A new bitcoin metric.

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What do you all think of the following ratio as a measure of bitcoin activity? Since mt.gox and bitpay dominate their respective markets it seems like a good place to start.


(Dollar Value of bitcoin traded on Mt.Gox - Dollar Value of bitcoin transactions processed by Bitpay)/ Dollar Value of bitcoin transactions processed by Bitpay


Currently Mt.Gox does about 100,000,000 every 30 days according to bitcoincharts.com and Bitpay did 2,000,000 for the first 25 days in march. Which would mean there is 49 to 1 ratio of trading/investment/speculation to transactions.

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[BitPirate]

This would be interesting to graph.

blockchain.info does something similar: speculation (money flows to exchanges) as a ratio to overall bitcoin money flows.

The good news is, that ratio seems to be decreasing since late last year :-)


https://blockchain.info/charts/tx-trade-ratio

[Spaceman_Spiff]

(Dollar Value of bitcoin traded on Mt.Gox - Dollar Value of bitcoin transactions processed by Bitpay)/ Dollar Value of bitcoin transactions processed by Bitpay

Why do you first subtract the bitpay value?

blockchain.info does something similar: speculation (money flows to exchanges) as a ratio to overall bitcoin money flows.

The good news is, that ratio seems to be decreasing since late last year :-)
https://blockchain.info/charts/tx-trade-ratio

I think they actually show trade/tx ratio, the naming is wrong.

[||bit]

I don't know. But I found a visual to define the term "speed bump". See date 06/11:

[Nagato]

That chart has gone vertical, never seems that way in a daily chart.

Conventional TA and historical evidence would suggest a major sustained correction is incoming.

Then again, neither of the historical markets were a new world money with superior attributes over ALL existing alternatives.

[blackreplica]

Almost scary to see price movements on a linear scale. Is there anything else in history with such a meteoric rise with no corresponding bubble pop?

[joris]

Almost scary to see price movements on a linear scale. Is there anything else in history with such a meteoric rise with no corresponding bubble pop?

Just look at June 2011 for the same meteoric rise (maybe zoom in first).

[phatsphere]

Then again, neither of the historical markets were a new world money with superior attributes over ALL existing alternatives.

a classical market in such a case has an in-equilibrium between supply and demand. i.e. a good is more expensive, because there is more demand. then - and that's different from bitcoin - one or more companies step in, increase their production, create the product cheaper, whatever … and the price falls because there is more of that good on the market. and as this supply increases, demand is satisfied and price goes down to about the cost of production.

with bitcoin, more demand doesn't imply more of it on the market. only, that there are more miners.

but still, a correction will come for sure. especially once there are no longer enough coins in all the markets or only at too ridiculous high prices. then, the volume drops and the first time an increase of volume at a lower price (nobody knows how many % this is) is sustained, it will go down again because many are just here to make money in the short term or aren't fully converted ideologically.

[achillez]

The correction will come and it will drop just as fast as it rose (if not faster). We have a ton of speculators jumping into BTCs that are only here for the $ profits. It's going to be very ugly once those folks realize they are going to lose their shirts.  The Q then is how high will BTC rise before it falls?

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(Dollar Value of bitcoin traded on Mt.Gox - Dollar Value of bitcoin transactions processed by Bitpay)/ Dollar Value of bitcoin transactions processed by Bitpay

Why do you first subtract the bitpay value?

blockchain.info does something similar: speculation (money flows to exchanges) as a ratio to overall bitcoin money flows.

The good news is, that ratio seems to be decreasing since late last year :-)
https://blockchain.info/charts/tx-trade-ratio

I think they actually show trade/tx ratio, the naming is wrong.

Some of that 100,000,000 isn't only trading/investment/speculation but represents merchants trying to get back to the dollar so it should be subtracted to get to a number that represents only trading/investment/speculation.

[Adrian-x]

Almost scary to see price movements on a linear scale. Is there anything else in history with such a meteoric rise with no corresponding bubble pop?

If you directly correlate it to Bitcoin - environmentalists are bears,
But in reality, this is the information age, and Bitcoin has to catch up ( go vertical ) to support the estimate comfortable existence of the 2.5 billion of us who won't be dependent on exponential growth for economic stability.  

[Spaceman_Spiff]

(Dollar Value of bitcoin traded on Mt.Gox - Dollar Value of bitcoin transactions processed by Bitpay)/ Dollar Value of bitcoin transactions processed by Bitpay

Why do you first subtract the bitpay value?

Some of that 100,000,000 isn't only trading/investment/speculation but represents merchants trying to get back to the dollar so it should be subtracted to get to a number that represents only trading/investment/speculation.

Ok, makes sense.

[justusranvier]

The rough calculation I use is to estimate what the exchange rate should be based on the quantity theory of money and assume everything beyond that is speculative premium.

If all world commerce was conducted in BTC, the exchange rate should be $1 million. This would mean about $5 trillion in commerce per month. The best guess I can come up with based on the available data is that the bitcoin economy sees on the order of $10 million - $100 million in commerce per month, so by a simple ratio the exchange rate should be $2-$20 if it was entirely driven by commerce. Everything else is speculative premium.

[MonkeyBear68]

With any currency there are people that are simply holding it in an account for retirement etc. Actually this is a normal healthy part of any functioning currency. You need a healthy reserve in order to ensure there is a supply for people who wish to buy the currency. I am not sure what a healthy ratio for Bitcoin is, but the more people that use BTC and the more places that accept it the better, and the higher the value of a BTC will need to be to support that level of trade.

For example, if a company with 100 million in daily sales starts accepting BTC and 10% of their sales are via Bitcoin, then the price of a Bitcoin itself would need to go up just under a dollar in order to support that new trade (~11,000,000 BTC currently exist). A certain number of BTC will be "locked" up in the daily transactions of that company, so there is less available and the BTC price goes up.

Bitcoin is still a viable means of transaction no matter what its price. If what I want to buy costs $100 and Bitcoin is $1, then I go on an exchange and buy 100 BTC and use them to make my purchase. If a single Bitcoin costs $1000 dollars, then I go on an exchange and buy 0.1 BTC and use them to make my purchase.

As long as new merchants are accepting BTC, and people are supporting those merchants and buying their products using BTC, then the price of a single BTC will go up.