Ah, the cool $1 million per Bitcoin in 2018. Let's see what this means.
If miners decide to sell all their mined Bitcoins, (or 50%), this is how much daily fresh money is needed on the exchanges for the price to be stable:
2014-2016 : $3.6 billion ($1.8 billion if 50% sold)
2017-2020: $1.8 billion ($0.9 billion)
2021-2024: $0.9 billion ($.45 billion)
etc.
So, if Bitcoin is $1 million in 2018, good luck in finding that daily one billion dollars. (0.3$ trillion in a year). Dr. Evil would be proud.
I too wonder about the consequences of what the log trendline suggests. If and when bitcoin prices reach $1 million in 2017 and top out, there should be 50% adoption by the population of speculators. By way of clarification I mean not full adoption by the underlying economy, rather of the people and institutions that will ever purchase bitcoin as a speculation, half of them will have done so by 2017. In 2017 the block reward will be halved from the current 25 to 12.5. At the rate of 6 blocks solved per hour, the daily block reward totals 1800 bitcoin, thus requiring $1.8 billion to buy all mined coins at $1 million apiece. Total daily retirement savings in the US is about .5 to 1 $billion according to the Investment Company Institute. And given that only a fraction could reasonably allocated to Bitcoin, the majority of the daily required $1.8 billion will come from other sources including non-US retirement savings and especially I believe - merchant trade and the foreign exchange market. |
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Bitcoin Merchant Adoption - Influence DiagramHere is a diagram of the situation resulting from more merchant adoption of Bitcoin, that I drew. Each of the situations could be measured, i.e. observed. The directed arrows indicate a postulated causal relationship in a Bayesian inference model.  The diagram is shared here.
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Re overstock et filia:
More use means more flow means more liquidity means more price discovery means less volatility means more confidence means more demand means higher price.
But it's a long chain, and any link can prove weak. It's also a long pipeline and it takes time for inputs to be expressed as outputs.
I would organize the thoughtful situations you offer not as a path, but rather as a Bayesian Influence Diagram . . . The diagram is shared here. |
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I want to underline that I think 99% of the people should not pay attention to the short term fluctuations of the price. At the instant when you are ready to buy in, do it. Then only accumulate the position whenever you feel like it and don't sell (regardless if you feel like it or not). Then after you are sure it does not make sense for you to buy more (because you already have so many that having more would not matter), construct a diversification schedule to sell a fraction every time the price reaches a certain milestone. Make it such that you have a comfortable number of bitcoins left when the price reaches $1 million. If you have BTC10 now, I advocate to sell anything between BTC5-BTC9 during the runup. Make the plan, and stick to it. After you have started selling, I don't advice to buy back even if the price goes down. Enjoy your gains rather.
More great advice. Accordingly I prepared 36 paper wallets to spend monthly for the next three years, each computed to draw down the then-current bitcoin balance by 0.85%. About 73% of my original bitcoin stake will remain after three years when and if the log trend reaches the $1 million price. |
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I would like to know more about Reggie's Zero Trust Digital Contracts.
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What software have you used to graph this?
Google Drive is a cloud based facility for shared documents. I used their spreadsheet function - familiar charting operations and very easy to share via a URL. The one drawback for my purposes is that Google charts do not directly support log axis scaling, so I must compute log 10 values for charting. https://docs.google.com/spreadsheets/d/1VoVBIO0WDMRnB_GzjykZ5iAR4Bd7ODyPaPTDGh3LeMo |
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Relative Growth of Bitcoin Market Capitalization vs Cumulative WalletsA simple metric would be to divide the bitcoin market cap by the number of users. Anybody care to estimate the monthly number of users some time back? (I have a thread estimating the ongoing development)
Below is the relative growth of Bitcoin market capitalization vs wallet growth. The shared data spreadsheet and chart are here.  The data suggests that over time, users are more willing to bid up the price of bitcoin. Its not simply the addition of more users that causes bitcoin's price to grow. I suppose that this is because as Bitcoin matures, the perceived risks recede and network effects drive value up for each wallet user. From the spreadsheet the requested metric is . . . Date Market Cap per Wallet
1-Sep-2010 9.199265512
1-Oct-2010 8.31156594
1-Nov-2010 24.44845805
1-Dec-2010 21.72825755
1-Jan-2011 27.20551529
1-Feb-2011 61.77197397
1-Mar-2011 50.69862048
1-Apr-2011 34.78586103
1-May-2011 80.51902012
1-Jun-2011 94.24233851
1-Jul-2011 147.7402516
1-Aug-2011 108.7838713
1-Sep-2011 65.33783406
1-Oct-2011 39.88800029
1-Nov-2011 24.71858162
1-Dec-2011 22.83534428
1-Jan-2012 36.87445205
1-Feb-2012 39.22018699
1-Mar-2012 33.80519442
1-Apr-2012 32.65323934
1-May-2012 32.32932281
1-Jun-2012 33.52715043
1-Jul-2012 41.78422829
1-Aug-2012 58.15863505
1-Sep-2012 62.12124562
1-Oct-2012 72.73124219
1-Nov-2012 64.10586921
1-Dec-2012 70.06403119
1-Jan-2013 71.18179877
1-Feb-2013 105.0337642
1-Mar-2013 147.2198882
1-Apr-2013 349.4214284
1-May-2013 425.7523625
1-Jun-2013 394.1813518
1-Jul-2013 282.1449121
1-Aug-2013 308.5201805
1-Sep-2013 412.1366222
1-Oct-2013 389.1771141
1-Nov-2013 511.4515785
1-Dec-2013 2420.932006
1-Jan-2014 1631.277105
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Great analysis!
