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An extensive guide for cashing out bitcoin and cryptocurrencies into private banks

Hey guys.
Merry Xmas !
I am coming back to you with a follow up post, as I have helped many people cash out this year and I have streamlined the process. After my original post, I received many requests to be more specific and provide more details. I thought that after the amazing rally we have been attending over the last few months, and the volatility of the last few days, it would be interesting to revisit more extensively.
The attitude of banks around crypto is changing slowly, but it is still a tough stance. For the first partial cash out I operated around a year ago for a client, it took me months to find a bank. They wouldn’t want to even consider the case and we had to knock at each and every door. Despite all my contacts it was very difficult back in the days. This has changed now, and banks have started to open their doors, but there is a process, a set of best practices and codes one has to follow.
I often get requests from crypto guys who are very privacy-oriented, and it takes me months to have them understand that I am bound by Swiss law on banking secrecy, and I am their ally in this onboarding process. It’s funny how I have to convince people that banks are legit, while on the other side, banks ask me to show that crypto millionaires are legit. I have a solid background in both banking and in crypto so I manage to make the bridge, but yeah sometimes it is tough to reconcile the two worlds. I am a crypto enthusiast myself and I can say that after years of work in the banking industry I have grown disillusioned towards banks as well, like many of you. Still an account in a Private bank is convenient and powerful. So let’s get started.
There are two different aspects to your onboarding in a Swiss Private bank, compliance-wise.
*The origin of your crypto wealth
*Your background (residence, citizenship and probity)
These two aspects must be documented in-depth.
How to document your crypto wealth. Each new crypto millionaire has a different story. I may detail a few fun stories later in this post, but at the end of the day, most of crypto rich I have met can be categorized within the following profiles: the miner, the early adopter, the trader, the corporate entity, the black market, the libertarian/OTC buyer. The real question is how you prove your wealth is legit.
1. Context around the original amount/investment Generally speaking, your first crypto purchase may not be documented. But the context around this acquisition can be. I have had many cases where the original amount was bought through Mtgox, and no proof of purchase could be provided, nor could be documented any Mtgox claim. That’s perfectly fine. At some point Mtgox amounted 70% of the bitcoin transactions globally, and people who bought there and managed to withdraw and keep hold of their bitcoins do not have any Mtgox claim. This is absolutely fine. However, if you can show me the record of a wire from your bank to Tisbane (Mtgox's parent company) it's a great way to start.
Otherwise, what I am trying to document here is the following: I need context. If you made your first purchase by saving from summer jobs, show me a payroll. Even if it was USD 2k. If you acquired your first bitcoins from mining, show me the bills of your mining equipment from 2012 or if it was through a pool mine, give me your slushpool account ref for instance. If you were given bitcoin against a service you charged, show me an invoice.
2. Tracking your wealth until today and making sense of it. What I have been doing over the last few months was basically educating compliance officers. Thanks God, the blockchain is a global digital ledger! I have been telling my auditors and compliance officers they have the best tool at their disposal to lead a proper investigation. Whether you like it or not, your wealth can be tracked, from address to address. You may have thought all along this was a bad feature, but I am telling you, if you want to cash out, in the context of Private Banking onboarding, tracking your wealth through the block explorer is a boon. We can see the inflows, outflows. We can see the age behind an address. An early adopter who bought 1000 BTC in 2010, and let his bitcoin behind one address and held thus far is legit, whether or not he has a proof of purchase to show. That’s just common sense. My job is to explain that to the banks in a language they understand.
Let’s have a look at a few examples and how to document the few profiles I mentioned earlier.
The trader. I love traders. These are easy cases. I have a ton of respect for them. Being a trader myself in investment banks for a decade earlier in my career has taught me that controlling one’s emotions and having the discipline to impose oneself some proper risk management system is really really hard. Further, being able to avoid the exchange bankruptcy and hacks throughout crypto history is outstanding. It shows real survival instinct, or just plain blissed ignorance. In any cases traders at exchange are easy cases to corroborate since their whole track record is potentially available. Some traders I have met have automated their trading and have shown me more than 500k trades done over the span of 4 years. Obviously in this kind of scenario I don’t show everything to the bank to avoid information overload, and prefer to do some snacking here and there. My strategy is to show the early trades, the most profitable ones, explain the trading strategy and (partially expose) the situation as of now with id pages of the exchanges and current balance. Many traders have become insensitive to the risk of parking their crypto at exchange as they want to be able to trade or to grasp an occasion any minute, so they generally do not secure a substantial portion on the blockchain which tends to make me very nervous.
The early adopter. Provided that he has not mixed his coin, the early adopter or “hodler” is not a difficult case either. Who cares how you bought your first 10k btc if you bought them below 3$ ? Even if you do not have a purchase proof, I would generally manage to find ways. We just have to corroborate the original 30’000 USD investment in this case. I mainly focus on three things here:
*proof of early adoption I have managed to educate some banks on a few evidences specifically related to crypto markets. For instance with me, an old bitcointalk account can serve as a proof of early adoption. Even an old reddit post from a few years ago where you say how much you despise this Ripple premined scam can prove to be a treasure readily available to show you were early.
*story telling Compliance officers like to know when, why and how. They are human being looking for simple answers to simple questions and they don’t want like to be played fool. Telling the truth, even without a proof can do wonders, and even though bluffing might still work because banks don’t fully understand bitcoin yet, it is a risky strategy that is less and less likely to pay off as they are getting more sophisticated by the day.
*micro transaction from an old address you control This is the killer feature. Send a $20 worth transaction from an old address to my company wallet and to one of my partner bank’s wallet and you are all set ! This is gold and considered a very solid piece of evidence. You can also do a microtransaction to your own wallet, but banks generally prefer transfer to their own wallet. Patience with them please. they are still learning.
*signature message Why do a micro transaction when you can sign a message and avoid potentially tainting your coins ?
*ICO millionaire Some clients made their wealth participating in ETH crowdsale or IOTA ICO. They were very easy to deal with obviously and the account opening was very smooth since we could evidence the GENESIS TxHash flow.
The miner Not so easy to proof the wealth is legit in that case. Most early miners never took screenshot of the blocks on bitcoin core, nor did they note down the block number of each block they mined. Until the the Slashdot article from August 2010 anyone could mine on his laptop, let his computer run overnight and wake up to a freshly minted block containing 50 bitcoins back in the days. Not many people were structured enough to store and secure these coins, avoid malwares while syncing the blockchain continuously, let alone document the mined blocks in the process. What was 50 BTC worth really for the early miners ? dust of dollars, games and magic cards… Even miners post 2010 are generally difficult to deal with in terms of compliance onboarding. Many pool mining are long dead. Deepbit is down for instance and the founders are MIA. So my strategy to proof mining activity is as follow:
*Focusing on IT background whenever possible. An IT background does help a lot to bring some substance to the fact you had the technical ability to operate a mining rig.
*Showing mining equipment receipts. If you mined on your own you must have bought the hardware to do so. For instance mining equipment receipts from butterfly lab from 2012-2013 could help document your case. Similarly, high electricity bill from your household on a consistent basis back in the day could help. I have already unlocked a tricky case in the past with such documents when the bank was doubtful.
*Wallet.dat files with block mining transactions from 2011 thereafter This obviously is a fantastic piece of evidence for both you and me if you have an old wallet and if you control an address that received original mined blocks, (even if the wallet is now empty). I will make sure compliance officers understand what it means, and as for the early adopter, you can prove your control over these wallet through a microtransaction. With these kind of addresses, I can show on the block explorer the mined block rewards hitting at regular time interval, and I can even spot when difficulty level increased or when halvening process happened.
*Poolmining account. Here again I have educated my partner bank to understand that a slush account opened in 2013 or an OnionTip presence was enough to corroborate mining activity. The block explorer then helps me to do the bridge with your current wallet.
*Describing your set up and putting it in context In the history of mining we had CPU, GPU, FPG and ASICs mining. I will describe your technical set up and explain why and how your set up was competitive at that time.
