Bitcoin Adoption: a look at trade and retail volume ratios
Here I look at the exchange (red) and non-exchange (blue) volume ratios which I interpret as trading and retail volume respectively.
Retail Volume
The non-exchange volume is on average > 50% over BTC lifetime with periods of >80% not uncommon. This is extremely good in my opinion, if we interpret this as peer to peer monetary transactions of a non-speculative nature. Of course this data will also include spamming events such as network diagnostic transfers and entities distributing funds over multiple wallets, but I assume these to be negligible compared to the number of genuine financial transactions.
Is this alone enough to justify the current price levels? Probably not. Let us look at gold just as an exercise ;)
(data: www.statista.com/sta...dustry-sector-share/)
Financial usage (bank stocks/ETFs/coins&bullion) run to about 30%, whilst the jewellery sector alone accounts for 50% demand. Other industrial sectors demand around 20%. However if we consider (rightly in my opinion) gold jewellery to be another form of asset class, then financial applications outweigh actual industry 4:1 -> this is the kind of situation that leads to asset bubble formation, and yes the current price of gold is not supported by fundamentals. Blow all you want goldbugs... this is why the market has been in decline since 2011... If any of this is actually true, it is important that BTC's development as a medium of transaction not be allowed to stagnate!
Trading volume
The periods when the retail volume ratio is almost non-existent are of course the peaks of cryptocurrency bubbles and these are infrequent. During these times trading volume spikes to above 100% (the available raw data is estimated transaction volume - so statistical in nature - consider anything greater than 1 as 100% however these are rare outliers). Most of the time the trading volume ratio seems to float between 15% and 40%. It bottoms out at <5%. These points indicate substantial buy areas and the start of new speculative activity, but of course it is not necessary for the ratio to reach such lows.
Unrecognised ATH and the Great HODL
In 2013 the trading ratio peaks not in November but in April. This is due to the development of speculation not keeping up with retail adoption, which might be surprising to some - at this ATH trading tx was only slightly higher than April 2013 levels, whilst non-exchange transactions had boomed. Interestingly this also corresponds to peak decentralisation (link), but perhaps that is another topic of discussion. Anyway, after April 2013 we see a marked decline in trading ratio until the end of the 2015 bottom, where the ratio bottoms out and a new round of speculation is initiated.
This period (which Bansal calls the Great HODL) corresponds to extreme flatness in the retail ratio, which peaks at 98%.
2+2 = 5
So what does any of this mean? If I were to speculate I'd say that a wave structure exists: hodl phase, speculation phase, sell-off phase. Typical bubble formation roadmap. Please read Dhruv's article on the HODL wave for a more in depth discussion on this subject. From this it is not clear whether we are at a final sell-off or an intermediate one, e.g. like April 2013.
Retail Volume
The non-exchange volume is on average > 50% over BTC lifetime with periods of >80% not uncommon. This is extremely good in my opinion, if we interpret this as peer to peer monetary transactions of a non-speculative nature. Of course this data will also include spamming events such as network diagnostic transfers and entities distributing funds over multiple wallets, but I assume these to be negligible compared to the number of genuine financial transactions.
Is this alone enough to justify the current price levels? Probably not. Let us look at gold just as an exercise ;)
(data: www.statista.com/sta...dustry-sector-share/)
Financial usage (bank stocks/ETFs/coins&bullion) run to about 30%, whilst the jewellery sector alone accounts for 50% demand. Other industrial sectors demand around 20%. However if we consider (rightly in my opinion) gold jewellery to be another form of asset class, then financial applications outweigh actual industry 4:1 -> this is the kind of situation that leads to asset bubble formation, and yes the current price of gold is not supported by fundamentals. Blow all you want goldbugs... this is why the market has been in decline since 2011... If any of this is actually true, it is important that BTC's development as a medium of transaction not be allowed to stagnate!
Trading volume
The periods when the retail volume ratio is almost non-existent are of course the peaks of cryptocurrency bubbles and these are infrequent. During these times trading volume spikes to above 100% (the available raw data is estimated transaction volume - so statistical in nature - consider anything greater than 1 as 100% however these are rare outliers). Most of the time the trading volume ratio seems to float between 15% and 40%. It bottoms out at <5%. These points indicate substantial buy areas and the start of new speculative activity, but of course it is not necessary for the ratio to reach such lows.
Unrecognised ATH and the Great HODL
In 2013 the trading ratio peaks not in November but in April. This is due to the development of speculation not keeping up with retail adoption, which might be surprising to some - at this ATH trading tx was only slightly higher than April 2013 levels, whilst non-exchange transactions had boomed. Interestingly this also corresponds to peak decentralisation (link), but perhaps that is another topic of discussion. Anyway, after April 2013 we see a marked decline in trading ratio until the end of the 2015 bottom, where the ratio bottoms out and a new round of speculation is initiated.
This period (which Bansal calls the Great HODL) corresponds to extreme flatness in the retail ratio, which peaks at 98%.
2+2 = 5
So what does any of this mean? If I were to speculate I'd say that a wave structure exists: hodl phase, speculation phase, sell-off phase. Typical bubble formation roadmap. Please read Dhruv's article on the HODL wave for a more in depth discussion on this subject. From this it is not clear whether we are at a final sell-off or an intermediate one, e.g. like April 2013.
Comment:
Correction should be exponential, appears linear on semilogy charts...
Logistic growth has three phases, exponential is second and logarithmic is the last phase. it's an interesting read
Logistic growth has three phases, exponential is second and logarithmic is the last phase. it's an interesting read
Comment:
I wrote another Medium article on Imitation and Hype Cycles medium.com/@sunnyday...-theory-e1ad14db70d4
Related Ideas
The price of Bitcoin has naturally increased at an average rate of USD 2.5 / day since entering the log growth channel in 2011. This movement is simply based on non-exchange transactions and the basic fundamentals of mining and scarcity. Based on this channel, if you had invested USD 1000 back then you would have amassed USD 6.45 million in 7 years.
You don't even have to care about the bubbles...
I'm expecting we will go roughly sideways to the channel bottom from here.