I suppose that the exponential growth of bitcoin prices must eventually stop, and I have modeled prices according to a logistic model. Now I wondering about what happens to address growth when inevitably price growth slows down.
Any thoughts about this?
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Perhaps the reason mining is mostly unprofitable is that persons without access to an exchange have no other choice and will be motivated to purchase expensive mining equipment regardless of an operating loss.
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A simple metric would be to divide the bitcoin market cap by the number of users. Anybody care to estimate the monthly number of users some time back? (I have a thread estimating the ongoing development)
Good idea!I can get monthly download statistics for the bitcoin software from the SourceForge code repository, and derive a cumulative total by date of the number of bitcoin wallets that indicate a relative number of users. The statistics available from blockchain.info regarding number of online wallets starts only in 2012. The data series for total bitcoins in circulation is available from blockchain.info. Give me a little time and I will produce a graph of the suggested metric. |
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Agreed that the Log(Log) graph fits recent data better, however there is no principle behind the equation as there is with a logistic model of population growth with resource constraints. The Log(Log) model suggests that prices during 2014 will reach 100000 USD by summer 2014. To me, this is not a plausible growth rate for bitcoin prices. I believe that 2012 simply under performed and that 2013 over performed with regard to the log trend line. |
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I'm curious, for things where this model applies. Do we expect the overshoot that will happen at the saturation point and the following overcorrection be relatively larger or smaller than the overshooting/overrcorrectios along the growth path?
I'm asking because no-one will ever really know when we've reached the saturation point (and no further exponential rise is coming) until it happened.
I agree with many here who think that the bitcoin price bubbles are becoming less severe percentage-wise - so perhaps the final overshoot will be smaller than those that preceded it. Yes, I have noticed the same thing, and that is a possibility (less volatile bubbles over time for what I will call your "speculative adoption" logistic curve) But I'm getting at a different question. As I understand it, your model is tracking "speculative adoption" for lack of a better word. I understand why you are doing this, as the first "ultimate ATH" for BTC will almost certainly be driven mostly by speculation - as we are seeing now. This will take us quickly to some maximum price (eg. $1M). I/we expect that this "speculative adoption" will be far ahead of "utility adoption" which will probably lag significantly. Most new technology adoption models (I've posted a few here over the years) suggest that when the "speculative adoption" gets far ahead of the "utility adoption" a massive speculative correction often takes places over many years to bring the price back into alignment with current fundamental value. This is a different phenomenon than the mini bubbles on the way up the logistic curve. This seems to me would indicate the underlying model stops working at this point. This might suggest that once hitting $1M btc (for example) will drop back tremendously to perhaps 1/10 while "utility adoption" catches up. It might be then several more years before price climbs back to close to ATH - if ever. As I'm writing, my question becomes more clear.. "How will we know when the logistic "speculative adoption" curve has run its course and a much bigger - long-term, fundamental - correction has begun.?" Several answers spring to mind, but would appreciate your thoughts. Bitrider makes a great point. There are two values, a) Peak value of Utility Adoption b) Peak value of Speculative Adoption Peak value of Speculative Adoption = (Approximately) 10 * Peak value of Utility Adoption SlipperySlope's S-Curve model (which is a great model and one I like very much), can only be used to model the adoption rate/ relative appreciation of price over time. It does not tell you what the final price will be. The key insight this model provides is that if you are planning on investing in Bitcoin, you should do so in the next 3 to 6 months. Ideally you should invest all now, however given the fact that we have had a run up and might be consolidating for quite some time. We can dollar cost average or invest during pullbacks, till the middle of 2014. This is also my view. The dot-com stock bubble price of Amazon vs the later business driven price of the last few years is an apt expectation for bitcoin. We could monitor the growth rate of bitcoin transactions and other measures of the underlying bitcoin economy and see if they too are increasing at 10x annually. If not then perhaps the relative divergence in growth rates would suggest the degree to which speculation gets ahead of the underlying bitcoin economy. |
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I'm curious, for things where this model applies. Do we expect the overshoot that will happen at the saturation point and the following overcorrection be relatively larger or smaller than the overshooting/overrcorrectios along the growth path?
I'm asking because no-one will ever really know when we've reached the saturation point (and no further exponential rise is coming) until it happened.