The corporate entity Remember 2012 when we were all convinced bitcoin would take over the world, and soon everyone would pay his coffee in bitcoin? How naïve we were to think transaction fees would remain low forever. I don’t blame bitcoin cash supporters; I once shared this dream as well. Remember when we thought global adoption was right around the corner and some brick and mortar would soon accept bitcoin transaction as a common mean of payment? Well, some shop actually did accept payment and held. I had a few cases as such of shops holders, who made it to the multi million mark holding and had invoices or receipts to proof the transactions. If you are organized enough to keep a record for these trades and are willing to cooperate for the documentation, you are making your life easy. The digital advertising business is also a big market for the bitcoin industry, and affiliates partner compensated in btc are common. It is good to show an invoice, it is better to show a contract. If you do not have a contract (which is common since all advertising deals are about ticking a check box on the website to accept terms and conditions), there are ways around that. If you are in that case, pm me.
The black market Sorry guys, I can’t do much for you officially. Not that I am judging you. I am a libertarian myself. It’s just already very difficult to onboard legit btc adopters, so the black market is a market I cannot afford to consider. My company is regulated so KYC and compliance are key for me if I want to stay in business. Behind each case I push forward I am risking the credibility and reputation I have built over the years. So I am sorry guys I am not risking it to make an extra buck. Your best hope is that crypto will eventually take over the world and you won’t need to cash out anyway. Or go find a Lithuanian bank that is light on compliance and cooperative.
The OTC buyer and the libertarian. Generally a very difficult case. If you bought your stack during your journey in Japan 5 years ago to a guy you never met again; or if you accumulated on https://localbitcoins.com/ and kept no record or lost your account, it is going to be difficult. Not impossible but difficult. We will try to build a case with everything else we have, and I may be able to onboard you. However I am risking a lot here so I need to be 100% confident you are legit, before I defend you. Come & see me in Geneva, and we will talk. I will run forensic services like elliptic, chainalysis, or scorechain on an extract of your wallet. If this scan does not raise too many red flags, then maybe we can work together ! If you mixed your coins all along your crypto history, and shredded your seeds because you were paranoid, or if you made your wealth mining professionally monero over the last 3 years but never opened an account at an exchange. ¯_(ツ)_/¯ I am not a magician and don’t get me wrong, I love monero, it’s not the point.
Cashing out ICOs Private companies or foundations who have ran an ICO generally have a very hard time opening a bank account. The few banks that accept such projects would generally look at 4 criteria:
*Seriousness of the project Extensive study of the whitepaper to limit the reputation risk
*AML of the onboarding process ICOs 1.0 have no chance basically if a background check of the investors has not been conducted
*Structure of the moral entity List of signatories, certificate of incumbency, work contract, premises...
*Fiscal conformity Did the company informed the authorities and seek a fiscal ruling.
For the record, I am not into the tax avoidance business, so people come to me with a set up and I see if I can make it work within the legal framework imposed to me.
First, stop thinking Switzerland is a “offshore heaven” Swiss banks have made deals with many governments for the exchange of fiscal information. If you are a French citizen, resident in France and want to open an account in a Private Bank in Switzerland to cash out your bitcoins, you will get slaughtered (>60%). There are ways around that, and I could refer you to good tax specialists for fiscal optimization, but I cannot organize it myself. It would be illegal for me. Swiss private banks makes it easy for you to keep a good your relation with your retail bank and continue paying your bills without headaches. They are integrated to SEPA, provide ebanking and credit cards.
For information, these are the kind of set up some of my clients came up with. It’s all legal; obviously I do not onboard clients that are not tax compliant. Further disclaimer: I did not contribute myself to these set up. Do not ask me to organize it for you. I won’t.
EU tricks
Swiss lump sum taxation Foreign nationals resident in Switzerland can be taxed on a lump-sum basis if they are not gainfully employed in our country. Under the lump-sum tax regime, foreign nationals taking residence in Switzerland may choose to pay an expense-based tax instead of ordinary income and wealth tax. Attractive cantons for the lump sum taxation are Zug, Vaud, Valais, Grisons, Lucerne and Berne. To make it short, you will be paying somewhere between 200 and 400k a year and all expenses will be deductible.
Switzerland has adopted a very friendly attitude towards crypto currency in general. There is a whole crypto valley in Zug now. 30% of ICOs are operated in Switzerland. The reason is that Switzerland has thrived for centuries on banking secrecy, and today with FATCA and exchange of fiscal info with EU, banking secrecy is dead. Regulators in Switzerland have understood that digital ledger technologies were a way to roll over this competitive advantage for the generations to come. Switzerland does not tax capital gains on crypto profits. The Finma has a very pragmatic approach. They have issued guidance- updated guidelines here. They let the business get organized and operate their analysis on a case per case basis. Only after getting a deep understanding of the market will they issue a global fintech license in 2019. This approach is much more realistic than legislations which try to regulate everything beforehand.
Italy new tax exemption. It’s a brand new fiscal exemption. Go to Aoste, get residency and you could be taxed a 100k/year for 10years. Yes, really.
Portugal What’s crazy in Europe is the lack of fiscal harmonization. Even if no one in Brussels dares admit it, every other country is doing fiscal dumping. Portugal is such a country and has proved very friendly fiscally speaking. I personally have a hard time trusting Europe. I have witnessed what happened in Greece over the last few years. Some of our ultra high net worth clients got stuck with capital controls. I mean no way you got out of crypto to have your funds confiscated at the next financial crisis! Anyway. FYI
Malta Generally speaking, if you get a residence somewhere you have to live there for a certain period of time. Being stuck in Italy is no big deal with Schengen Agreement, but in Malta it is a different story. In Malta, the ordinary residence scheme is more attractive than the HNWI residence scheme. Being an individual, you can hold a residence permit under this scheme and pay zero income tax in Malta in a completely legal way.
Monaco Not suitable for French citizens, but for other Ultra High Net worth individual, Monaco is worth considering. You need an account at a local bank as a proof of fortune, and this account generally has to be seeded with at least EUR500k. You also need a proof of residence. I do mean UHNI because if you don’t cash out minimum 30m it’s not interesting. Everything is expensive in Monaco. Real Estate is EUR 50k per square meter. A breakfast at Monte Carlo Bay hotel is 70 EUR. Monaco is sunny but sometimes it feels like a golden jail. Do you really want that for your kids?
Dubaï
  1. Set up a company in Dubaï, get your resident card.
  2. Spend one day every 6 month there
  3. ???
  4. Be tax free
US tricks Some Private banks in Geneva do have the license to manage the assets of US persons and U.S citizens. However, do not think it is a way to avoid paying taxes in the US. Opening an account at an authorized Swiss Private banks is literally the same tax-wise as opening an account at Fidelity or at Bank of America in the US. The only difference is that you will avoid all the horror stories. Horror stories are all real by the way. In Switzerland, if you build a decent case and answer all the questions and corroborate your case in depth, you will manage to convince compliance officers beforehand. When the money eventually hits your account, it is actually available and not frozen.
The IRS and FATCA require to file FBAR if an offshore account is open. However FBAR is a reporting requirement and does not have taxes related to holding an account outside the US. The taxes would be the same if the account was in the US. However penalties for non compliance with FBAR are very large. The tax liability management is actually performed through the management of the assets ( for exemple by maximizing long term capital gains and minimizing short term gains).
The case for Porto Rico. Full disclaimer here. I am not encouraging this. Have not collaborated on such tax avoidance schemes. if you are interested I strongly encourage you to seek a tax advisor and get a legal opinion. I am not responsible for anything written below. I am not going to say much because I am so afraid of uncle Sam that I prefer to humbly pass the hot potato to pwc From here all it takes is a good advisor and some creativity to be tax free on your crypto wealth if you are a US person apparently. Please, please please don’t ask me more. And read the disclaimer again.
Trust tricks Generally speaking I do not accept fringe fiscal situation because it puts me in a difficult situation to the banks I work with, and it is already difficult enough to defend a legit crypto case. Trust might be a way to optimize your fiscal situation. Belize. Bahamas. Seychelles. Panama, You name it. At the end of the day, what matters for Swiss Banks are the beneficial owner and the settlor. Get a legal opinion, get it done, and when you eventually knock at a private bank’s door, don’t say it was for fiscal avoidance you stupid ! You will get the door smashed upon you. Be smarter. It will work. My advice is just to have it done by a great tax specialist lawyer, even if it costs you some money, as the entity itself needs to be structured in a professional way. Remember that with trust you are dispossessing yourself off your wealth. Not something to be taken lightly.
“Anonymous” cash out. Right. I think I am not going into this topic, neither expose the ways to get it done. Pm me for details. I already feel a bit uncomfortable with all the info I have provided. I am just going to mention many people fear that crypto exchange might become reporting entities soon, and rightly so. This might happen anyday. You have been warned. FYI, this only works for non-US and large cash out.
