before. It's fine if you don't have an answer but anything would be of help. I have accumulated a significant holding in BTC and I am trying to understand this dynamic as I formulate my strategy.

 

[WolfeTone]

In this event, I am not sure how the market would function because the number of transactions on the network would surely drop and if there are no transaction fees being generated what is the economic incentive for the nodes to stay operational?

Well my tuppence worth is this. There is 12.5 new coins mined every 10 mins? In order for any institution to buy up existing supply, and new supply, it would send price even higher.
My thinking is that as the price gets higher and higher, some of those that bought in low will be continually tempted to sell. Along with newly mined coins, trying to dominate the supply in this manner, at higher and higher prices would simply be unsustainable.
At some point a large sell-off would be invoked ensuring continuing supply.

I do not envisage a liquidity issue at all. Even if so, it would be temporary.

 

[DazedInPontoon]

There is 12.5 new coins mined every 10 mins?

It's down to 6.25 since the last halving, and currently about another 0.6 BTC in fees per block, which I guess can be considered added liquidity.

So a high $$ BTC price limits the amount of BTC an individual can buy but given that corporate/Bank Cash reserves > total circulating BTC $ value, the entire supply could be purchased tomorrow. For example Goldman Sachs alone has $400bln dollars in reserves vs $500bln BTC circulating supply.

No, they'd move the market too much by trying to buy $400b worth. Their first bitcoin would cost the current market price of 58k, but who knows what stratopshere the price would have gone to by the time they were buying the last coin.

This is where liquidity is a consideration - "Can I buy x amount of dollars worth of BTC without moving the price too much". On a podcast recently I heard Raoul Pal say that many institutions who deal in large amounts basically wouldn't really consider bitcoin liquid enough to invest in to until it was at the $1T market cap.

The argument being made by @DazedInPontoon is that firms should...

Just to be clear, it wasn't an argument, and I wasn't saying firms should do anything. I was describing what is actually happening.

In this event, I am not sure how the market would function because the number of transactions on the network would surely drop and if there are no transaction fees being generated what is the economic incentive for the nodes to stay operational?

I mean, you can come up with any number of hypothetical situations that result in btc failing. The easiest mistake to make is to say "what if this changes..." about one aspect of bitcoin without understanding how that one change would change other things and/or how other things change over time. If you go back a few years to when the reward was 50btc or even 25btc per block there was endless people predicting that bitcoin would now by dead with a reward of only 6.25btc per block because there would insufficient incentive for miners to mine.

Bitcoin is very far from having a problem of not having enough transactions, the problem if any is that it can't support the demand for transactions!

Additionally if demand is driving the price to the moon, there is no need for transaction fees at all for decades as even a block reward of 1 btc or less would be incentive enough for miners.

We're getting into the "what if the restaurant had food so good that it got so busy that no one went there any more?" territory

 

[DazedInPontoon]

I additionally want to say that my earlier statement of liquidity being considered as (coin on exchange) x (price per coin) is a simplification. In reality not all coins on exchanges are offered for sale at the market price, and in fact most are not. Some may not even be involved in a sale order at all, and those that are may be for sale at any price higher than the market price.

If you look at https://bitcoinity.org/markets/coinbase/USD for example, you can see the 'depth chart' at the bottom, if you mouse over any point in it on the red line it will tell you exactly how many are for sale at that point and how much cumulative USD it takes to move the price that far.

 

[tecate]

Coinbase could be the greatest idea of all time but I can guarantee you thing. The days of exchanges like Coinbase operating under a different regulatory regime to other exchanges will end. They are currently regulated as a Money Services Business and yet are carrying out trading activities and indeed take positions to 'provide liquidity' in their exchange. No other exchange in regulated financial services is allowed to do this. You get an argument that exchanges like coinbase are becoming increasingly relevant to mainstream financial services. Well then, they should be ready to play by the same rules as other exchanges.

