We are asked this question a lot. The simple answer is, we do not know, but we do know this:
By May 2020 when the bitcoin supply next halves, bitcoin will be more scarce in terms of new supply than gold.
Global wealth is ~US$370 trillion (Credit Suisse 2018 estimate)
Global GDP is ~ US$80 trillion annually
The gold market is worth ~ US$8 trillion
Bitcoin has a market cap of US$180 billion (2% of the gold market and 0.2% of global GDP and 0.05% of global wealth)
Bitcoin generates a lot of news but it is tiny. It’s not even a rounding difference in global terms.
Looking forward:
1,800 new bitcoins are mined per day, this will fall to 900 new bitcoins daily from May 2020
So, theoretically US$18 million per day (1,800 new coins x US$10,000 price = US$18m) in new money is required each day to sustain the price. This will fall to $9 million per day from 2020.
So, for context, annually 0.008% of global GDP needs to flow to the category. In words, eight one thousandths of one percentage point. Nothing, it would not register on any macro economic survey.
It is very early, bitcoin is tiny. That is why bitcoin is volatile, any meaningful movement of capital into this asset class would see the price explode. People are surprised when that happens from time to time but some simple calculations prove they really shouldn’t be.
A US$100,000 bitcoin would still represent only 20% of the gold market, despite being the more scarce asset. This is not investment advice suggesting that will happen. However, if it did, providing support for that value in terms of asset scarcity would not be difficult and even then it would represent less than half of one percentage point of global wealth.
So, just maybe, it’s worth having at least one.
Upstream Data Inc.
Bitcoin mining, as we have said before, is big business. A relative new comer to the space is Upstream Data. Upstream have developed rigs that convert vented methane gas to power for bitcoin mining.
Methane is a by-product of oil, gas and coal mining. It is extremely bad for the environment (roughly 50x more damaging than CO2) and so producers generally burn it off to reduce their overall carbon footprint.
Upstream enables traditional miners to convert this methane into energy and use it to mine bitcoin. It is potentially incredibly profitable since this power would otherwise go to waste as it is not connected to the traditional grids (because of remote locations etc.). Effectively, bitcoin is bringing demand to remote off-grid locations.
In the foreground in the image below, you see the new mining equipment, to the rear you see the vents that will be replaced.
It is great technology and a major net benefit to the environment.
Bitcoins hold times reach ATH
The “HODL Wave” chart below shows bitcoins by age bracket since they were last spent. The pink/purple shaded areas at the bottom right of the graph represent coins that not been touched for two years or more. Some portion of these bitcoins are lost forever, but others are simply individuals that have recognised the value of holding a scarce asset.
We expect this behaviour to have a huge influence on market price come the next halvening, as bitcoin becomes increasingly tightly held.
Tether v New York Attorney General
New developments this week in the ongoing battle between the US and Tether. A quick reminder:
Tether is the largest stable coin in the world
Daily turnover exceeds $30 billion
The New York Attorney General (NYAG) brought a case against Tether and Bitfinex (an exchange that is connected to Tether) that they served New York customers without a license
This led to asset seizures around the world
Tether has since hired an army of lawyers and has responded this week
The clients cited by NYAG are in fact overseas customers and not NY citizens
The NY court lacks jurisdiction over Bitfinex and Tether in any event
Whatever you think of Tether, you can’t help but think that asset seizures in Europe, prompted by the Attorney General’s office of a US state for a business operating in Hong Kong is somehow wrong.
It’s a bit like your local council, turning their attention for a moment from collecting the bins, deciding that bitcoin trading in Moscow is illegal and attempting to seize London based assets. It just wouldn’t happen.
The American regulatory over-reach is having consequences. For example, Circle (a blockchain tech company) announced their intention to leave the US this week. More will follow.
Bakkt futures launch
Bakkt finally began trading its physically settled bitcoin futures on Monday. There have been many delays on this long road but it is a big step forward for the legitimacy of bitcoin as an investment.
Bakkt has a daily and a monthly contract for futures, they differ from those traded on the Chicago Mercantile Exchange because they are physically settled (so profit or loss paid in bitcoin).
They will be enormously useful for bitcoin miners in particular looking to hedge their exposure to price movements.
Bitcoin futures are only for the brave (or the covered). sales@bakkt.com if you fall into either category.
