TripleB's Official Prediction on Bitcoin

TripleB's Official Prediction on Bitcoin
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#1

Bitcoin (BTC) has exceeded $11k per coin this week and I find this to be madness. Here is my prediction on the future of BTC, although I cannot predict timelines.

BTC is like any other good or service in terms of basic economic principles. The price is based on supply and demand. On the surface, the rising price of BTC over the last year (950% gains I believe) would mean that there’s a heavy demand of bitcoin and lots of people are buying it as a investment. I disagree.

BTC can be obtained either by buying it off an exchange or mining it. Over time, mining BTC becomes harder and more expensive in both time and electricity. Over the first few years of BTC, it was significantly easier to mine than it is today. Thus, over the last year, supply has been constrained relative to the first few years. This will push price up, even if there is no increase in demand, because flat demand with decreasing supply will result in higher prices. Thus, the the rising price does not necessarily mean lots of new people are “demanding” it.

BTC can be purchased for either short-term or long-term use. An investor would purchase for long-term whereas a casual user would purchase for short-term. As an example, suppose Mary wants to purchase something with greater anonymity than a credit card. She finds a seller that accepts BTC. The price of the good is denominated in US Dollars (USD) not BTC - primarily because there’d be no market if the seller denominated in BTC since the price would have gone up 950% over the last year and Mary wouldn’t spend $1,000 on a single pizza. The price of BTC does not impact the price of goods or services purchased with BTC.

Thus, Mary wants to buy the product and she converts her USD into BTC. It makes zero difference to her whether bitcoin is $11k a coin or $11 a coin. The conversion of USD to BTC occurs and she transfers the BTC to the seller. The seller receives the BTC and it doesn’t matter to him whether BTC is $11k or $11, he immediately converts it into USD. Neither Mary nor the seller are maintaining a long-term storage of BTC. Mary has no interest in it other than making purchases with anonymity, and the seller needs to hedge against BTC fluctuations since he uses USD to pay his rent, food, and to buy the underlying product that he sells. Assuming these transactions happen relatively quickly, we won’t see a net increase in demand of BTC because the BTC is immediately re-sold by Mary’s seller back into USD.

So why is BTC rising so high? I suspect there are a handful of early adopters of BTC who bought in at <$300 per coin and are manipulating the market through straw transactions with themselves. This gives the illusion of greater demand and artificially raises the price. As an example of how this might work, suppose I cornered the market on SNES Consoles that Nintendo put out this year. I was able to get 80% of all units.

I then go on eBay and list the consoles for sale and create shill accounts to bid them up. I complete auctions, selling the SNES consoles to myself, through shill entities, and make it appear that people are willing to pay $500 per SNES console that retailed for $100 before I bought most of them.

I might then be able to find some sucker to come in and tell him “I happened to get a shipment of SNES in. I’ll sell them to you for $300 and you can make a $200 profit. Look at all those completed auctions that sold for $500” And then I find a few hundred suckers to buy a few dozen consoles off me each at $300 for the purposes of reselling.

And I might even go in and buy some from them using my fake accounts, to make it appear demand is great for these consoles. I go to the suckers and say, “Wow, you just made $200 profit on the first few units! Good news, I got a new shipment in, and can sell you more, but I need to charge $400 this time, but don’t worry you’ll still make a $100 profit, or you can raise the price to $600 and still make the $200 profit.”

Of course, I lose some of my money by having to buy the consoles at an artificially high price from the first batch of suckers. And I lose money to eBay seller and PayPal fees (14% total) for every shill sale I make to my fake entity when I am initially pumping up the price. However, I make that back in multiples over time as I attract more suckers in to buy my SNES consoles to flip for profit.

Now imagine instead of SNES consoles which have a limited desirability and market, I pick something else that everyone in the world needs to live their lives - it’s a new form of money (BTC). Not every one of the 6 trillion humans on earth need BTC, but they all need money and BTC is a new form of money, so the target market is now every living human in the world. And imagine instead of 14% fees to eBay and PP to make shill transactions, imagine I could get those down to below 1% fees.

And also imagine that I’m best friends with Elon Musk (who founded PayPal) and whoever founded eBay. And I get them to give me special accounts where I pay almost zero fees, because they’ll benefit by me doing the ponzi scheme by increased traffic to their website.

The BTC exchanges were all started by early adopters who are friends with the big hitters, or are the big hitters themselves that are manipulating the market. So they’re able to make it appear that there’s a huge demand of people wanting BTC when it isn’t there. And it cost them almost nothing, since they make sham-sales of BTC to themselves at near 0 transaction costs. In the SNES example, it would be like if you had 80% of the world’s SNES consoles before Christmas and you were able to bid up your own auctions because your best friend is Ebay and you could even end auctions and show them as completed/sold at $500 each, but without paying a final value fee nor PP fees. There’s virtually no reason not to do it, since it costs you nothing and it raises the value of your inventory, at least in an illusory way.

Here’s how I predict this will shake out. BTC has gotten so crazy high over a short period of time which happens to coincide exactly with a stock market bubble and a real estate bubble and likely a bond bubble, which means there’s a lot of cash to go around. Stupid assholes will see this, and they will buy BTC at $11k, thinking it will go up to $50k. These are the suckers.

The heavy hitters will start cashing out their positions and selling to these suckers. Instead of selling the same BTC to themselves and pumping up the price, they’ll complete transactions to the suckers and over a period of time (perhaps a few months), the heavy hitters will be all out of BTC. And only the suckers will be holding.

Without the heavy hitters and their friends running the exchanges to manipulate prices, the price will stagnate and the suckers will be confused that their amazing investment isn’t going up 950% per year. Some of the suckers will sell, which will lower the price, due to supply and demand. This will cause fewer new suckers to enter the market, reducing demand further. And over time the rest of the suckers will sell.