What different rules? This market was wide open to Wall Street to enter. They chose not to (until right now). Not only did they choose not to, they crapped all over this developing sector from a height - screaming fraud ( a la Jamie Dimon & others). They tried to snuff the fledgling industry out entirely by locking crypto startups out of banking (something that's still not fully resolved).
At the end of 2020, bitcoin's market cap was $519 billion. And yet, since 2008, banks had paid $330 billion in fines related to fraud, market manipulation and money laundering. These wonderful conventional market regulations where these guys pay cents on the dollar and continue on facilitating money laundering at the highest levels.
I'm no fan of Coinbase but there's no question but that they've played by the regulation that's in place. If you've got a problem with regulation getting up to speed, then who's fault is that?

You get an argument that exchanges like coinbase are becoming increasingly relevant to mainstream financial services.

What argument? That's what we're seeing play out in real time - it's not a matter of argument or speculation.


On a side note, I want to clear up a misquote where someone or other suggested that I had said in the past that I wanted 'to help educate people'. I'd never make such an obnoxious statement. What I have said is that people should have uncensored access to both sides of the debate so that they're free to form their own opinions - nothing more than that.

 

[DublinHead54]

Well my tuppence worth is this. There is 12.5 new coins mined every 10 mins? In order for any institution to buy up existing supply, and new supply, it would send price even higher.
My thinking is that as the price gets higher and higher, some of those that bought in low will be continually tempted to sell. Along with newly mined coins, trying to dominate the supply in this manner, at higher and higher prices would simply be unsustainable.
At some point a large sell-off would be invoked ensuring continuing supply.

I do not envisage a liquidity issue at all. Even if so, it would be temporary.

It's down to 6.25 since the last halving, and currently about another 0.6 BTC in fees per block, which I guess can be considered added liquidity.

No, they'd move the market too much by trying to buy $400b worth. Their first bitcoin would cost the current market price of 58k, but who knows what stratopshere the price would have gone to by the time they were buying the last coin.

This is where liquidity is a consideration - "Can I buy x amount of dollars worth of BTC without moving the price too much". On a podcast recently I heard Raoul Pal say that many institutions who deal in large amounts basically wouldn't really consider bitcoin liquid enough to invest in to until it was at the $1T market cap.

Just to be clear, it wasn't an argument, and I wasn't saying firms should do anything. I was describing what is actually happening.

I mean, you can come up with any number of hypothetical situations that result in btc failing. The easiest mistake to make is to say "what if this changes..." about one aspect of bitcoin without understanding how that one change would change other things and/or how other things change over time. If you go back a few years to when the reward was 50btc or even 25btc per block there was endless people predicting that bitcoin would now by dead with a reward of only 6.25btc per block because there would insufficient incentive for miners to mine.

Bitcoin is very far from having a problem of not having enough transactions, the problem if any is that it can't support the demand for transactions!

Additionally if demand is driving the price to the moon, there is no need for transaction fees at all for decades as even a block reward of 1 btc or less would be incentive enough for miners.

We're getting into the "what if the restaurant had food so good that it got so busy that no one went there any more?" territory

Thank you both for the responses.

Do you have any links to the recent price increase and demand relationship? I have been researching but always found it inconclusive or it pointing towards more factors than just supply and demand raising the price.

 

[DublinHead54]

@tecate Is there any substance to Musks recent tweets on BTCs energy consumption from coal?

I saw Michael Saylor refute it but without evidence. From previous discussion on this forum you presented evidence and argument against BTC using mostly renewables now?

Musks claims have spooked the market!

 

[presidenttttt]

This is a renowned economist talking. Are there any respected economists making the case for bitcoin? Ironically the amazing bitcoin performance of 2020, from 10k to 4k to 30k(?) spells its early demise. A nice steady performance would have been more indicative that bitcoin had come of age and was here to stay. 2017 was a similarly ridiculous year and it was followed by the collapse from 20k to 3k in 2018.

I can’t disagree with the OP.