The difference between traders an investors. Danmark, Holland and Germany all make a huge difference if you are a passive investor or if you are a trader. ICO is considered investing for instance and is not taxed, while trading might be considered as income and charged aggressively. I would try my best to protect you and put a focus on your investor profile whenever possible, so you don't have to pay 52% tax if you do not have to :D
Full cash out or partial cash out? People who have been sitting on crypto for long have grown an emotional and irrational link with their coins. They come to me and say, look, I have 50m in crypto but I would like to cash out 500k only. So first let me tell you that as a wealth manager my advice to you is to take some off the table. Doing a partial cash out is absolutely fine. The market is bullish. We are witnessing a redistribution of wealth at a global scale. Bitcoin is the real #occupywallstreet, and every one will discuss crypto at Xmas eve which will make the market even more supportive beginning 2018, especially with all hedge funds entering the scene. If you want to stay exposed to bitcoin and altcoins, and believe these techs will change the world, it’s just natural you want to keep some coins. In the meantime, if you have lived off pizzas over the last years, and have the means to now buy yourself an nice house and have an account at a private bank, then f***ing do it mate ! Buy physical gold with this account, buy real estate, have some cash at hands. Even though US dollar is worthless to your eyes, it’s good and convenient to have some. Also remember your wife deserves it ! And if you have no wife yet and you are socially awkward like the rest of us, then maybe cashing out partially will help your situation ;)
What the Private Banks expect. Joke aside, it is important you understand something. If you come around in Zurich to open a bank account and partially cash out, just don’t expect Private Banks will make an exception for you if you are small. You can’t ask them to facilitate your cash out, buy a 1m apartment with the proceeds of the sale, and not leave anything on your current account. It won’t work. Sadly, under 5m you are considered small in private banking. The bank is ok to let you open an account, provided that your kyc and compliance file are validated, but they will also want you to become a client and leave some money there to invest. This might me despicable, but I am just explaining you their rules. If you want to cash out, you should sell enough to be comfortable and have some left. Also expect the account opening to last at least 3-4 week if everything goes well. You can't just open an account overnight.
The cash out logistics. Cashing out 1m USD a day in bitcoin or more is not so hard.
Let me just tell you this: Even if you get a Tier 4 account with Kraken and ask Alejandro there to raise your limit over $100k per day, Even if you have a bitfinex account and you are willing to expose your wealth there, Even if you have managed to pass all the crazy due diligence at Bitstamp,
The amount should be fractioned to avoid risking your full wealth on exchange and getting slaughtered on the price by trading big quantities. Cashing out involves significant risks at all time. There is a security risk of compromising your keys, a counterparty risk, a fat finger risk. Let it be done by professionals. It is worth every single penny.
Most importantly, there is a major difference between trading on an exchange and trading OTC. Even though it’s not publicly disclosed some exchange like Kraken do have OTC desks. Trading on an exchange for a large amount will weight on the prices. Bitcoin is a thin market. In my opinion over 30% of the coins are lost in translation forever. Selling $10m on an exchange in a day can weight on the prices more than you’d think. And if you trade on a exchange, everything is shown on record, and you might wipe out the prices because on exchanges like bitstamp or kraken ultimately your counterparties are retail investors and the market depth is not huge. It is a bit better on Bitfinex. It is way better to trade OTC. Accessing the institutional OTC market is not easy, and that is also the reason why you should ask a regulated financial intermediary if we are talking about huge amounts.
Last point, always chose EUR as opposed to USD. EU correspondent banks won’t generally block institutional amounts. However we had the cases of USD funds frozen or delayed by weeks.
Most well-known OTC desks are Cumberlandmining (ask for Lucas), Genesis (ask for Martin), Bitcoin Suisse AG (ask for Niklas), circletrade, B2C2, or Altcoinomy (ask for Olivier)
Very very large whales can also set up escrow accounts for massive block trades. This world, where blocks over 30k BTC are exchanged between 2 parties would deserve a reddit thread of its own. Crazyness all around.
Your options: DIY or going through a regulated financial intermediary.
Execution trading is a job in itself. You have to be patient, be careful not to wipe out the order book and place limit orders, monitor the market intraday for spikes or opportunities. At big levels, for a large cash out that may take weeks, these kind of details will save you hundred thousands of dollars. I understand crypto holders are suspicious and may prefer to do it by themselves, but there are regulated entities who now offer the services. Besides, being a crypto millionaire is not a guarantee you will get institutional daily withdrawal limits at exchange. You might, but it will take you another round of KYC with them, and surprisingly this round might be even more aggressive that the ones at Private banks since exchange have gone under intense scrutiny by regulators lately.
The fees for cashing out through a regulated financial intermediary to help you with your cash out should be around 1-2% flat on the nominal, not more. And for this price you should get the full package: execution/monitoring of the trades AND onboarding in a private bank. If you are asked more, you are being abused.
Of course, you also have the option to do it yourself. It is a way more tedious and risky process. Compliance with the exchange, compliance with the private bank, trading BTC/fiat, monitoring the transfers…You will save some money but it will take you some time and stress. Further, if you approach a private bank directly, it will trigger a series of red flag to the banks. As I said in my previous post, they call a direct approach a “walk-in”. They will be more suspicious than if you were introduced by someone and won’t hesitate to show you high fees and load your portfolio with in-house products that earn more money to the banks than to you. Remember also most banks still do not understand crypto so you will have a lot of explanations to provide and you will have to start form scratch with them!
The paradox of crypto millionaires Most of my clients who made their wealth through crypto all took massive amount of risks to end up where they are. However, most of them want their bank account to be managed with a low volatility fixed income capital preservation risk profile. This is a paradox I have a hard time to explain and I think it is mainly due to the fact that most are distrustful towards banks and financial markets in general. Many clients who have sold their crypto also have a cash-out blues in the first few months. This is a classic situation. The emotions involved in hodling for so long, the relief that everything has eventually gone well, the life-changing dynamics, the difficulties to find a new motivation in life…All these elements may trigger a post cash-out depression. It is another paradox of the crypto rich who has every card in his hand to be happy, but often feel a bit sad and lonely. Sometimes, even though it’s not my job, I had to do some psychological support. A lot of clients have also become my friends, because we have the same age and went through the same “ordeal”. First world problem I know… Remember, cashing out is not the end. It’s actually the beginning. Don’t look back, don’t regret. Cash out partially, because it does not make sense to cash out in full, regret it and want back in. relax.
The race to cash out crypto billionaire and the concept of late exiter. The Winklevoss brothers are obviously the first of a series. There will be crypto billionaires. Many of them. At a certain level you can have a whole family office working for you to manage your assets and take care of your needs . However, let me tell you it’s is not because you made it so big that you should think you are a genius and know everything better than anyone. You should hire professionals to help you. Managing assets require some education around the investment vehicles and risk management strategies. Sorry guys but with all the respect I have for wallstreebet, AMD and YOLO stock picking, some discipline is necessary. The investors who have made money through crypto are generally early adopters. However I have started to see another profile popping up. They are not early adopters. They are late exiters. It is another way but just as efficient. Last week I met the first crypto millionaire I know who first bough bitcoin over 1000$. 55k invested at the beginning of this year. Late adopter & late exiter is a route that can lead to the million.
Last remarks. I know banks, bankers, and FIAT currencies are so last century. I know some of you despise them and would like to have them burn to the ground. With compliance officers taking over the business, I would like to start the fire myself sometimes. I hope this extensive guide has helped some of you. I am around if you need more details. I love my job despite all my frustration towards the banking industry because it makes me meet interesting people on a daily basis. I am a crypto enthusiast myself, and I do think this tech is here to stay and will change the world. Banks will have to adapt big time. Things have started to change already; they understand the threat is real. I can feel the generational gap in Geneva, with all these old bankers who don’t get what’s going on. They glaze at the bitcoin chart on CNBC in disbelief and they start to get it. This bitcoin thing is not a joke. Deep inside, as an early adopter who also intends to be a late exiter, as a libertarian myself, it makes me smile with satisfaction.
Cheers. @swisspb on telegram
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Bitcoin 2017 a Comprehensive Timeline

