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I just got back from a two week vacation without Internet as I was scouring some archeological ruins. I hardly thought about Bitcoin at all because there were so many other interesting things and it would be there when I got back. Jimmy Song suggested I do an article on the current state of Bitcoin.
A great suggestion but he is really smart he worked on Armory after all! Therefore, this article will be pretty lengthy and meticulous. As I completely expected, the 2X movement from the New York Agreement that was supposed to happen during the middle of my vacation flopped on its face because Jeff Garzik was driving the clown car with passengers willfully inside like Coinbase, Blockchain.
I am very disappointed in their lack of integrity with putting their money where their mouths are; myself and many others wanted to sell a lot of B2X for BTC! I sure like being right, like usual 19 Dec , 1 Jul , especially when there are financial and economic consequences.
With such massive gains in such a short period of time the speculative question becomes: Buy, Hold or Sell? Bitcoin is the decentralized censorship-resistant Internet Protocol for transferring value over a communications channel. The Bitcoin network can use traditional Internet infrastructure. However, it is even more resilient because it has custom infrastructure including, thanks to Bitcoin Core developer Matt Corrallo , the FIBRE network and, thanks to Blockstream, satellites which reduce the cost of running a full-node anywhere in the world to essentially nothing in terms of money or privacy.
Transactions can be cheaply broadcast via SMS messages. This custom hardware consumes approximately 30 TWh per year. That could power about 2. This Bitcoin mining generates approximately That means multi-million dollar positions can be moved into and out of very easily with minimal slippage. These seven network effects of Bitcoin are 1 Speculation, 2 Merchants, 3 Consumers, 4 Security [miners], 5 Developers, 6 Financialization and 7 Settlement Currency are all taking root at the same time and in an incredibly intertwined way.
With only the first network effect starting to take significant root; Bitcoin is no longer a little experiment of magic Internet money anymore. Bitcoin is monster growing at a tremendous rate!! Bitcoin is both a Giffen good and a Veblen good.
Veblen goods are types of luxury goods for which the quantity demanded increases as the price increases in an apparent contradiction of the law of demand.
There are approximately And forks like BCash BCH should not be scary but instead be looked upon as an opportunity to take more territory on the Bitcoin blockchain by trading the forks for real bitcoins which dries up more salable supply by moving it, likely, into deep cold storage.
According to Wikipedia , there are approximately In other words, if every HNWI in the world wanted to own an entire bitcoin as a 'risk-free asset' that cannot be confiscated, seized or have the balance other wise altered then they could not. In other words, everyone loves to chase the rabbit and once they catch it then know that it will not get away. Kraken , according to the CEO, was adding about 6, new funded accounts per day in July Supposedly, Coinbase is currently adding about 75, new accounts per day.
After all, it takes some time and practical experience to learn how to safely secure one's private keys. To do so, I highly recommend Bitcoin Core network consensus and full validation of the blockchain , Armory private key management , Glacier Protocol operational procedures and a Puri.
There has been no solution for large financial fiduciaries to invest in Bitcoin. This changed November This price discovery could be the most wild thing anyone has ever experienced in financial markets. The same week Bitcoin was released I published my book The Great Credit Contraction and asserted it had now begun and capital would burrow down the liquidity pyramid into safer and more liquid assets.
Thus, the critical question becomes: Is Bitcoin a possible solution to the Great Credit Contraction by becoming the safest and most liquid asset?
At all times and in all circumstances gold remains money but, of course, there is always exchange rate risk due to price ratios constantly fluctuating. If the metal is held with a third-party in allocated-allocated storage safest possible then there is performance risk Morgan Stanley gold storage lawsuit.
But, if properly held then, there should be no counter-party risk which requires the financial ability of a third-party to perform like with a bank account deposit. And, since gold exists at a single point in space and time therefore it is subject to confiscation or seizure risk.
Bitcoin is a completely new asset type. If the transaction is not on the blockchain then it did not happen. This is the strictest regulation possible; by math and cryptography! This new immutable asset, if properly secured, is subject only to exchange rate risk.
