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The network effects of volatility and liquidity, Bitcoin vs other payment coins

 

The Volatility of 600 cryptocurrencies
Alt-coin volatility proportional to bubble size

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.

Continue reading The network effects of volatility and liquidity, Bitcoin vs other payment coins

I have a lot of brain-farts on crypto-currency. For more farting, follow me on Twitter @dangermouse117

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Bitcoin volatility will match major fiat currencies by 2019

Bitcoin was created in 2009 by a mysterious character who claimed it to be a payments network. But unlike most other payment networks like PayPal and Visa, it screwed with our minds by having its own token. A token that had a price that floated against other currencies. In basic terms, this means if you fund a bitcoin wallet to buy something, it may be worth less (or more) by the time you come around to spending it.

This is the story of bitcoin volatility, we’ll be studying its personality over its short and notorious history. It was partly inspired by Vinny Lingham who calculated Bitcoin will achieve the necessary price stability to be a store of value at $3000 per coin (~$50b market cap), and estimated that to be two year away. We shall see if the data backs this up.

We’ll start this journey with a bit of eye candy. Let me plot for you the volatility of 600 cryptocurrencies against their market caps and 24 hour traded volume (i.e. liquidity). Volatility is represented by the size of their circle. Okay circles, I want you to be small and towards the top, got it? (This equals low volatility and high liquidity).

The Volatility of 600 cryptocurrencies

As it turns out it was a weak correlation between market cap and volatility. Apart from looking real nice, it showed just how far ahead bitcoin is over the other coins. Pundits should know I used log scales and exponentially scaled circles to reduce the exaggerated differences here.

Continue reading Bitcoin volatility will match major fiat currencies by 2019

I have a lot of brain-farts on crypto-currency. For more farting, follow me on Twitter @dangermouse117

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An economic comparison of payment coins, who is winning the race?

Commerce coins compared

Last week I created the Commerce Index as a means to measure a coin’s suitability for general commerce. In a nutshell it tracks the property of liquidity and low volatility.

Both consumers and merchants want a currency that is stable and has high enough liquidity at the exchanges such that converting into and out of that coin does not incur high fees.

This graph compares the Commerce Index of some more notable coins that are aiming for use in payments.

Continue reading An economic comparison of payment coins, who is winning the race?

I have a lot of brain-farts on crypto-currency. For more farting, follow me on Twitter @dangermouse117

BTC Tips: 1KrYzd8y6gnJekibZpb4ixif4nJYbaaZct

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