## Monday, November 12, 2018

### Bitcoin price is where it was 1 year ago

In 2017, the Bitcoin price went from some $1,000 to$20,000 on December 18th. Since that moment, the price lost 66% while the Google searches for the Bitcoin plummeted by 92%.

In a recent month or so, the Bitcoin price lost much of its volatility and seems to be stuck close to $6350. That's pretty much exactly where it was a year ago, sometime on November 12th, 2017. That factoid is just a coincidence but it allows us to make certain interpretations. During the recent year or two, we've been bombarded by statements that the Bitcoin wasn't a bubble, it (and the underlying Blockchain meme) was a game-changing technology and the mechanisms deciding about your profits – if you bought some Bitcoins – are completely different than in the case of different bubbles. Just like every other time when a bubble was being inflated, this time was different, we were told all the time. Even when the Bitcoin price crashed from$20,000 almost to $5,000, the Bitcoin champions were presenting that drop as a fluke – a standard fluctuation in their way towards the infinite price or "to the Moon", as the true Bitcoin fans like to say. Volatility was so normal and a 75% drop, while large, wasn't deadly. After all, during the frantic epoch of skyrocketing Bitcoin prices in late 2017, the price could double – and therefore more than undo the 75% drop – in a week or two. The "hodlers" were de facto proud about becoming the most aggressive class of investors. They expected the most spectacular yields and claimed to be ready for the most spectacular "temporary" losses, too. However, this counting just doesn't seem to work in recent months. A 10% daily growth of the prices is almost impossible. Most of the days, the Bitcoin price changes by less than 1%. Someone surely "wants" to keep the price nearly stabilized – the only unknown is whether the "someone" is a collective spirit of most traders or some specific traders, hodlers, or their group, and whether they are big fish. The cryptocurrency cost-and-benefit analysis could have been viewed as an indeterminate $$0/0$$ or $$\infty/\infty$$ ratio but things are different. The price movements look tiny and the possibility that the price could return to the$20,000 high by the end of 2018, to mention a specific proposition, looks like a science-fiction story.

Just half a year ago, the Bitcoin fans could have said that "the Bitcoin goes up insanely in the long run". It looked so at time scales comparable to one year. After all, it was the year 2017 when the prices got multiplied by 20 or so. However, in the recent weeks, even that timescale-bound proposition seems to be wrong. The Bitcoin doesn't seem to go up at the timescale of one year! By November 2018, it hasn't gone up at any shorter timescale, either.

Is it going up at timescales longer than 1 year? We can't know for sure. Before December 2017, the prices went generally up for 4 years or so. Is a timescale like 2 or 4 years the right one for which you can still say "the Bitcoin price goes up at this timescale"? We don't know with certainty yet. It will depend on the future movements. But I personally find it unlikely that the Bitcoin will revisit the $20,000 peak in the next year or two or three. There are just too many people who have lost the unlimited overbloated belief in the infinity and who are waiting for somewhat higher prices to sell their holdings – sometimes large holdings. So I think it is more likely than not that the Bitcoin price no longer goes up at any timescale. The meteoric rise of the price in late 2017 was something I was completely unable to predict – the intensity of mass delusions keeps on beating my expectations. But it was just a huge dose of group think and irrationality that was exponentially growing for a while, a giant fluke. I think that it won't get repeated. Even the very stupid people who are the typical Bitcoin buyers can notice that exactly one year ago, the price went from$6,350 to $20,000 six weeks later, before it crashed back to$5,000 and then $6,350 where it was stuck for a rather long time. So they see that it's damn possible that they could buy the Bitcoin for$10,000 or $20,000 and then see the price crash. That's why I think that they're unlikely to buy the Bitcoin for$10,000 again – anytime soon. The demand for the Bitcoin would probably go down if the Bitcoin approached these level again. And the supply would go up. I am pretty sure that there must already be some rather big holders who are sort of unloading their holdings.

If the father of the Bitcoin nicknamed Satoshi Nakamoto is e.g. Nick Szabo, he sits on some $7 billion and he may have the private keys needed to send the coins. But he may be afraid of announcing he's the founder of the currency. That's too bad because this is the guy who would deserve a few billion for this influential paradigm. The cryptocurrency markets have become too boring, too stable, and the potential for some new fast meteoric growth of the price has shrunk considerably. In an extremely non-dramatic, gradual way, the reality has proven that the Bitcoin price growth was just an insane bubble without any rational justification. Most of the bubble has burst, if we take the peak price as 100%. A young generation wanted to play their own Airplane Game or another pyramid game. Now their desires for this kind of activity have been mostly satisfied for a decade – when a new generation starts to arrive that wants to "play" a pyramid game, too. So while the cryptocurrency mining consumes almost as much energy as Czechia, all the unbacked cryptocurrencies have become utterly pointless. They don't seem to move much, the trading volumes are tiny relatively to the peak in early 2018, the chance to get rich quick are slim, but there is still some risk that you may lose a significant fraction soon. If you hold this stuff, you're still tempted to watch it even though nothing is happening. Nothing is happening but a Czechia worth of electricity is still being wasted. Some champions of this stuff still don't seem to get how irrational this whole activity has gotten. Just to sustain these non-currencies that no one really uses for anything useful, and that don't even provide us with any interesting pyramid game or lottery anymore, lots of people work in the cryptocurrency exchanges and huge amounts of hardware are being produced just for this purpose and then they are swallowing insane amounts of electricity. The benefits are more or less self-evidently zero while the costs are huge. How is it possible that a network whose costs exceed the benefits so clearly manages to survive? It survives for the same reason why the communist regimes survived for half a century or so. What is still powering the Bitcoin is no longer greed. It is some politically correct utopia about the moral duty to change the world in a certain way. And many people have already understood that they were wrong about their utopia but they're still afraid of admitting this serious blunder to themselves and others – which is why many of them keep on hodling, too. Who is paying for the costs? Well, a small number of people who are still buying additional cryptocoins does. Why? Every year, over 600,000 Bitcoins or$4 billion are mined and added to the pool of 17 million Bitcoin in circulation. Those are stocks of a company that pays no dividends. The number of stocks increases by 4% (600k/17M) a year, nothing is changing about the company, so the stock price should go down 4% a year. The holders of the Bitcoin should normally see the dollar value of their holdings to drop by 4% a year in average – and by this drop, they would really be funding the electricity and hardware for the useless mining.

If you assume that the smoothed drop is less than 4% a year, it means that the people are still buying the newly mined Bitcoin – there is still some new demand for this stuff, some new inflow of real dollars to the game. But while all these people are slow, even that supply has to largely disappear.

On December 9th, 2017, I wrote the only blog post whose main goal was to explicitly urge all cryptocurrency holders to get rid of the stuff. The people who listened to me sold the Bitcoin for \$18,000 or so and they are grateful to me. The blog post just happened to pick the Peak Bitcoin rather accurately. (Although, needless to say, I admit that I was similarly skeptical – while less explicit – about the future of the Bitcoin price at most other moments.)

But even now, when the Bitcoin price is already 68% below the peak, I recommend all slightly sensible people to sell most of the stuff because it has become so pointless, its costs exceed benefits very clearly, and the potential for this fad to be revived and generate growth rates similar to the frantic late 2017 rates looks extremely slim. The fact that the Bitcoin price hasn't collapsed 100+ times more quickly is a testimony of the irrationality of the people who are dealing with this stuff. But I am sure that many of them "fail" to be completely irrational, so even the current lower prices will turn out to be unsustainable.