Analysis

Bitcoin is Going to $10,000 and No, it’s Not a Scam

Two stories in the last week about the future of bitcoin. One is bullish and one is bearish. I will let you decide which story is more convincing.

Bitwise is an asset manager in the US trying to get a Bitcoin ETF approved by the Securities Exchange Commission (SEC). They produced a 200+ page report on cryptocurrency transactions by exchanges. A story on the report b by CNBC is here. The actual report is here.

The one big takeaway of the report is that most Bitcoin transaction volume as reported by the exchanges is fake, and only $273 million USD of the report $6 billion daily volume is real.Most of the mainstream media outlets (including CNBC and the Economist, link behind paywall) have jumped on the report’s conclusion to declare bitcoin is a scam (again).

The stories are very bearish. And their conclusions are very wrong.

If you actually read the report (again the link is here) it’s not talking about the daily transaction volume of bitcoin, it’s focussing on the trading volume of cryptocurrency exchanges listed in Coinmarketcap.
There is a VERY IMPORTANT difference between the two.

Because not all bitcoin trading happens on cryptocurrency exchanges.

First, there are wallet-to-wallet bitcoin transactions that occur on the blockchain. The daily transaction volume has been steady at about $500 million USD a day for months now.

This transaction volume does NOT include the trading volume of the cryptocurrency exchanges as listed in the Bitwise report, as crypto exchanges use their own internal ledgers to keep track of trading volume.Secondly, the report does not list the trading of the offshore bitcoin exchanges such as Bitmex, where trading volume can be as high as $2.1 billion USD a day.

Finally, as I reported in my last story, of the 17 million bitcoin in circulation, more than 16 million have been locked up in wallets that have been dormant for more than five years.That means at most, about $4 billion of bitcoin is available for trading.

Keeping those numbers in mind, that means two things:

  1. The Bitwise report is probably correct in their estimates, as the $6 billion of bitcoin traded in one day means that the trading velocity of bitcoin in current circulation would be more than 100%. That can’t be right, so a lot of these exchanges must be wash-trading.
  2. Their low-ball estimate of “true” trading volume at the exchanges, about $250 million, seems very reasonable given the volume of wallet transactions on the blockchain and especially the volume of off-shore trading of bitcoin futures contract.

To me, it looks like a report that is accurate and well-research, but the popular media outlets jumped on the news that there’s a lot of wash-trading out there and concluded Bitcoin is doomed.

Bitwise report, page 62

The current estimate of the true trading volume seems quite reasonable given the amount of bitcoin in active circulation.

 




The second story is from Arthur Hays, CEO and co-founder of Bitmex, and one of the sharpest guys in the world of cryptocurrency.

Mr. Hays is bullish and gives us another of his famously cynical opinions on the world of crypto:

“…things are a changin’. The Fed couldn’t stomach a 20% correction in the SPX. In the recent Fed minutes, the dot plot now shows no rate increases for the rest of 2019. The Fed will start reinvesting its runoff in the third quarter. We are only a hop, skip, and a jump away from an expanding Fed balance sheet.
Beijing knows China must rebalance its economy away from credit-fueled fixed asset investment. However, Xi must not have the political cojones to push this sort of painful change through. Therefore, the PBOC said “f— it” to any attempt to reign in credit growth. The two most important central banks are creepin’ back into a super easy credit regime…
…Green shoots will begin to appear in early Q4. Free money and collective amnesia are powerful drugs. Also after two years of wage cucking, punters should have a few sheckles to rub together.
The 2019 chop will be intense, but the markets will claw back to $10,000.”

When Arthur speaks, crypto-traders listen, and not just because Mr. Hayes has made a few predictions that were dead-on, such as Ethereum dropping below $100 in the last quarter of 2018.

The Crypto Trader Digest is one of the most respected newsletters in the world of crypto with a technical research team that is second to none. If you don’t believe me, go read some of their articles.I don’t understand why the mainstream media all but ignores the opinions of established crypto-veterans like Mr. Hayes but I urge my readers to put themselves on their mailing list of Bitmex’s Crypto-Digest, as the man knows what he speaks of.

DJ

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