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A few thoughts - Wednesday, June 25, 2014

A few thoughts for lunch today:

An incorrect prediction and a correct one

Last week, I made two predictions: that there was no way the price could remain stable past this week, and I believed that the rise would begin on Wednesday as the insiders started trading based on what they knew. By now, it appears clear that the insiders know the exact opposite of what I predicted: that the bids are not going to be astronomical, so one of those predictions may be incorrect, assuming that there isn't a huge rally by the evening.
Many people say that markets in bitcoins are random. On the contrary, I believe that everything can be predicted, given enough information. Things only seem random when one does not have enough information to determine why they work that way. This maybe goes all the way down to the quantum level as well; scientists used to think that things like quarks randomly appear and disappear, but many now suspect there is probably a lower level which we do not yet understand.
When the price starts to fall without any news, there has to be a reason for that. The last time it happened, we later discovered that some people knew of the auction before it was announced to the public. This time, we don't yet know what we don't know.
You should always be concerned when something is happening and there does not appear to be a cause for it. There are definitely people who know more than we do and who are acting upon it. There is a guy in /bitcoin who is going to buy $90k in bitcoins. I wish him luck, but there is no way I would be buying today. There is plenty of money to be made after either the big crash, or once there is confirmation this is temporary.

A crisis moment approaching

I commented on this issue yesterday, but I think it is worth discussing again because it is important enough. What is approaching is a crisis moment for bitcoins, and for cryptocurrencies in general.
For as long as I can remember, which is years, all the bitcoin crashes have been associated with external events that did not affect the underlying fundamentals. For example, Mt Gox's incompetence caused several crashes. The Chinese government made laws and took actions to try to kill bitcoins (and failed). The US government issued the initial FinCEN regulations 15 months ago and there was a lot of consternation. Before that, there were high-profile thefts of bitcoins from poorly-designed wallet services, and so on. The only event affecting the fundamentals was the unintentional hard fork in March 2013, but the fork was corrected in hours and was a one-off event that people knew would not repeat.
Now, however, there are a lot of danger signs with the acutal protocol and user behavior that are converging, and there are things that people should actually take notice of. First, we have the issue of transaction volume stalling out. I don't agree with those who say that we can chalk it up to Coinbase. Even if Coinbase was processing transactions off-chain, the reason they are doing that is because the 1MB transaction limit is forcing them to because of the fees. Second, we see thousands of merchants adopting bitcoins, and the number of consumers spending them is very low by orders of magnitude (and there are many wallet services, including Coinbase, that make it easy to spend bitcoins now).
Third, as I said yesterday, people are still going to Western Union and paying 10% extra, which is a lot of money. We are talking about the same market as the extreme couponers who are willing to spend a day cutting out coupons and searching websites to save $30 on their grocery bill. Yet, these people obviously have no qualm about paying $50 for a $500 money transfer. You can't argue that the reason is "it's too difficult" to use bitcoins - while the bitcoin experience can be made simpler, people who have lots of time, and the will to save money will figure out a way to cut out a few bucks from bills wherever they can. They are not doing that. Other issues that can be examined include the low number of Google searches for bitcoins (the tiny spike the last few days doesn't indicate a recovery).
Finally, look at the devastating revelation in /bitcoin that gavinandressen is the only developer actively working on protocol upgrades at the moment. This means more than any of the other reasons to be concerned. It shows that the big payment processors are not willing to significantly invest in protocol development, and it also shows that there could be beauacracy involved that is preventing development from moving forward. Remember, people problems kill projects, not technical ones. There are many pressing issues and bitcoin risks falling behind to another project like NXT, which as I said before, could cause cryptocurrencies to be viewed as a "flavor of the month" instead of a world currency.