Latest events of random “coins” spiking and single individuals manipulating the whole market only confirm my view.

These “coins” are no more a currency than premier league stickers for a sticker book or Pokemon cards some people collected as kids. And I suspect will prove about as useful unless in time. You can pay up to a 100,000 for a pokemon card by the way!

Bitcoin threads read like apartment in Bulgaria threads from 2005!

When it comes to mortgage applications I am surprised banks don’t take the same view of crypto as they do of paddy power transactions. The volatility and social media led pumps that are going on att the moment are absolute high risk madness. The “investment” is totally incomparable to equities or currency. When all the hype is done there will be a tiny minority who get mega wealthy and most people will get their fingers burnt.

Blockchain or something similar will provide a real mainstream currency with genuine value in time, but it will in my opinion originate via Washington, the Kremlin, or China, which will ironic as many people jumping on the hype train think it’s a means to protest and overthrow the “current system and institutions”. An Amazon or Google initiative might be the only thing to shift my thinking (Tesla is a huge brand but doesn’t touch billions of people daily, so it’s just more Twitter noise).

 

[WolfeTone]

Bitcoin threads read like apartment in Bulgaria threads from 2005!

This reads like a post from 2017.

 

[Brendan Burgess]

Wolfie

The Bulgaria threads went on for a few years.

The dot.com ones did as well.

Brendan

 

[WolfeTone]

True, I just making the comparison.

 

[tecate]

Latest events of random “coins” spiking and single individuals manipulating the whole market only confirm my view.

Each project is to be considered on its own merits. There will be category winners covering a whole host of use cases. Otherwise, the vast majority of projects will cease to exist. If we have to go through cycles of irrational over-exuberance to get there, so be it. Personally, I think that the emergence of 'meme coins' is truly moronic. However, if that's what people want to participate in, then that's totally up to them.

Bitcoin threads read like apartment in Bulgaria threads from 2005!

I can't say that apartments in Bulgaria ever interested me. In what respect are they similar? What utterance here has contrived to lead you astray?

When it comes to mortgage applications I am surprised banks don’t take the same view of crypto as they do of paddy power transactions.

In Ireland, they do. Up until recently, they played god by facilitating paddy power transactions via credit card whilst banning crypto transactions. More recently HSBC Bank has taken to banning customers from holding stock of companies that hold bitcoin. I wouldn't expect anything less from a bank with such high standards. Meanwhile, in the US, banks are gearing up to offer bitcoin to their customers. Payments firms like visa, mastercard and paypal are adapting to the change that's coming and that they know is inevitable.

The volatility and social media led pumps that are going on att the moment are absolute high risk madness.

If you're referencing bitcoin here, then its volatility has been discussed at length on this sub-forum previously. There's a logic to it. It's going through a process of price discovery and that will continue for some years to come.

The “investment” is totally incomparable to equities or currency.

Bitcoin isn't an equity - I agree.

When all the hype is done there will be a tiny minority who get mega wealthy and most people will get their fingers burnt.

There are hype cycles and some get irrational, over-exuberant and downright greedy. I expect an 80% reset - but the difference is that where others here have called time on bitcoin (as they did in the last cycle), I expect its development to continue. During the last bear market, the talk was of it never seeing $20,000 again and of the poor 'suckers' that got caught in that process. I expect we will have a re-hash of the very same discussion on here. The only difference is that the $20,000 figure will be long forgotten about. And on it goes..
As regards people getting their fingers burnt, everyone remains accountable for their own decisions - and it shouldn't be any other way. I have neither bought nor sold crypto over the course of the past 12 months.

Blockchain or something similar will provide a real mainstream currency with genuine value in time, but it will in my opinion originate via Washington, the Kremlin, or China, which will ironic as many people jumping on the hype train think it’s a means to protest and overthrow the “current system and institutions”. An Amazon or Google initiative might be the only thing to shift my thinking (Tesla is a huge brand but doesn’t touch billions of people daily, so it’s just more Twitter noise).