There does exist the possibility that a software bug may exist that could shut down the network, like what has happened with Ethereum , but the probability is almost nil and getting lower everyday it does not happen. Thus, Bitcoin arguably has a lower risk profile than even gold and is the only blockchain to achieve security, scalability and liquidity. To remain decentralized, censorship-resistant and immutable requires scalability so as many users as possible can run full-nodes.
Some people, probably mostly those shilling alt-coins, think Bitcoin has a scalability problem that is so serious it requires a crude hard fork to solve. On the other side of the debate, the Internet protocol and blockchain geniuses assert the scalability issues can, like other Internet Protocols have done, be solved in different layers which are now possible because of Segregated Witness which was activated in August Whose code do you want to run: As transaction fees rise, certain use cases of the Bitcoin blockchain are priced out of the market.
And as the fees fall then they are economical again. Additionally, as transaction fees rise, certain UTXOs are no longer economically usable thus destroying part of the money supply until fees decline and UTXOs become economical to move.
What I like about transaction fees is that they somewhat reveal the financial health of the network. The security of the Bitcoin network results from the miners creating solutions to proof of work problems in the Bitcoin protocol and being rewarded from the 1 coinbase reward which is a form of inflation and 2 transaction fees which is a form of usage fee.
The higher the transaction fees then the greater implied value the Bitcoin network provides because users are willing to pay more for it. I am highly skeptical of blockchains which have very low transaction fees. By Internet bubble analogy, Pets. Bitcoin and blockchain programming is not an easy skill to acquire and master. Most developers who have the skill are also financially independent now and can work on whatever they want. The best of the best work through the Bitcoin Core process.
After all, if you are a world class mountain climber then you do not hang out in the MacDonalds play pen but instead climb Mount Everest because that is where the challenge is. However, there are many talented developers who work in other areas besides the protocol. Wallet maintainers, exchange operators, payment processors, etc. Consequently, there is a huge shortage of competent developers.
This is probably the largest single scalability constraint for the ecosystem. Nevertheless, the Bitcoin ecosystem is healthier than ever before. There are no significant global reserve settlement currency use cases for Bitcoin yet. Perhaps the closest is Blockstream's Strong Federations via Liquid. There is a tremendous amount of disagreement in the marketplace about the value proposition of Bitcoin.
Price discovery for this asset will be intense and likely take many cycles of which this is the fourth. Since the supply is known the exchange rate of Bitcoins is composed of 1 transactional demand and 2 speculative demand. Maybe in the new world, something gets backed by consensus. Thus, it is no surprise that the Bitcoin chart looks like a ferret on meth when there are such widely varying opinions on its value proposition. I have been around this space for a long time. Interestingly, the people who understand it the best seem to think its financial dominance is destiny.
Meanwhile, those who understand it the least make emotionally charged, intellectually incoherent bearish arguments. A tremendous example of worldwide cognitive dissonance with regards to sound money, technology and the role or power of the State.
Consequently, I like looking at the day moving average to filter out the daily noise and see the long-term trend. Well, that chart of the long-term trend is pretty obvious and hard to dispute. Bitcoin is in a massive secular bull market. So, what do some proforma situations look like where Bitcoin may be undervalued, average valued and overvalued? No, these are not prognostications. We are in a very unique period of human history where the collective globe is rethinking what money is and Bitcoin is in the ring battling for complete domination.
Is or will it be fit for purpose? As I have said many times before, if Bitcoin is fit for this purpose then this is the largest wealth transfer in the history of the world. Well, this has been a brief analysis of where I think Bitcoin is at the end of November The seven network effects are taking root extremely fast and exponentially reinforcing each other. The technological dominance of Bitcoin is unrivaled. The world is rethinking what money is. While no one has a crystal ball; when I look in mine I see Bitcoin's future being very bright.
Currently, almost everyone who has bought Bitcoin and hodled is sitting on unrealized gains as measured in fiat currency. That is, after all, what uncharted territory with daily all-time highs do! But perhaps there is a larger lesson to be learned here. Riches are getting increasingly slippery because no one has a reliable defined tool to measure them with.
Times like these require incredible amounts of humility and intelligence guided by macro instincts. USD, gold and Bitcoin.