Bitcoin Price and Velocity
Average confirmation times in Bitcoin is now around 2 hours.
To get your payment processed without delays you have to pay around 200 satoshi per byte. That's 50 000 satoshi (0.6 dollar) for an average transaction of ~250 byte.
At the same time, the Bitcoin price is now at an all time high.
What gives?
As the delays in transactions and transaction costs are increasing, one would at face value expect that Bitcoin as a currency and payment service decrease in value. However, there is another phenomena that is directly related to the delay in transactions and increased transaction costs, but is theoretically expected to increase the total marketcap. This is the phenomena of Bitcoin velocity.
Bitcoin Velocity
Monetary velocity is the measure of how fast a currency is changing hands. In traditional economic theory, when velocity goes down, the available supply shrinks, and thus each monetary unit is worth more.
Bitcoin velocity is thus how fast Bitcoins are passing from one hodler to the next. If Bitcoin transaction fees are high one would expect Bitcoin velocity to go down. This in turn would mean that the value of each Bitcoin goes up.
Think of it like this: If half of all Bitcoins were suddenly stuck as unconfirmed transactions, there would be less Bitcoins to go around, and each Bitcoin would be worth more. The same is happening now at a much smaller scale.
Do Not Conclude
It is tempting to conclude that Bitcoin price will rise further if velocity goes further down. But we have to keep in mind the negative effect this has on Bitcoin's reputation. The more unconfirmed transactions, the more likely it is that media will pick it up and massive Fear, Uncertainty and Doubt (FUD) can spread quickly.
There are many other factors that go into the Bitcoin price, so don't take this as investment advice. Either way it seems to me Bitcoin is getting itself into an unstable position. Only time will tell what happens next. If you want to get involved with Bitcoin politics and what you can do to reduce Bitcoin fees, check out Roger Ver's comments in this post.
There's no need to worry about FUD. And it's not really FUD anyway. The issues with Bitcoin are real.
I'm actually surprised to see so much support for Bitcoin as these problems continue to worsen. The token is overbought, extremely overvalued, and isn't actually accomplishing what it was designed to accomplish, even after 8+ years.
I am done with bitcoin, it is too much stress , can't take it anymore
whenever you sell it you feel like a loser in couple of months(the exact feeling that i have right now ) :))
Simply don´t sell!
Hold and forget about it. Come back in a year to your wallet and enjoy :-)
waiting for a drop to buy some(if it happens at all) :)
Todays high could be tomorrows low. If you are in for the long term does it really matter when you buy? Playing with dollars and cents. Buy, sit and hold for 12-24 months or even longer. I think there is going to be quite a run at the cryptos (not just bitcoin) starting in particular the middle of March and as we see more countries prepare to leave the EU. 2017 is going to be a rocky year for the financial markets. PM's and Cryptos should do very well in 2017. (not financial advice)
when you put it this way I guess there is no way unless buying some coins right now :)
thanks for the info and the tip
I guess that applies to all cryptocurrencies, risky investment :)
I know but this one is getting out of my league I guess :)
I love the point you rise at the very end of your article as it hits straight on the Achille's Heel of Bitcoin! I think it has ben known long enough by now for people really interested in the matter to know there is a major limitation relating to the confirmation of transaction that will be picked up by the media, as a weapon of mass destruction in that case, used to scare the masses away from the general independent cryptocurrencies. the spin doctors, from there only have to direct the masses toward the almighty and apparently benevolent powerful cryptocurrencies brought forth by the governments...
Let's hope the people will come to the realization that there is out there cryptocurrencies having the full capabilities of offering what Bitcoins has to offer and much more. The Bitshares and Steem environment have dealt with this a long time ago, as the people behind it are the same people who actually invented Bitcoins in the first and became aware very early on that Bitcoins had deficiencies to be dealt with as soon as possible. Luckily, it has been dealt with.
Now, it is time to expose such facts to the general public for the adoption to rise and fly! All for one and one for all! Namaste :)
In my opinion, Bitcoin will continue to rise, certainly if capital controls continue to increase alongside the attack on cash. However, at some point, perhaps after an even greater hype than present (especially if the SEC rulings are favourable towards ETF investment,) there is a strong possibility of a big fall in value. The reason for that, alongside what you've already mentioned (cost, scalability, accessibility, efficiency,) is centralisation and the likely reaction from governments. Bitcoin is either good for governments because it can be controlled, or bad because it can't....either is potentially very bad for Bitcoin if it reaches new highs. If even an experimental crypto coin that has massive flaws can reach these values, it rather points out how horrifically worthless paper or digital FIAT is.
all great points. still wondering what happens if price continues to go up without a scaling solution though, it would only increase volume and transactions fees, velocity could go further up and the process could repeat.
Mining rewards will be profitable again, lower fees, more miners, difficulty level rises, less profitable, higher fees, less miners...
All this just makes more room in the market for the up and coming currencies that have higher transaction capacity and better blockchain utilization like Etherium and Monero.
Thank you for the post!
Promoted it! :)
Good blog @clains
I sold my BTC. now i have USD in Poloniex, i expect a dramatic fall after ETF rejection. IF accepted and BTC rise i will be in very bad shape but at least i have my credit in $ and save my stomach from stress ulcer with holding BTC and watch it falling like a stone :)
Thnx again for the blog, seems it toke a lot of time and effort
Thank you. Why do you think the Bitcoin ETF will be rejected?
I don't have well structured answer for that, i just read some articles and blogs, i concluded that most likely wallstreat not ready for BTC yet furthermore i think it is more safe to enter BTC when it is rising slowly than holding it with potential to fall suddenly.
Thnx again for the blog
I think there is a lot of wisdom in this comment...
Thank you @benjojo, for the nice complement
Just trying to be logical and take a good position in cryptospace, the irony that i am wrong more than am right :)
Me too....that's standard operating conditions for me :)
Interesting post. Thank you!
thanks for posting a good thing.
@clains
Thank you for posting @clains.
Always appreciate learning how Bitcoin works.
Greetings....thank you to @camilla who introduced you. Cheers.