You seem to be vaguely talking about central bank digital currencies. Can you explain how they will provide 'genuine value' and to whom? You also seem to be reducing this down to a choice - that it has to go one way or the other. There can be a certain feverishness in markets but that doesn't then mean that there is nothing tangible in the innovation at hand. Decentralised cryptocurrencies will continue in their development and use cases extend far beyond that of currency.

These “coins” are no more a currency than premier league stickers for a sticker book or Pokemon cards some people collected as kids. And I suspect will prove about as useful unless in time. You can pay up to a 100,000 for a pokemon card by the way!

The discussion centres around bitcoin for the most part. Having said that, there is a huge market that is being exploited along the lines of the collectibles that you mention on other platforms - taking a digital approach to that via non-fungible tokens or NFTs. Not something that remotely interests me personally but I accept that people will pay more for the bragging rights of holding an original of something.

 

[tecate]

The dot.com ones did as well.

You've often referenced the dot.com boom/bust Brendan, and I think it's entirely relevant to consider it. However, it shouldnt be forgotten that that particular wave of innovation changed everything. Out of the ashes came the Google's, Facebook's, Amazon's, etc. The expectation here is that most crypto projects will vapourise with category winners left standing.

 

[DazedInPontoon]

The tech industry as a whole has recovered since the dot-com bubble. Even specific companies within that are worth way more today - Microsoft and Amazon for example. The big tech companies are massive and are extremely profitable. What's the lesson here regarding the dot-com bubble?

Does this tell us anything except that a bubble and crash can be a temporary blip along the path of a longer term growth narrative, or a bubble can be a once off that never recovers (Bulgarian property presumably? - I've no idea what state it is in today). And even within the first case where the longer term growth leads to a full recovery and higher long term trajectory certain companies/assets will fail and never recover. pets.com in the dot-com, Anglo in the Irish property bubble.

Bubbles in a sector in general may or may not recover.
Companies or assets involved in a bubble may or may not recover regardless of whether the sector does.

Since all of the above can happen there's nothing here I can use to predict the future except accept that things that gain momentum tend to get in a mania phase and get overpriced in the short term and eventually correct fairly sharply. In order to act correctly there is no substitute for understanding the specific market itself, because just recognising mania is not enough.

I do think the internet age is exaggerating this too. Joe Bloggs having a portable low commison trading platform in his pocket is a massive change to markets. I expect we're going to see bigger bubbles than ever.

 

[WolfeTone]

(Bulgarian property presumably? - I've no idea what state it is in today)

Bulgaria House Price Index

 

[DazedInPontoon]

Not so bad I guess! I assume a lot of people were just outright scammed for property that never existed though, or by property companies that were vehicles for scams or went bust.

 

[presidenttttt]

You've often referenced the dot.com boom/bust Brendan, and I think it's entirely relevant to consider it. However, it shouldnt be forgotten that that particular wave of innovation changed everything. Out of the ashes came the Google's, Facebook's, Amazon's, etc. The expectation here is that most crypto projects will vapourise with category winners left standing.

I can agree with this for the most part. I just would not bank on the category winner having entered the competition yet and i think there is some way to go.

 

[presidenttttt]

I do think the internet age is exaggerating this too. Joe Bloggs having a portable low commission trading platform in his pocket is a massive change to markets. I expect we're going to see bigger bubbles than ever.

This is true. Another point about the social media platforms though is the algorithms work hard to give you the content you want, and if you are in the network that follows #tothemoon and one or two of the more active influencers in the trading/crypto space, you could feel that crypto is far more mainstream, accepted and trusted than it actually is.

If I look at my professional and educated 25-35 year old peer group, a few of us might have a few 100 euros "invested" (due to lock down boredom more than anything, at least in my case) but it is rarely spoken about, whereas there is a bit of an echo chamber effect on social media where you might think everyone had 1000s in it. The viral and hype nature to some of these things of course has also been witnessed in non crypto channels (Gamestop).