Exponential growth is required for the success of bitcoins

Now that I've made the case that we are approaching a crisis moment, let's examine the scenario that could unfold if the auction turns out to have below-market prices. This would turn into a negative feedback loop. Every day the price falls below the auction, the asks in the market fall, and therefore the bids at the auction are going to be even lower. Then, the low price at the auction would signal that Wall Street is not that faithful in bitcoins, and there would obviously be a crash. I believe such a crash would break below the bubble cycle, signaling an end to the traditional pattern of exponential growth (at least for the short-term).
Because this crash would be caused by the fundamentals (lack of rapid adoption), rather than some temporary issue like the Chinese government futilely trying to stop free expression, recovery would be slow.
The problem is that, unlike several years ago, there is a lot of money invested in the system. When bitcoins were worth $2, nobody was working full-time on them and it was a hobby. These people could afford to continue developing services regardless of the price. Now, there are corporations like Coinbase that have large staffs and million-dollar budgets. These companies could not sustain a prolonged downturn in price and usage. There are also many companies that are developing products that require a higher price, and the VC money will only last for so long.
If there is a period where exponential growth stops, then the danger is that companies that were previously expanding suddenly find themselves overstaffed and unable to meet their bills. Layoffs would cause experienced people to move to other industries and never come back, such that if there is a recovery later, new developers need to be hired and they need to learn the protocol from scratch. At the current time, bitcoins cannot sustain a period of prices at levels of the previous cycle.

Mining is also at a crisis point, independently

Miners are coming online at the highest rate ever, with the difficulty expected to approach 18b by the end of the week. That would be the single largest difficulty increase in history.
Why people are turning on mining equipment at current prices doesn't make much sense to me, as there is simply no way that all of this equipment is profitable. This is clearly a "mining bubble," where many people spent millions on mining equipment that is not profitable even before it is turned on. I suspect that, even if the auction turns out in the positive, there is going to be a mining crash soon.
The difficulty rises are simply not sustainable, even if the price were to rise a lot overnight. We already see a lot of mining companies being sued and under investigation; the next phase of this mining bubble unwinding will be farm operators who overinvested and who declare bankruptcy as the difficulty continues to increase 40% every two weeks.
This isn't really relevant to the network's usefulness or to its future, but it is bad news for people who are invested in mining. If I had a cloud hashing contract or owned equipment, I would be selling it immediately, regardless of what I thought was going to happen at the auction.

Other

submitted by quintin3265 to BitcoinThoughts [link] [comments]

The BCH Halvening will happen seven-weeks before the BTC Halvening, will there be any investment money left for BTC after the BCH frenzy?

BTC is expected to halven on May 29th, 2020. In actuality, any bull-run between then and now will likely lead to increased hashing power that moves the Halvening date up by a few weeks up to a month.
When will BCH halven?
According to this site, the expected date is 4/6/2020, a month and a halve sooner than BTC.
It will happen sooner because early in BCH's history miners would switch back and forth between BCH and BTW whenever the difficulty targets made it more profitable to mine on one or the other chain.
This led to some difficulty on both chains early on in BCH's life, and this was solved by the adoption of the DAA, difficulty adjustment algorithm, which solved the problem by rapidly increasing/decreasing the difficulty when new hashing power arrives or leaves.
One side-benefit to this is that BCH is much less vulnerable to network slow-down if lots of hash-power suddenly leaves the network, whereas BTC has a difficulty-adjustment every 2016 blocks no matter what, with a cap on how much it can change each time, and if they lost half their hash-power suddenly it could take them weeks or months to get back to where the network is working smoothly again.
Because lots of hash power back then was switching to mining BCH when the difficulty was low, resulting in blocks being found very quickly compared to BTC, the BCH blockchain is ahead of the BTC blockchain by about seven weeks, and is likely to remain in that position.
We've had two halvenings in bitcoin history, the first in November 2012 shortly before the price spiked from $12 to $230 and then ran the rest of 2013 up to $1000, the last being in July 2016 where the price doubled around this time from about $400 to $700+ and kept climbing throughout 2017, peaking at $19,000.
It would not be an exagerration to say that 2017 brought crypto-investing into the mainstream. And the fact that crypto's prices did not absolutely collapse in the last six months means a lot.
Because of this, the next Halvening will bring an absolute FRENZY of investment speculation.
Likely many traders are already salivating and preparing their strategies.
But it occurs to me that BCH will halven six weeks before BTC halvens, this creates a significant dilemma for investors.
We could very well see a situation where investors are forced to choose between BTC and BCH. And since BCH halvens first, we may see most investors dropping deep pockets into BCH to see where it goes.
And you can't exactly just jump right out after a Halvening, you need to ride it until the peak. So, what are the chances people will just jump out of BCH and buy into the BTC Halvening soon after? Pretty low, I'm guessing.
Sure many BTC stalwarts will avoid BCH and buy BTC, but those people will have their passions tempered thereafter when they do the math and figure out they could've earned a lot more by being in BCH, assuming that's what goes down at that time, as I expect.
Dunno what's going to happen, but this will be the most exciting Halvening of our lives, and I am really curious to see how the market approaches this one. It may become the point when BCH surpasses BTC in price, and that will be the single most exciting moment in BCH history, and a solid base to launch the future of crypto with.
I'm sure a lot of you will say that BCH will surely have surpassed BTC in price by then, but I think that is too optimistic to hope for. In my experience, such moves take longer to start than you expect, then happen far more rapidly than you would expect.
The good news is that the next halvening is not too close for BCH to differentiate itself and prove its quality by the time people must begin making the choice of where to put their money.
And to those who think the market will price-in the Halvening ahead of time--you guys said the same thing at the 2016 Halvening on the run-up to $400, and the price still doubled afterwards--the price can never be completely priced-in ahead of time due to uncertainty about the future.
So, we shall see, but it certainly looks like timing and circumstance are in our favor.
(If you want a Halvening reminder, here's the ones I'm using that will remind us 15 days ahead of time, which will account somewhat for the Halvening date moving up in time, as it tends to do when new hashpower is added. Note: the "RemindMe!" command is case-sensitive.)
BTC:
RemindMe! 747 days "Bitcoin (BTC) Halvening expected on May 29th 2020"
BCH:
RemindMe! 695 days "Bitcoin Cash (BCH) Halvening expected on April 6th 2020"
submitted by Anenome5 to btc [link] [comments]

