Daily btc – Rabbit Hole Edition

Still going deeper and deeper down the rabbit hole on this. trying to unravel the btc genome but there is a lot to digest. following the links and the links in those links creates an explosion of reading. anyway, here is some of the stuff I’ve been peeking at. Longer than it should be. The only link I’d really recommend following and reading all the way thru is the Wedbush one.

— Someone just bought a $200k Lamborghini w/ btc - http://imgur.com/a/nGb7e

— Wedbush analysts think btc could be worth $10-100k. ”Among other facets, we believe Bitcoin and its associated technology represent a potentially game-changing disruption to our covered payments companies,”
“We believe the volatility in Bitcoin prices is a result of an extended price discovery process as the market overcomes substantial friction and the very divergent set of outcomes. In terms of the broad divergence of outcomes (zero or 10x+), we think of Bitcoin as the equivalent of a biotech that had a molecule that may cure the common cold. Therefore, we do not expect volatility to subside anytime soon.”
cc- Lots of good quotes in this one (wedbush), worth reading the whole piece imo. 

— Introducing the World’s First Stateless Company Incorporated by the Bitcoin Blockchain: FirstBlockchain.com

— Bitrated. “Bitcoin arbitration marketplace. Protect yourself against online fraud with Bitcoin’s m-of-n transactions.” Services like this are going to become more common (and this is huge).

— bitpay hits $100M in transactions (6,000%+ increase in transactions on btc black friday – showing some real potential there?)

—  Financial Times on btc – “Time to take the btc bubble seriously”

“The moment has come to take Bitcoin seriously. This month has seen notes on the online currency from mainstream foreign exchange analysts at Wall Street banks Citi and BofA Merrill Lynch. When Wall Street has to take Bitcoin seriously, the online currency has arrived.”

— Stop Saying Bitcoin Transactions Aren’t Reversible (aribitration market a la Bitrated that basically rides on top of the M of N / multisignature transactions that btc protocol enables)

— including the link to this video again (Le Web), which I watched this morning, pretty solid. Risk is high but left feeling like we’re at the early end of the adoption curve still. We’ve already touched on this idea (and it seems to be playing out fast than expected), how that early ’13 rise in btc led to a burst of VC activity and interest from entrepreneurs and media. Those companies that received the funding have barely started to roll out their btc-related products/services, investment vehicles (EFTs), etc… In the next 6 months I think that we’ll see a massive upgrade in terms of merchant products, exchanges, etc… Btc is going to get a lot easier to buy, sell, invest, use and understand. Also, the media cycle has shifted a bit, initial stories were of the flash in the pan variety, flavor of the moment good for a 30-60 second news blip. Similar to initial media frenzy around Silk Road failure. But now the stories are more often in depth, more often positive (or with positive elements). I can see a bunch of hedge fund guys starting to sink their teeth into this, doing due diligence and thinking about jumping in. If even a few hedgies get in, they could run it up quick. This thing is primed to move another level up, still thinking a 10x move is possible in next 6mos. (Also could see a 70% decrease and still not clear on downside scenarios and likelihood of those). One thought: there will likely be a few key regulatory moments in early 2014 that will either propel btc or drop it down. The paypal president is a btc fan, which makes me think that paypal or someone like that will want to incorporate it, but they’ll want a higher level of regulatory clearance before they do. I don’t like relying on regulatory decisions to increase valuation…
— From btctalk forum, some thoughts (and a graph) on the relationship between Hashrate (amount of mining power needed to extract a bitcoin/solve problem) vs. price
but i started to get an inkling that we might back in the summer when the HR kept escalating, escalating, and then going parabolic while the price just stagnated in the last 6 mo consolidation.  i mine b/c i like to hang out in the Custom Hardware forum to get a feeling about how miners think and what they are doing.  most of them never venture over here to Speculation and vice versa.  they have their own community and compulsive way of thinking that help educate my speculation/investment mindset.  during the summer, we miners were undergoing our own form of breathtaking action in the HR while all the speculation guys were over here wringing their hands about a plunge back to 2.  i kept saying in my newsletter we were going to get a “snap UP” to catch the price back up to the HR.  guys like Frozenlock kept arguing with me saying that price always leads HR.  i even caught evoorhees making a case that mining was irrelevant to the price over on Reddit.  not in this case.  you could easily see that millions of fiat dollars were being poured into the new gold rush of Bitcoin mining by old and new miners alike somehow thinking they could easily get in on the groundfloor of the new asic mining machines.  there was a mentality going around that somehow mining would be more lucrative than outright BTC buying, especially after the price had gone to the “bubble high” of 266.  the different buckets of the Bitcoin economy were being filled by raining fiat in an asymmetric pattern with the mining bucket first overflowing.  i knew we were going to get that snap UP especially after we double bottomed at 65.  i said it more than once in my letter.  i could see the frustration and disgust creeping into the miners from the rising difficulty and you could start to pick out more and more comments about giving up mining and going to buy BTC directly around Aug/Sept.  and sure enough, we got that snap UP.  but i didn’t think we’d come this far this fast.

that is, until it became clear to me that we are in a logarithmic progression.

The “hashrate leads” theory is extremely interesting.

Equilibrium price comes at the point where the number of bitcoins people want to buy equals the number of bitcoins people want to sell. That means that for meaningful price movement to occur, something needs to happen for people to want to hold their bitcoins tighter, or something needs to happen for people to want to buy more coins.

And you’re right; probably tens of millions were spent on mining-related hardware in the past 6 months, because difficulty was low and everyone had it in their head it was a prudent investment (I admit, I was one of them; tried to get a number of Klondike miners with the loose Avalon chips). That’s fiat people DON’T want to spend on coins.

But at some point the hashrate grows to a point where it’s clearly NOT a prudent investment any longer, and that money diverts to bitcoins themselves, driving the price up to the point where price clearly outstrips hashrate again (in that sense, mining is critical to restraining price growth to sane levels !).

That raises questions about the other “buckets” of the greater Bitcoin economy, too. What’s the macro effect of altcoins? During a runup, they seem to outperform bitcoins and put downward pressure on the system… but during bear markets the money flows back out to Bitcoin and helps balance out the price. Seemingly the altcoins are also a ballasting/moderating influence on the system.

Have a look at the graphic below:

I used average price of BTC during each month since February 2013. I used Mt. Gox daily weighted prices.

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