(But don't get too confident either.) <-- Wanted to add that last line to the title, but the character limit got in the way.
Alright. So we all like talking about daily Bitcoin price in here. Hourly even. Individual big buys or sells even. How the price rises to a new all-time high, and how it crashes afterwards.
No problem with that, this is the speculation subforum after all, and for those of us who trade those spikes, those values
are relevant after all.
But it's also easy to forget the larger picture when doing so, and I notice an increasing number - even of "old hands" - are starting to declare this funny little cryptocurrency experiment failed already because of the bear market we are in for about a year now.
That's a bit premature maybe...
The goalLet's look at the larger picture for a moment. Not the local price tops and bottoms, but at a
large view of the market. Note: This is still market analysis (as opposed to looking at the fundamentals of the Bitcoin economy), but instead of focusing on the extreme values (that are exciting, but not all that important for Bitcoin as a whole), let's zoom out a bit...
Step #1: 'Market cap' instead of 'Price per unit / BTC'Easy to forget, but important to note: Per unit price, i.e. USD per BTC as traded on a public market, matters for traders and for the value of your individual account, but is a poor representation of the 'total market' of Bitcoin. Market cap, i.e. current price times total number of bitcoins in existence, isn't perfect either (for example because of "lost" bitcoins, or those not being in circulation), but it is already a big improvement. The market now, at around 13.4 million BTC is a vastly different size than in 2011, at around 5 million BTC.
Step #2: Volume-weighted price, averaged over a reasonably long time span, instead of daily price spikesSaid it already: price highs and lows matter a lot for traders. Those who sold at previous peaks and bought back at the lows made a fortune. Those who bought at $1000 and sold at $300 lost one. But it doesn't accurately reflect the
weight of buying and selling as a whole, the
amount of coins bought and sold at those prices.
Yes, price briefly got near $1200 in 2013. Yes, price briefly fell back to $2 from $32 in 2011. But in either of those cases, only a relatively small number of coins (in relation to total volume) were traded at those prices. It makes no sense to think that the Bitcoin market lost half its value in a few days when price fell from $1200 to $600, and neither does it makes sense to think the Bitcoin market size (sustainably)
increased by a factor of 32 when it rose from $1 to $32 in 2011 in a short amount of time.
This is, if you want, a reminder for both bulls and bears: don't think the spikes matter all that much. What matters is the larger trend, unless you are actively
trading the extremes on a daily or weekly basis.
Putting it together...So, let's look at the market capitalization of Bitcoin based on a volume-weighted average of the last 200 days. That's a bit more than half a year of "smoothing" the price, and it takes into account the
trading volume of each price that enters the average, i.e. on a day with much trading, the price is weighted more for the final value of the average than on a day with less trading.
In the following two graphs, you are looking at the market cap of Bitcoin (the thick blue line), in millions of USD:
total coins mined at the point of calculation times volume-weighted moving average of price over the last 200 days.2011 to 2013 (MtGox data)
2013 to now (Bitstamp data)
What to conclude?That's up to you, ultimately. You will note that we are currently "trending down", even in a smoothed view like the 200 day (volume weighted) average and the corresponding market cap. That's pretty bad, you have to admit... means Bitcoin is in a deep bear market (or:
was in one. It's a delayed representation after all because of the 200 day lookback period).
However, you'll also note this is hardly the first time this happened: The 2011 bear market brought the "smoothed out" market cap down from its peak of ~70 million USD to ~38 million USD, almost cutting the peak value in half. Compared to that, the current bear market is still rather gentle: from the peak of 8.4 billion USD to currently about 6.4 billion USD. Down about 25% from peak market cap as of now. Pretty bad, but hardly the "death of Bitcoin" some like to talk about.
(Note also:
billion now,
million back then.)
The above is, in a nutshell, why I can't really take the doomsday prophets all that serious that claim Bitcoin is dead and the crypto experiment is a failure. Maybe if the larger picture I presented here changes drastically, say, if the market cap falls back to below a billion USD, I'll start wondering if it is really the end for Bitcoin.
Until that happens (
if it ever will), I think the same way of Bitcoin the way I thought of it when I learned about it in early 2013: It's a brilliant idea, a truly interesting social movement and experiment, and it has a real shot at making it. As long as you don't delude yourself in thinking its success is a "sure thing", it's worth keeping an eye on, and maybe even holding a few of those funny little coins. Just not so many (in relation to your total net worth) that any price drop makes you want to throw up - but that's warning that applies to investors in all markets.
A word on self-moderationI used to dislike self-moderated topics, but I also dislike the rampant trolling that has become commonplace in here. This is the first self-moderated topic I ever opened, and I do so reluctantly. As a sort of compromise, between keeping signal-to-noise in an acceptable range, and not stifling free expression of criticism, I will:
(a) Only remove posts that can uncontroversially be called "trolling". Example: JorgeStolfi's posts are
not "uncontroversially troll posts" - most seem to dislike them, but some (including me) see them as at least not completely devoid of any information. So posts like this won't be removed. Content-free posts troll posts on the other hand, with the only intent to stir up emotions, will be deleted. Example: fallllling's or his alts' panicky one liners, or notlambchop's pony memes.
(b) To allow for some accountability for my moderation, I will move all deleted posts into an unmoderated topic in the off-topic subforum. That way, if you really want to read what btctalk's finest have to say (and decide if I perhaps deleted something without justification), you're able to do so over there:
'Garbage can' thread for my self-moderated speculation subforum threads 