Of Wolves and Weasels - Day 49 - Such Memories

Hey all! GoodShibe here!
So, yesterday I started putting this thing together and WOW did you come out in droves to help! Thank you so much for sharing your ideas and memories. And thank you kindly to the mods for stickying that post!
In one day we reached 60% completion on a list of top 100 Memories and Achievements of Dogecoin! That's amazing! So many fantastic memories and accomplishments!
Which leads me to share some developments.
The title of this endeavor is now - unless someone comes up with something better:
Such Memories: The First 100 Days of Dogecoin
I'm going to be putting this together as a 100-ish paged commemorative book - for free in PDF, probably with some cost as a fancy, printed book (Sold as close to 'at cost' as I can get it -- slipstream- has recommended selling it at a small profit, with profits going toward charities or Dogecoin Foundation for charities, etc - thoughts?).
Artists, if you've got Dogecoin-themed artwork you want to see in this, please, put forward some links to hi-res CMYK copies and I'll do my best to fit it in.
Also! Let's find the funniest, best Dogecoin-related memes that we have put together so far and include them as well! :D)
We're also going to need a cover.
Any artists out there care to try their hand at designing a cover for this?
We'll put it to the community to vote for the one they like the most, and we'll include the others in the book somewhere :D) If you're an artist who submits to the project, you'll get full credit and promotion for your site inside the book (probably in a credits section at the back).
I also want to hear from the community - think up some interesting stories, maybe what got you into Dogecoin. What your fondest memories of Dogecoin are. These first 100 days have been an exciting rollercoaster of adventure... let's make that we never forget all the fun memories we've had together. If you have personal, fun pictures you'd like to share, fun, personal stories you want to see get into the book, then start working on them now, put them into the comments, keep them on hand!.
Here's the list that I have right now - in no particular order:
MOMENTS/ACHIEVEMENTS:
  1. ummjackson's first 'joke' on Twitter about Dogecoin being 'the next big thing'
  2. The original bitcointalk Dogecoin forum page
  3. Dogewallet Hacked
  4. The first Dogecoin paperwallet design
  5. Save Dogemas is put together by the community, to help out victims of the hack. (News articles?)
  6. 15 Million doge raised by the community to save dogemas
  7. SilentShibe's first tip (not sure when that was)
  8. Ophrahshibe's mass-tippings
  9. The forming of the Dogecoin Foundation
  10. Vault of Satoshi adds the first DOGE->USD/CAD exchange
  11. Dogesled - Helping to fund the Jamaican Bobsled team - NPR article
  12. Shibes actually getting to meet with the Jamaican Bobsled team after funding! (pics?)
  13. Olympics Funding: Shibes raise funds to send Indian Lugers to Sochi in a matter of hours
  14. Strange Donuts - The very first brick-and-mortar food purchase with DOGE!
  15. NYC Dogeparty
  16. Doge 4 kids
  17. Doge is now accepted at experiment.com
  18. DOGE bought pizza for the homeless
  19. DOGE's first fork. Scary! slipstream- has found the exact time and date of our first fork: 2014-01-05 00:09:17 (UTC). That's Day 28
  20. The first time a /dogecoin post reached the top of /all (Thanks 42points for the link!)
  21. The first News article to cover Dogecoin - (http://wwwh.eavy.com/tech/2013/12/dogecoin-what-is-shibe-cryptocurrenc/) on Heavy.com dated Dec 9th, 2013, but not sure if it counts as 'News'. Thoughts?|
  22. The first-ever Of Wolves and Weasels post
  23. the creation of Dogec0in.com - a popular Dogecoin waterbowl/chat room
  24. the Christmas Day Dust Fix
  25. Kabosu's owner started accepting dogecoin for charity
  26. Reddit freaked out because they didn't realize it was an online wallet and thought that tiny withdrawals were indicative of hacking
  27. The first Halvening
  28. Our massive jump up from 25 Satoshis
  29. Dogecoin mentioned in the Australian senate (official Transcript here!)
  30. Payment systems for online shops: Moolah.ch, Coinpayments.net, Dogeapi.com
  31. PoS systems for brick and mortar: dogePoS, moolah (still in beta)
  32. Markets to sell product in dogecoin: shibemart.com, muchmarket.com
  33. Classifieds: suchlist.com
  34. Micro jobs network: dogerr.com
  35. The birth of Dogetipbot v1 - Went Live on 12/15/2013 - First ever dogetip!
  36. Rise of the tipbots: Youtube, Facebook, Twitter, Imgur, etc.
  37. Fork #2
  38. The "inflationary" characteristic of Dogecoin announcement from devs
  39. DogeTEL. The first cryptocurrency phone service!
  40. Fido.pw - sending DOGE via SMS anywhere in the world!
  41. Stuffcoins.com - created by stuffcoins an eBay for Dogecoins
  42. alwaysgeeky, Indie dev sells his game VOX for DOGE.
  43. triverske and friends over at /dogecrafters teach our DOGEs how to play Minecraft! with us - and share our DOGEs on any Minecraft Server
  44. vBulletin Forums Integration! daveaite has created a free plugin for vBulletin, allowing users to directly tip one another in Dogecoin!
  45. 'Universal' DOGE Tippers: DogeTip.co, built by woowdoge and Altcend, created by altcy. Send (password protected) tips - both the sender and the receiver have to sign up.
  46. DogeBucket.com is a Crowd Funding/Crowd Tipping website created by Goldiepurps and their team!
  47. Doge Lodge in Tehran, Iran - created by lincoln_lava - is a homestay if you happen to be in the area (or want to visit) for 10K DOGE per night.
  48. ÐTunes, created by hjras is a great place to sell and buy independent music for Dogecoins. Very cool!
  49. Stat-checkers: DogePulse, created by shibeous and Dogedump, created by cryptogaz
  50. Armstrong Steel - A Steel Building OEM Manufacturer is now accepting Dogecoin! Thanks to SekcRokStallion for their efforts to bring their workplace on board! That's most-definitely a first!
  51. Corinthian Transportation is now allowing you to pay for Limo services with Dogecoin!
  52. Buying homemade bbq/marinade sauce with DOGE - dogesauce.com
  53. @Adult's record-setting DOGE-tip on Twitter
  54. (http://www.reddit.com/dogecoin/comments/1yfnrx/looks_like_kraken_got_doge/) that the exchange [Kraken.com](http://www.kraken.com] is now accepting Dogecoin!
  55. The UniverseProject will be using Dogecoin as the main currency for their game VoidSpace.
  56. The "SnowDoge" Competition! Check it out HERE
  57. MultiDoge - First altcoin light wallet.
  58. Treats.io - The first place to buy giftcards with DOGE
  59. Buygold.io - The first place to buy Reddit Gold with DOGE
Added today:
TOTAL: 100/100
Also: I was thinking we might have a pour-one-out for all the Orphans - a page dedicated to all the blocks we lost along the way... thoughts?
What have I missed?! Let me know in the comments!
It's 8:29AM EST and we're at 53.95% of DOGEs found. Our Global Hashrate is spiking from ~61 to ~98 Gigahashes per second and our Difficulty is down slightly from ~1024 to ~1014.
Lots of fantastic things in store, let's keep this list growing!
As always, I appreciate your support!
GoodShibe
TL;DR: 100/100!!!
submitted by GoodShibe to dogecoin [link] [comments]

