The Bitcoin run-up to almost US$12000/Bitcoin is spectacular. Some even forecast it will reach US$80,000 in 2018, which may be pushing the boundaries of credibility (remember those who predicted, in the times of the dot.com bubble, that the Dow would reach higher than that market is now – almost 20 years later).
If you seek some perspective, Bloomberg has a useful brief analysis. This should sate those whose envy rises too high even if the so-called market capitalisation of Bitcoin is around the same as Coca Cola..
Bitcoin run-up and the percentages
Some fundamental figures in the Bloomberg analysis provide (via the Money Project) clues:
- 2.4% of the $7.6 trillion coins and bank notes
- 2.3% of the $7.7 trillion gold market
- 0.25% of the $73 trillion global stocks market
- 0.19% of the $90.4 trillion of broad money supply
- 0.083% of the $217 trillion real estate market
- 0.033% of the $544 trillion derivatives market.
These are trivial percentages. As Bloomberg puts it: “… in the broader scheme of the financial market, (Bitcoin is) a gnat — equivalent to less than 2 percent of any major class and 400 (!) stocks have bigger gains this year.”
Bitcoin remains difficult to use
The argument about whether Bitcoin is a currency or an asset will rage on. It is an instructive one, in the sense that understanding the points of view illuminates an obscure area. There is for example, Aswath Damadoran’s analysis which even assigned it to be a collectable.
But a larger point is often forgotten. This is that to ‘spend your Bitcoins’ is almost as hard as to mine them (though not as costly as the humongous amount of electricity now needed for the latter (up to an estimated 31TW hours in each year). The whole process of obtaining and holding Bitcoins in wallets and then purchasing is one obstacle. Processing each transaction onto the Bitcoin blockchain is another.
While the average of a little over two hours does not sound too awful, the randomness of spikes – reaching many hours is unacceptable – for buyers and sellers alike. When compared to the ‘simplicity’ of paying with a credit card or a smartphone, such lags must operate to constrain the acceptability of Bitcoin.
What does this mean
Remember Shelley and Ozymandias:
My name is Ozymandias, King of Kings;
Look on my Works, ye Mighty, and despair!
Nothing beside remains. Round the decay
Of that colossal Wreck, boundless and bare
The lone and level sands stretch far away.
Something like this could yet be Bitcoin’s epitaph. If you are consumed with envy about the Bitcoin run-up, go back to basics and see if you can find foundations sufficient to warrant ‘investment’.