I agree with many here who think that the bitcoin price bubbles are becoming less severe percentage-wise - so perhaps the final overshoot will be smaller than those that preceded it. |
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This will be interesting to follow as time progresses. Am I to understand correctly that timing of vertical of S curve is correct based on fitting to prior history, and only part under question is whether it will level off at $1 million, or above/below?
Yes, I simply guessed at a plausible high maximum price for bitcoin. We are still in the exponential growth phase of the S-Curve, doubling on average three times per year. The growth slowdown will occur, according to theory, when 50% of the population of those who will ever buy bitcoin for speculation - have done so. |
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Impressive work!  Thank you. And may you swiftly become a $ billionaire. |
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What events in 2014 can propel bitcoin higher?Here are a few plausible events happening next year to drive bitcoin prices higher . . . - the opening of the Winklevii bitcoin EFT - currently being reviewed by the SEC
- at least one American bitcoin exchange opening as at least one US bank figures out how to comply with clarified Know Your Customer and Anti-Money Laundering regulations
- Chinese bitcoin exchanges likewise figure out how to comply with KYC/AML regulations and also figure out how to directly connect with customer bank accounts, beyond the few currently supported, e.g. Merchants Bank of China by BTCChina.
- Transaction volume increases apace with recent history, enabled by newsworthy adoption events, e.g. 10x more transactions via merchants accepting bitcoin.
In order for prices to ascend from here - $737 currently - to a 2014 year-end value of $6437 as predicted by the logistic price trendline, about 10x more speculative activity needs to occur. This increase in adoption could be realized by new exchanges opening, and especially by greater freedom of operation permitted to Chinese exchanges. I agree with many observers that 2014 will be the year in which institutional investors, and retirement account investors, begin moving large amounts of buy-and-hold funds to bitcoin. The huge success of the Bitcoin Investment Trust in the past couple of months is an indication of what is probably ahead for 2014. I suppose that the net sellers of bitcoin in 2014 will be those who bought before April of 2013 and have 100x or more profit unrealized.
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http://www.mail-archive.com/cryptography@metzdowd.com/msg10152.htmlAs an amusing thought experiment, imagine that Bitcoin is successful and
becomes the dominant payment system in use throughout the world. Then the
total value of the currency should be equal to the total value of all
the wealth in the world. Current estimates of total worldwide household
wealth that I have found range from $100 trillion to $300 trillion. With
20 million coins, that gives each coin a value of about $10 million.
So the possibility of generating coins today with a few cents of compute
time may be quite a good bet, with a payoff of something like 100 million
to 1! Even if the odds of Bitcoin succeeding to this degree are slim,
are they really 100 million to one against? Something to think about...
Hal I also have read an argument for currency valuation based on hard-currency experience before paper that suggested equal value of wealth and the currency used to represent it. When I did the analysis, I used $500 trillion as a rough estimate of the total global wealth, including government as well as individual. With 20 million coins that gives each coin a value of about $25 million. |
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Excellent thread - thanks!!
I hacked together a quick Google Docs spreadsheet to play with the numbers for my own uses, and I'm in the process of creating a small website with an SSS-style calculator on it.
I'll keep you posted when it's up.
Did you see this,or is it not SSS-like enough for your tastes?  http://xzist.org/amazing-bitcoin-retirement-fund-calculator/You're welcome to re-use the source. No, I had not seen that one! That's what I get for skimming though page 4. Nice work, I like playing with the delayed gains option. Anyway, the one I was working on is done now too: http://bitcoinsavingsplan.com/Comments/criticisms/error checking welcomed Works for me! I too would like to see a delayed gains option on your inspiring SSS calculator. |
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First, I am not clear yet if price must return to the calculated trendline which assumes linearity over log base 10 apparently. I need to do some curve fitting on past bubble manias to see if the exponential rate remained constant during the blow off phase. Bitcoin appears to have reached the maturity phase (no longer in the stage where those who were holding as a wildly speculative option and a very small % of their net worth and were working hard on it as a currency) and is preparing to enter the blow off stage when the dumb masses come rushing in. You see I entirely believe in the concept of how we take over the fiat system, it is just that Bitcoin's price is moving up too fast. (this is orthogonal to my view that Bitcoin is also technically flawed and would succumb to the government any way) I hand fit the million dollar logistic model to place equal weight above and below the trendline. There will be a bias towards a return to mean, and most observers believe that we are well above that mean now. In the $1M logistic model the masses come rushing in during 2016-2017, when the price climbs from $100K to $1M. The Austrian theory of how a commodity becomes money is that first it is widely sought and held as a commodity, then this naturally leads to it being widely acceptable as medium-of-exchange. Coinbase reports that 80% of wallets are buy and hold, the remaining 20% are used for transactions. That supports the idea that when fully adopted, the majority of bitcoin will be held as a deflating store of value, and the smaller portion held as working capital by transacting entities. I do not distinguish intrinsic value aside from the contextual market price. Please enlighten me with regard to the two main uses of bitcoin as partitioned above. |
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