Half of the fiat money never goes back

[ericwang]

When I check the market cap of bitcoin after every price spike, I found an quite interesting phenomenon, half the fiat money poured into bitcoin will stay in bitcoin network and never go back. The first price spike in May 2011 push the market cap of bicoin from 50 million to 220 millions USD, which is about 170m fresh cash into bitcoin, and after the price correction, the market cap reminds 100m for quite a while. It is about half of the new money stayed in bitcoin.

The second price spike sends the cap from 200 million to 2,6 billion in April this year, and again after the price crashed, the market cap goes to average 1,2 billion which shows about half of the entered fiat stays. So as this recent spike, about 10 billion new flow cash push the cap from 4 to 14 billion and after half of them gone, the market cap comes to around 8-9 billion.

Not accurate about the number but just curious about the half money stay phenomenon.  Any comment?

[laowai80]

Any comment?

Long-term investors stay and wait for the next wave and more.

Only when the tide goes out, do you discover who's been swimming naked.

Swimming naked meaning: invested what they couldn't afford to lose.

[cypherdoc]

just another version of higher highs and higher lows.

[LiteCoinGuy]

just another version of higher highs and higher lows.

true but still nice monitoring ericwang.

[Racer8]

When I check the market cap of bitcoin after every price spike, I found an quite interesting phenomenon, half the fiat money poured into bitcoin will stay in bitcoin network and never go back.

Does the market cap increase reflect the cash in?  The market cap can increase simply by a price increase without any new cash in?  Am I missing something?

[ericwang]

Does the market cap increase reflect the cash in?  The market cap can increase simply by a price increase without any new cash in?  Am I missing something?

The price can increase only because there is more money buying bitcoin than the supply of bitcoin at that price level. Given that supply of bitcoin is increasing every 10 minutes, if there is no new cash flow in, the market cap will keep the same and the price will go down.

[cr1776]

When I check the market cap of bitcoin after every price spike, I found an quite interesting phenomenon, half the fiat money poured into bitcoin will stay in bitcoin network and never go back.

Does the market cap increase reflect the cash in?  The market cap can increase simply by a price increase without any new cash in?  Am I missing something?

No, you are right.  Investing one million dollars in January 2013 might have pushed the entire market cap up by $20 million due to an increase in the demand causing the price to rise. It is definitely is an interesting phenomenon - thanks for pointing it out - but to get the market cap to go from $1 billion to $10 billion does not mean that $9 billion was invested. $500 million (or whatever) in demand could produce that.  Prices are set at the margin.

[ericwang]

No, you are right.  Investing one million dollars in January 2013 might have pushed the entire market cap up by $20 million due to an increase in the demand causing the price to rise. It is definitely is an interesting phenomenon - thanks for pointing it out - but to get the market cap to go from $1 billion to $10 billion does not mean that $9 billion was invested. $500 million (or whatever) in demand could produce that.  Prices are set at the margin.

oh, yeah, my mistake. How much money it need to push the market to 14 billion depends on the proposition of bitcoin flow in the market. If just half of them are trading, half of the cap changing is the new money in to push the market that high.

[cr1776]

No, you are right.  Investing one million dollars in January 2013 might have pushed the entire market cap up by $20 million due to an increase in the demand causing the price to rise. It is definitely is an interesting phenomenon - thanks for pointing it out - but to get the market cap to go from $1 billion to $10 billion does not mean that $9 billion was invested. $500 million (or whatever) in demand could produce that.  Prices are set at the margin.

oh, yeah, my mistake. How much money it need to push the market to 14 billion depends on the proposition of bitcoin flow in the market. If just half of them are trading, half of the cap changing is the new money in to push the market that high.

:-)

Yeah, and I don't think there are good stats for the percentages that are trading.  Regardless, this is interesting to discuss.

[ericwang]

:-)

Yeah, and I don't think there are good stats for the percentages that are trading.  Regardless, this is interesting to discuss.

There is good chance the number is less than 50%, imo. And I hope this figure grows gradually with climbing price.

[empoweoqwj]

There is a good chance the number is way less than 50% imho, but anyway to guestimate the real number?

[titulng]

So now the bitcoin is should buy more ?

[empoweoqwj]

So now the bitcoin is should buy more ?

Risky time - could go up, could easily slide down to $200 - $300. Nobody knows!!

[auzaar]

What does so called market cap has to do with how much money came in or went out, suppose there is very low liquidity or no liquidity and I bought .0001 bitcoins at $2000, market price would be 2000 but that doesn't mean anything, so instead of just multiplying current price with number of coins you should add all trades to get what really went it or out.

[jonanon]

So now the bitcoin is should buy more ?

Of only we knew for sure - the price of BTC is still high for the very earlier adopters but for the people who bought at $1000 + it's a nightmare. Make your own judgement and stick with it!

[johnyj]

Just like fiat money, majority of the coins were hold by miners (central bank of the bitcoin network), only a small fraction is traded on the market

[empoweoqwj]

What does so called market cap has to do with how much money came in or went out, suppose there is very low liquidity or no liquidity and I bought .0001 bitcoins at $2000, market price would be 2000 but that doesn't mean anything, so instead of just multiplying current price with number of coins you should add all trades to get what really went it or out.

Exactly. But good luck in calculating all trades ever done

[Lethn]

That's called position trading, like people above me have already said someone has probably invested that money and will probably leave it there for much longer than a year which is actually pretty awesome to see, you see this kind of thing happening particularly with Gold/Silver where people by at extreme lows and sell at extreme highs, Peter Schiff apparently was buying up Gold back when it was less than $100.

At least our generation now has something to invest in long term to hedge against inflation without needing to be rich already, I think it's fantastic .