I’ve put together this infographic to help explain the 8x bubble that altcoins has seen in the last two months. Two words: Scaling Debate. Bitcoin’s scaling deadlock has not resolved and transactions on its network are now at full capacity without a clear resolution in the near future.
This infographic of Bitcoin’s price is something I’ve been pondering today. It tells Bitcoin’s often dramatic price story in fundamental trend lines on top of which lives some serious doses of speculative activity. There’s a lot in this chart so lets break it down.
By early June 2016 we saw a speculative bubble (marked in green above) as the market speculated on the upcoming block reward halving event. This was to be the second halving event, slashing payout and therefore the supply of new bitcoins from 25BTC every 10 minutes to… well, exactly half to 12.5BTC.
Leading up to this many people we afraid the miners would exit their protective hashing power, the block processing caught between network adjustments could slow to a crawl and the price could crash. This did not happen. What happened was simply the markets saw less selling pressure from miners who had less newly minted coins to sell. The blue trend shows the steeper rate of price appreciation this had on the markets.
Finally what we may be seeing is the Q4 of 2016 to present is the market undergoing a much larger and longer speculative phase for the upcoming Bitcoin ETF decision. If approved hundreds of millions at a minimum are expected to be poured into Bitcoin. Understandably the blue shaded area in our infographic would map to the drawn out and much delayed ETF decision which will finalise on March 11th, 2017.
If this story is fundamentally correct, the picture it paints is quite useful. In fact, we can deduce the impact of what a controlled reduction of coin supply from the markets will have to the price, furthermore we can gauge the amount of capital that the markets expect to be injected.
Here at Woobull Labs we take data driven analysis very seriously. Today, I’m pleased to present the culmination of 4 years of data gathering and analysis on Bitcoin trader psychology.
The sketch above depicts the basic rig we used for our epic research. The dataset includes readings over 4 years at 10 minute intervals (210,240 readings per subject). In total we collected the psychological brainwave pattern of 100,000 of Bitcoin traders – a staggering 210,240,000,000 data points in total as they tapped away on their keyboards.
Today Chinese exchanges report 98% of global volume. This shows huge dominance by Chinese markets. Unfortunately we know that most of this volume is fake.
Why is it fake?
Unlike the rest of the world, Chinese exchanges are unique in that they do not charge fees on trades. Instead they make their money via withdrawal charges out of the exchange. These fees reduce as your trading volume increase, so this incentivises traders to rack up their trade volume via buying and selling from themselves at zero cost.
There’s a ocean of data coming from the markets, and they hold hidden secrets. In this study, I’ll peer into the data and attempt, as far as I know, the first estimate of true Chinese volumes using data driven methods. I’ll define “true volume” as what the volumes would have been, had their markets actually charged at trading fee.
Prior estimates, really just educated guesses, have put Chinese volumes at 50% of the global market, let’s see how well this compares with the data.
2016 has been a bull year for privacy coins. Earlier this year we saw mooning of Monero which saw subsequent pumps in other dark-coins including ShadowCash and Navcoin. Then we witnessed a mega-hyped launch of ZCash which peaked at an astounding $5.3k per coin.
All of these coins are Payment Coins competing in the battle win the war to be General Money. Let me explain. While most alt-coins tend to be forging into market specific app-coin territory, what makes payment coins unique is the shear size of the potential win, while app-coins can capture a market segment which effectively puts a cap on their valuation, payment coins being a kind of generalised money can capture “M2 money supply” as a ceiling, i.e. trillions.
When I look at payment coins I see very strong economic network effects are in play. I covered earlier with my Commerce Index that liquidity and low volatility are very important for a coin to be useful for general trade. Both of these qualities are crucial to make it compelling for end consumers to charge their wallet with a payment token to spend. With high volatility there’s too much risk holding funds and with insufficient liquidity wallet recharge and merchant fees will be high.
When looking at the combined qualities of liquidity and price stability together as a Commerce Index, we could see other coins catching up with Bitcoin. In this study I will be doing a deeper dive into these two qualities individually.
For the sake of this study, I will be looking at the leading coins by market cap, namely Bitcoin, Monero, Dash, ZCash and ShadowCash. All of these coins are well above $5m market cap, NavCoin and others at less than $3m have been excluded.
This chart is the Bitcoin historically adjusted price taking into account lost coins and inflation effects of new coins mined into existence, if you were to treat bitcoin like a company. (Yes we are very close to an all time high.)
I thought it would be fun to plot this after reading Vinny Lingham’s post on deconstructing Bitcoin’s marketcap. Lingham reasons that since more coins are mined into existence daily, this has the effect of a continual stock split. All stock charts we see on Wall Street correct for this dilution effect so we can compare today’s price with past prices never mind the actual number of shares in existence. In this plot, we are assuming approximately 2.5m coins have been lost.
Segregated Witness or Bitcoin Core release 13.1 has been released! This update promises to end a 2 year civil war within Bitcoin’s community over scaling, which unresolved, poses a systemic risk to the network.
To the investor, the war has almost certainly had a bearish influence on bitcoin price. But before we can celebrate, Segwit only turns on when a minimum 95% of the last 2016 blocks have been mined with the Segwit code.
Now most people are jumping to the conclusion that any mining pool with more than 5% of the network’s mining power will have veto power to block Segwit from activating. It just so happens that the mining pool ViaBTC, who are fans of Bitcoin Unlimited, are opposing to Segwit. They control 6.7% of hashing power at the time of writing (Source: blockchain.info).
Do you like my canvas art? I’m calling it “shit runs downhill“. I’m thinking about mounting it on my wall to remind me of the perils of HODLing alt-coins. After finding out that alt-coin index funds don’t really work, I put together a data visualisation of alt-coin price performance as further research into why.