On the Behavior of Crypto Securities

I've watched the crypto-securities space a while, and in trying to understand my own thoughts and observations, I wrote this long essay. I'd like to share my thoughts, challenge my own assumptions and hear some differing opinions, what-if's, etc. So, for your reading pleasure...
Preface: I'm long crypto-securities in general. I think there's major innovation coming in this space, and we'll see awesome new business models in the coming years, disruptive ideas that haven't been possible or profitable until now. That said, the current space has some challenges to overcome.
I. General Comments and Challenges
1) Challenge of Valuation.
All this has lead me to price out securities based on a range of Bitcoin prices, a wide range (at the present time) from $2000 to $100 per coin. This outputs as a matrix of BTC prices on one axis, and the target asset's price on the other, and forces me to think of where BTC price is going within the next 3 months (at least), and consider the trade-off for coin / security. I don't always get my target prices in the matrix, but the idea is to provide some analysis and restraint, and try to think long-term.
2) Challenge with IPOs.
So, not rocket science exactly, but a concise business plan and the company's approach to the IPO should point the way to a decent business model worth investment. Risk, both possible good and bad, must be included.
3) Challenge of making an informed, semi-rational decision, based on the above. For extra fun and unpredictability:
These further complicate the task of trying to act rationally in exposing your investment to risk.
II. Observations on assets classes, and risk/reward.
1) Mining
A company buys racks of hardware and configures to mine coins. The SHA-256 proof of work coins require a high capital investment in ASIC mining that ultimately result in diminishing returns due to the fierce competition and increasing difficulty. The next generation of hardware released to market erases differences between mining groups, so the only advantage is temporary, assuming your new hashing hardware even ships at all. Other advantages, such as lower operating overhead, seem short-lived. Many of these mining securities show a quick spike, and then fall flat, as would be expected in an industry where competition is mostly neck-and-neck tied. ASICMINER basically did this, along with the added salt in the wound when the BTC price exploded, share price, as denominated in BTC, collapsed. So, with regret, I don't see crypto-mining as a good long-term investment.
2) Fiat-gateway industries
This is perhaps the most promising sector. People are taking notice of BTC and altcoins, and fiat-for-coin exchanges are popping up all over. Great possibility for attractive profits because they set their own fees for a product in demand and short supply, and can hedge against both fiat and coins. The success of these companies will much depend on how their home jurisdiction acts towards cryptocurrency. China and India seem to hate BTC right now, but these are also states infamous for capital controls. Look for a friendly regulatory environment, good legal counsel, good technical/security expertise, smooth money transfers and a good marketing plan. Then cross your fingers and hope they don't delist.
3) Security exchanges
Rough times for these guys lately. Bitfunder and BCTO shut down a while ago, and some people still have value locked up in limbo. Havelock, CryptoStocks and a few others are still out there, but longterm I think the future belongs to a decentralized exchange system. A single point of attack or failure in this day and age is… unfashionable. These exist in early forms, Ripple, OpenTransactions and colored coins but it's hard to say what's going to catch on and dominate. Everyone seems to have a favorite…
4) Vice industries
Gambling sites like Satoshi dice and variants offer an obvious business model: the house always wins. Then there's CANNABIT, which could be lucrative, but I cannot imagine this going well long-term. There will likely be more innovation in this sector, and more ability for these services to operate outside the bounds of the authorities to quash them, but the risk to investment, the risk of de-anonymization and criminal charges under RICO? No thanks. Vice is nice but not necessarily in the portfolio.
III. Exciting, gamechanging stuff
Interesting thought: What if this innovation is unstoppable? What then?
If you got this far, I hope this was an interesting read and food for thought. So: What do you like/hate in your portfolio? What risk exposures do you like, and which do you think are poisonous? What gamechangers on the horizon do you like/hate? Is it, in fact, nobler in the mind to suffer the slings and arrows of outrageous fortune? :)
submitted by BewareOfGod to BitcoinStocks [link] [comments]

Musings on Bitcoins, and a comparison with gold (long)

Musings on Bitcoins, and a comparison with gold.

[[ Edit #1 - in the 2 days since I wrote this, BTC has gone up to $226 USD - abut 40% - I'm leaving the numbers as written, as I thinkt he point still holds ]]
Full disclosure: I recently bought $200 USD worth of bitcoins (April 7 2013), near the current price peak at about $159 USD / BTC. This is either the smartest or stupidest $200 I've spent, and only time will tell which. By my purchase, I guess that makes me "bullish" on the long term prospects of Bitcoin. I'll try to not let that color my analysis below.
This analysis is not intended to be extremely precise. I'm trying to ballpark numbers here for a sense of scale and future possibilities. Feel free to correct any errors you may find, but if they don't qualitatively change the sense of the results, I'm not really interested, given how rough some of my estimates are.

Assumptions:
1) Bitcoin will be around for the foreseeable future, and not succumb to any of the obvious existential threats it faces (e.g. Majority network control by an attacker, governments squash all legal interchange with fiat currencies, users and merchants become completely disinterested, etc...) If this assumption is false, the rest of the analysis doesn't matter. Bitcoins will effectively be worth zero. This is a distinct possibility, a total bust, which I choose to ignore here, as it is uninteresting.
2) While not a perfect fit, Bitcoin will (in the long run) behave much like gold does today, as both a commodity and a currency. Bitcoin shares a number of obvious qualities with gold. While gold has some intrinsic utility (value) which Bitcoins lack (in both decoration and electronics manufacture), Bitcoin has advantages as a currency and commodity in its ability to be transmitted electronically world-wide, and to be easily and arbitrarily subdivided. Ultimately, and historically, gold has had the majority of its value derived from the qualities it shares with Bitcoin (e.g. limited supply, difficulty to counterfeit, resistance to government manipulation, etc...) As such, it seems like a good proxy to gain some insight into the possible future of Bitcoin.
3) We may be able to predict some sort of future bitcoin value ranges based on what we know of gold, and how it has been priced vs fiat currencies, currently and historically. I'll focus specifically on the stability of gold's price when US dollars were exchangeable for gold, vs the rise when dollars were no longer redeemable for gold (1971).
4) Just as gold didn't stop the rise of fiat currencies, but rather continues to exist alongside them as an alternate store of value, so to will Bitcoin. Fiat currencies are very useful for (as well as abusable by) modern governments, and as such will continue. Gold hasn't destroyed fiat currencies in day-to-day business, and I seriously doubt Bitcoin will either. Most folks don't transact business in gold any more. I expect the same to be true of Bitcoins. Bitcoin's existential threat to the government's ability to manipulate macro-economic monetary policy has been wildly exaggerated.
5) The current explosion of BTC prices is most likely a speculative bubble, but may be the start of a recognition of Bitcoin's potential to be a gold-like store of value. If so, BTC should eventually reach parity with gold, proportionally scaled to the amount of each available,

with each occupying a similar place in the global economy.

Raw numbers to play with:
5.5 billion troy ounces (171,300 tonnes) of gold mined in all of human history as of 2011
2,700 tonnes world production in 2011 (approx 1.5% increase in world supply / year)
Source: https://en.wikipedia.org/wiki/Gold
$1600 / oz - approximate price of gold April 2013 $160 / BTC - approximate price of BTC April 7 2013
$20-$40 / oz - historic gold cost while USD exchangeable for gold (until 1971)
Source: http://www.nma.org/pdf/gold/his_gold_prices.pdf
11 million bitcoins mined as of April 2013 21 million bitcoins max - estimated mined out by 2140
$16 trillion - US Gross domestic Product

