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Few assets are
as volatile as BitCoins have been. Over the past 365 days they have ranged
from about $0.05 to over $30. After a solid consolidation BitCoins
have now broken out and the next upleg appears to have appeared
with a 35% rise in the past 10 days.
BitCoin makes this payment efficiency possible
because it is based on cryptographic protocol where its security is grounded
in the laws of
mathematics not laws of men which may or may not be enforced profitably.
THE BITCOIN RANGE
Back in June
2011 I wrote about how I supposedly missed the trade of the year
where I could have “with a completely non-levered investment that would
have turned [$5,000] into slightly over $550,000 in 8 months. $550,000 in a
completely anonymous account with neither a paper or audit trail nor a 1099
and the asset would have been purchased with $5,000 of physical cash.”
Some say
hindsight is 20/20, but I do not think so, because it still takes the
gathering, analyzing and understanding of the data before one can get a picture
and sense of what has happened. Before there were no data points to use in
predicting the sustainability of the unsustainable BitCoin upleg. But this
time around we can make slightly more grounded prognostications.
Filtering out
the daily noise of the markets is essential if one is going to hone in on the
signal. One of my favorite tools to accomplish this is the simple 200
day moving average. Taking into account almost seven months of
data it is long enough to filter out daily noise, like the MF-Global or
MyBitCoin fiascoes, but still close enough to capture the general trend of
long-term secular markets, whether bullish or bearish. To derive a relative
price I take the current price divided by the 200 day moving average.
In BitCoins
case we now have a tremendous upleg and crash in the history books. An
analysis of the data reveals the low end of the relative price is around 0.35x (cheap) while the
high end was about 12x
(expensive).
To create the organized cryptographic hash required
energy which had value in the market.
BITCOINS PROVIDE UTILITY AND ARE VALUED
BitCoins are a
decentralized peer to peer digital currency. They are the most efficient and safest form of currency I
am aware of. Sure, they have neither the intrinsic value nor depth of volume
like gold but they are still harmonious with the regression
theorem. To create the organized cryptographic hash required
energy which had value in the market just like gold had value in the market
for jewelery before it acquired additional value from its utility from
moneyness and currency applications.
http://www.youtube.com/watch?v=Um63OQz3bjo&feature=player_embedded
For example, I
was reading a blog which recommended the application Total Finder. Total
Finder allows one to open multiple tabs in the Mac Finder which makes
dragging, dropping or locating folders and files much easier. It is a feature
that should be built into the OS but is not so a creative entrepreneur saw a
market need and filled it.
I immediately
recognized that this application would save me time and decided to purchase
it. The price was $18 and it is available in the Apple store. Then I did a
Google search for “Total Finder bitcoin” and found the
author’s article Trade
Total Finder for BitCoins. As expected there was a discount, 50%. Why is that?
Because the
current payment systems are too expensive. Apple takes 30%, the credit cards
and processors take 1-7% and require the identity of both the buyer and
seller along with sales and income taxes which are much easier to enforce
plus your accounts can be arbitrarily frozen like with the Wikileaks
banking blockade. By removing all these middlemen moochers and looters
from the transaction both parties are better off with a 50% discount in
price.
BitCoin makes
this payment efficiency possible because it is based on cryptographic
protocol where its security is grounded in the laws of mathematics not laws of men which may
or may not be enforced profitably.
http://vimeo.com/30998268
I think everyone should hold some BitCoins, perhaps
at least 0.1% of their net worth, in their portfolio.
BITCOIN VOLUME HAS INCREASED TREMENDOUSLY
The rise in
BitCoin’s exchange rate has surprised me. First, BitCoins are currently
being inflated at approximately 42% per year. That is quite the increase in
the currency supply. Second, early adopters are sure to control tremendous
amounts of BitCoins and I would think they would be divesting themselves as
the market would bear without sinking the price too drastically and third the
BitCoin economy is still in its infancy.
Over the last
six months I have watched the average transactions in the public block
explorer grow to about $1 million per day. The exchanges have increased their
trading volume from about 40,000 coins per day to approximately 200,000 on 19
Dec 2011. With about 8 million BitCoins in circulation there is plenty of
volume to provide a bid for any early adopters who decided to disgorge large
amounts of coins.
BitCoin is an
illusion like the FRN$, Euro or Yen. The market is deep enough that I would
place it in the cash portion of your balance sheet. Additionally, if you take
the proper steps it is the most portable currency ever. For that element of
safety and liquidity therefore I think everyone should hold some BitCoins,
perhaps at least 0.1% of their net worth, in their portfolio.
CONCLUSION
Watching this
breakout and ensuing upleg in BitCoins is going to be exciting. Since the
last rally in June there have been real life applications developed from
mobile payments to massive online stores with hundreds of thousands of items,
entrepreneurs have stepped in to accept BitCoins as payment, the client has been greatly improved,
exchange security has been enhanced, with proper privacy hygiene your cryptographic
hash is more secure than even a gold coin and more people
understand what BitCoins are, how they work and why they want some.
Taking the
current price of $4.00, the 200 day moving average of about $8.50 and
extrapolating this upleg with a 12x 200dma top we could see a price of around
$80.00 per BitCoin. Is this speculative? Yes. Would I bet on seeing $80 per
BitCoin by around June or July? Maybe if the odds are around 5%. But I would
take a bet for BitCoins to hit $7.50 by June or July at around a 50-70%
probability.
So, if you want
to buy any Run To Gold
products using BitCoins just contact me and we can make a deal
with a substantial discount. If you need a place to get any BitCoins then I
recommend the Tradehill
exchange.
Trace
Mayer
RuntoGold.com
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