MTGOX:BTCUSD   Bitcoin / U.S. Dollar
Sharing my perspective, trying to unravel the real nature of the price increases, I post these thoughts in hopes of being able to determine where crypto stands.
Aug 21
Comment: This Crypto a Bubble?
This is probably in the mind of all investors in crypto. At least of those who aren't insiders who know the answer. My own take on this issue comes from the point of view of wealth creation. In my opinion, the use of a market cap indicator is deceiving and misleading. While the number gives a rough idea of how much crypto is worth, it does so mediocrely.

Without claiming to have a clear answer, using a different metric to market cap. Instead, using a "gross crypto product". The GCP would let us understand if crypto is a bubble by how much wealth is created each period. The concept of the GCP lies on the production, which comes from staking, mining, etc. and the price at which these coins are being produced.

Trying to find out the origin of the wealth created by coin creation is the core problem to be solved. For this, we can tell that the basic cost comes from electrical expenses, as well as equipment cost. If a certain currency is valued at 10 dollars, and that same day 2 coins are created, a total of 20 USD worth of that currency was created. From that amount, we still need to subtract the cost of production. If the aggregate cost of mining those 2 coins was higher than 20 USD, that means that something is offsetting that loss.

Let's suppose there are two miners, and each one spends 5 USD every day to get their equipment going. One would expect that these miners would sell their coins at 5 USD/day plus some margin. If only one coin can be mined every day, and they have 50/50 chances of getting the reward, the miners would need to sell 10 USD of coins every day to break even.

However, many people argue that these currencies are worth essentially nothing. So what is the real creation of wealth? It's not those 10 USD every day, but just the marginal increase of the price, which the miners receive. Once the miners get their rewards, they pass on the coin into the market. Once the coin is in the market, the price may go up or down.

The next day, the miner will come back expecting to sell at the usual 11 USD, but he finds out the coin is trading at 20 USD. Those extra 7 USD came from external sources, flowing into the closed crypto markets. With a few calculations, the accounts look like this:

• Miner's: (x_n + 11) USD/day_n - 10 USD/day = x_n + 1 USD/day_n
• Investor's: (sum(x_n)) USD - (x_n + 11)) USD

Each coin is, in some way, worth 1 USD to the miners. The total of m coins are expected to be valued at a minimum of 11*m; each coin worth 11 USD. To this worth we need to add sum(x_n). If the sum converges to zero, the coins will be effectively valued at the aggregate mining costs.
Depending on where the convergence of the sum is, we want that the price stays near the final value. That, of course, would require to know the future, but we could try to use past movements of abandoned cryptocurrencies to better understand the relation between mining costs and final prices.

All in all, I believe that the sum(x_n) for most coins is near zero- most coins are only worth their mining costs. That makes me think that the GCP is in the high side of the cycle, which might lead to a crypto-recession.
Nov 19
Comment: CleanApp took this idea and developed it: https://hackernoon.com/gcp-gross-crypto-... Make sure to give them a clap or two.
Nov 20
Comment: It turns out I cant delete posts, so I'll just spam a donation address. Send me your ETH here 0xF7Dc813B5c746F777DD29c94b7558ADE7577064e.

Comments

Rather hard to read. Can you paste the text into a comment?
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hirounsung SammyNoden
@SammyNoden, I added the text as an update.
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SammyNoden hirounsung
@hirounsung, Thanks!
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Also many of the cryptocurriencies have a very different value, what is a bit difficult to explain. However, there is a different thing beyond the mining costs and the public acceptance that determine the price. There is much interest in an increasing price level, maybe more than stability of the price. Let's compare to gold. People invest in gold because it should have a relatively stable value, thats the main feature of metals. Even though cryptocoins are usually not physical like metals, the owners would expect a stable, reliable value (or else it would be a pure speculative value, what is not so different to place a bet on something). And that's where always the dependecy of other currencies like dollars comes in. There is a similar thing that is between dollars and gold that is there between dollars and cryptocoins. This thing is just not really a physical thing. If you look on massive currency inflation in the history, there has always been a point, where the value of the currency and the real value of a thing became so different, that is was just absurd, lets say pay one million dollar for one apple. And that is in my opinion more risk here than with other currencies. Price stability is a needed feature of any thing of any value if it shouldn't be reduced to a speculative thing, and i'm not so sure that miners or the coin cap can actually guarantee this because you can't really compare it to the wider financial instruments of a bank, in fact banks are a thing that doesn't really fit with bitcoin and that might turn, might have been thought as a good thing, but could turn out as a weakness, why not take the best of both worlds? What happens in the future remains to be seen, imho bitcoin could make sense but it needs a real, reliable price stability feature and that means of course much much broader acceptance than right now, still. Since it is also still so dependent from other currencies this might be a major point of failure in the system, except it is directly linked to something else, even if it's only gold, dollars, energy or some other thing like an ETF, but not really other cryptocoins. This all is dangerous but thats the only way i see to reduce the risk of having cryptocurrencies. If you always have the guarantee to exchange it for something else (or at least a small percentage, lets say you get back 20% if the price drops completely, like an insurance) it might help. Without any real security it can only remain speculative.
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Also: What about premined or unmineable coins? See how Ripple 40x'ed in like 6 weeks or so... And XRP is unmineable. Yes, crypto is a "bubble". But who cares? Just as long as you profit and stay safe by not going all-in. =D
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hirounsung mightytrader
@mightytrader, coins like GNT have, in theory, intrinsic value coming from how much we value cycles on a computer. Coins like XRP, in my opinion, are still inflated, since its value is pretty much unknown at this point. Its value is probably pure speculation. Maybe we don't care, but doesn't mean we should ignore it.
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It's not in a bubble but a product of the hyperinflation in the fiat markets. BTC and others will keep on rising...
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hirounsung silmaril0875
@silmaril0875, if you compare the behaviour to that of XAU, you'll notice that most coins have nothing to do with inflation.
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