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Discussion:
From the number section above, as of April 2013... $8.8 trillion USD for all the gold in the world $1.76 billion USD for all the bitcoins in the world 500 ounces of gold in the world per bitcoin
If the BTC economy were equivalent to the gold economy today, the nominal BTC price would go up by a factor of 5,000 (500x as many ounces as bitcoins, at 10x the price each). That would yield a price of $800,000 / BTC. That's quite a potential upside, but assumes the total quantity of bitcoins today were as valuable as the total quantity of gold. A dubious proposition at best. Let's call this a hypothetical upper bound on BTC future value in today's money, as I really doubt bitcoins will ever replace gold.
Given that US GDP is only about twice the value of the current world gold supply, you could double the number above ($1.6 million / BTC) if you wanted all the bitcoins to stand in for all the economic activity of the US in one year. If you did that, one "satoshi" (10-8 BTC - the smallest subdivision) would be about one US penny.
Let's make a bunch more unfounded assumptions, and see what else happens. ;-) Let's assume gold is continually mined and the supply increases 1.5% / year (at the 2011 rate) for the next 127 years until 2140.
That would give us 36.44 billion ounces of gold (about a 6x increase) if compounded annually, or 16.5 billion ounces (3x, if not compounded and we just keep pulling the same amount out).
In that same time, we will have 21 million total bitcoins (2x increase) as we mine out the last one.
From this we can see that, if the value of bitcoins and gold derived solely from their scarcity, the intentionally deflationary nature of bitcoins would outpace gold in relative value over the next century. So, how fast has gold been appreciating historically vs Bitcoins?
Let's look at some history.
The bitcoin price graph is noisy, and there isn't much history (relatively speaking) so these numbers are all pretty rough.

Notable dates:

January 3, 2009 - Genesis block established July 12, 2010 - BTC crosses the $0.01 (one cent) USD mark. Feb 9, 2011 - BTC reaches the $1 USD mark. Jun 2, 2011 - BTC reaches $10 Source: https://en.bitcoin.it/wiki/History
From the one cent point to $160 / BTC today (April 7 2013) is about 14 doublings (214= 16384 cents, or about $160) of value in 33 months. That's an insane 32x growth year over year. Going from the $1 mark to today would be about 7.5 doublings in 26 months. That's still a 12x growth year over year. From the $10 mark, that's 4 doublings to $160 in 22 months.
From $0.01 - to $160 - 2.35 months doubling period From $1.00 - to $160 - 3.46 months doubling period From $10.0 - to $160 - 5.5 months doubling period From $0.01 - to $10 - 1.1 months doubling period
The first three sets of numbers, of course, include the current spike/bubble from the beginning of 2013. But even the range from $0.01 to $10.00 (ten doublings, factor of 1024 growth) took only 11 months. The current 2013 spike went from approximately $20 at the beginning of January 2013 to $160 at the beginning of April. That's been three doublings in 3 months. Clearly, the current rate is unsustainable. If it were sustained, however, the BTC economy would reach the earlier mentioned level of the gold economy in roughly a bit over 3 years, giving us an $800,000 bitcoin. Let's call that the "ridiculously bullish upper bound scenario."
Let's look at gold's rise, after it was uncoupled from the dollar in 1971 (e.g. the "Nixon Shock")
We went from $40 for an ounce of gold (a relatively steady value for over 100 years) to $1600 in 42 years. That's 8.5 doublings in 42 years, or a doubling period of 5 years, or 60 months. An online inflation calculator says that only 2.5 of those doublings should be accounted for by inflation ($40 in 1970 buying the same bag of goods as $235 in 2012), so let's call the "I want gold for it's own sake" rate to be closer to 6 doublings in that time, or a doubling period of 7 years, which is 84 months. Even after we account for inflation, that is still about a 10% year over year appreciation. That may be close to the bitcoin steady-state rate, after all the hype has passed.
Over its short 4+ year history, Bitcoin's doubling period is 10x - 60x faster than gold's over the past 42 years. If I'm correct and Bitcoin will, in its maturity, resemble gold for its financial characteristics. 10% appreciation per year will be closer to the norm than the current, insane, 200% - 1000+% we are currently seeing.
So where does this leave us? Gold, while widely accepted, makes a lousy currency in practice. You can't effectively buy things online, or at the corner market for gold. In most cases, you have to trade it in for fiat currency to actually buy things. As a commodity, it does a much better job. Because of it's commodity qualities, it works well as a store of wealth, and is relatively easily convertible into various fiat currencies. Bitcoin would seem to share all of those qualities with gold, and in addition, is accepted by at least some merchants directly online for goods and services already, and that number is growing.
Ultimately, that, I think, will be the key. If merchants widely accept bitcoin directly, and/or it is at least as easy for consumers to convert bitcoins to fiat money as it is to convert gold, bitcoin should have a gold-like future.
I don't believe bitcoin will become the currency of the global masses. Gold certainly hasn't, and it has had a much longer time to try and claim that place. Fiat currency is too useful a tool to give up, and most of humanity doesn't own gold, and if they do, they don't buy things with it directly. Bitcoin will be no different. Further, one needs computer access to transact in bitcoins. While more and more of the world becomes connected every day, there are still vast numbers of people with no computer access (or water or shelter or bank accounts or...). Again, parallels to gold.
If we use a population figure of 7 billion for the world, and were to split the gold and the bitcoins up evenly, that would be a bit less than one ounce of gold per person, and a bit more than 1.5 thousandths of a bitcoin each. So if you have more than that already, you are ahead of the game, globally speaking. However, these numbers argue against either bitcoin or gold ever becoming a true "global currency."
The Global Wealth Report (http://www.cnbc.com/id/44956585) cites $231 trillion US dollars as a figure for total global wealth. That's $33,000 per person. From the numbers earlier, that means gold makes up only about 4% of that global wealth number, and recall that the collected value of all the worldwide bitcoins is less than a tenth of one percent of the gold wealth.
This 20 year old Straight Dope article is still relevant. It essentially says that "cash" in all it's forms is really small change in the global economy. Even upping Cecil's numbers a bit for 20 years, I think his premise still holds true.

http://www.straightdope.com/columns/read/719/how-much-money-is-there

Conclusions

Bitcoin will either be yet an other failed crypto-cash experiment, or it will become the de-facto standard Sci-Fi "credits" of the future. History suggests failure is the more likely outcome, but only time will tell for sure. Bitcoin has managed to anticipate and avoid many of the problems with previous systems.
Given it's deflationary nature, gold-like properties, and requirement for computer access to use, I do not believe it will ever become wide-spread in a world-wide population sense, but it may succeed in augmenting credit-card transactions for online "cash" purchases of goods and services. If it is wildly successful and widely adopted, it may reach a place of financial significance on par with gold at some point. Even then, this will still be a relatively small part of the global economy.
Given that half the bitcoins ever to be produced are extant right now, the total world supply will, at most, double. That's it. So, barring various fiat economic collapses in the future, whatever price we eventually settle on for a bitcoin's utility as a store of value in the near future (next few years? a decade?) should remain pretty constant (within a factor of 2). Markets and currency speculators will still cause wild price swings, but once it establishes a consensus "worth," that value shouldn't change much more based on supply, just on demand. Supply will be essentially fixed, but demand will be driven by utility (where can I spend it) and speculators.
We are currently (April 2013) in a massive speculative bubble, as "the market" tries to decide how much bunches of ever-harder-to-find hashes are really "worth," as a medium of exchange for goods and services. The success or failure of Bitcoin will be directly related to the network effect "lock in" as more merchants and users use it. If it catches on, its success will snowball. If not, it will tank.
submitted by Thespoian to Bitcoin [link] [comments]

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