If this coincides with a pop of the stock market, real estate and bond bubble, then the suckers will pull out much quicker, since they’ll see their 401k lost 30% and their house is underwater, and they’ll need to cash out of BTC, even at a huge loss, just to pay bills.

There’s another group of BTC investors that are relatively early adopters. They bought in at $300 to $1k per BTC. I have a handful of friends in this category and each one tells me, “I’m not selling, even at $11k because I want to see how high this can go. Let’s ride it out and either I become rich, or it drops to zero, but I paid relatively little so I don’t care”

I suspect these early adopter investors will watch BTC plummet 50% in a short period of time as sucker-based panic selling ensues, and these early adopters will possibly decide to cash out at well, triggering a further decline.

Meanwhile, governments will be stepping in to regulate BTC, impose taxes, and identify ties to drugs/terrorism. Large accounting groups will create forensic auditing capability to analyze the blockchain (which stores every single BTC transaction ever made, all in public record) and be able to identify people’s transactions based on new forensic tools. This will cause the casual users of BTC to flee to different cryptocurrencies that are lower profile. Remember that the casual user isn’t bound to BTC and doesn’t care what the value is. They are buying it, immediately transacting with it, and the person receiving it is immediately converting back to USD (or their local currency). There’s nothing keeping them to BTC and once the government targets the biggest cryptocurrencies, then casual users will switch to the other less known ones.

Ultimately, we’ll have a bunch of different cryptocurrencies on the market, none of them will be particularly valuable to buy and hold long-term, and the only people making money on them will be the exchanges that take a small percentage of each transaction between casual users.

In the long-term I expect a gold-backed cryptocurrency to exist whereby the exchange holds the gold in a vault in allocated storage. There’s a finite number of “coins” for this currency and all of them already exist. And the exchange pairs the coins to the gold at some fixed rate to start, and then the value of the coins floats with the value of the gold. If I ever see this occur in Switzerland, I’m jumping on it, since their privacy and banking laws are amazing.


#2

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#3

I had the impression there is some natural long-term demand for it in countries with currency controls like China. I otherwise agree with your assessment,


#4

I think you’re underestimating how big the bubble could get here.

Back in the late-90s when I was in college the dot-com bubble was growing. It reached a point where my classmates (who wouldn’t have known the first thing about reading a balance sheet or financial report) were bragging about how much money they were making in the stock market. A year or two later the bubble finally popped.

By 2004 FWF members were already calling the real estate bubble and commenting on how SOCAL real estate prices had deviated significantly from any realistic measure of value and that the end was near. It took another 4 years before things finally fell apart there.

I’ve been following BTC (although sadly not as an investor) since it was < $10 and a friend of mine was showing off his mining rigs to me. $11,000 is a pretty big jump from there in terms of percent gain, but I’m not sure we’re anywhere near peak manic levels. I’m sitting this one out, but wouldn’t be surprised to see speculators drive the price to $100,000, $1,000,000 or more before things get ugly. When you overhear your friends who normally aren’t into investing bragging about their BTC holdings it’s probably too late.


#5

As I mentioned, I can’t predict a timeline here. It could go up to $100k per BTC and it could take 10 years. But it will happen as I describe above.


#6

And in the end nobody will end up in jail even though this may just be the biggest ponzi in history. I’m actually about ready to give the big F-U to all societal norms and good human decency and burn it all to the bloody ground.


#7

Do you mean the Dukes are trying to corner the market? Where are Aykroyd and Murphy? And the mining report?


#8

while I appreciate your analysis/prediction, ultimately all you’re saying is this is a bubble, it’s going to pop, and nobody can predict with any kind of reliable accuracy when it will pop.

everybody (at least on a forum like this) already knows this.

I’ll add that, like you implied, blockchain tech is the future. but bitcoin isn’t “the one” (it was just first). with thousands of alt-coins already out there, maybe the real winner is already existing. and maybe it’s not. it’s just a lot of garbage to sift through.


#9

[quote=“TripleB, post:1, topic:2305, full:true”]
In the long-term I expect a gold-backed cryptocurrency to exist whereby the exchange holds the gold in a vault in allocated storage.[/quote]

And what of the hacking/theft possibilities, for which I’ve yet to see any protection.


#10

I’m being specific in saying how the bubble works and how it will be dismantled. One that is unique to BTC that is not possible in stocks, bonds, or RE because those markets operate very differently.


#11

Unfortunately, being early and right is the same thing as being wrong, so shorting it is a fools errand.


#12

TLDR-India, China, Russia

https://www.quora.com/What-is-causing-Bitcoin-to-suddenly-surge-all-year-and-especially-the-last-5-days/answer/Joseph-Wang-9?share=6c3098ef&srid=pBrS

The x factor is “why don’t they immediately convert btc to usd on the other side rather than holding?”


#13

TribleB - I found your article utterly fascinating - I had not considered what could be driving up the price, I had written off understanding how the price of BTC could be rising, as you say 950%, in such a short time, but now I have something to believe in! Thanks!

Note that the earliest adopters of BTC were getting them for practically nothing. BTC were passed around with zero value, of course, as the original BTC keepers tested out the blockchain itself. Mining was so easy, the BTC rewards were “spilling” out continuously but ever slower. When Mt. Gox was going through its earliest gyrations, BTC was less than $100 each.

I agree with this thread’s premise that BTC is the first of the blockchain cryptocurrencies, and eventually, one will surface that will be accepted throughout - have some intrinsic value, etc., but it isn’t BTC and because of this, it’s a bubble just as TribleB describes.

In spite of what we’ve been told, cryptocurrencies do have opposition in the underworld - BTC can’t be counterfeited, for example. The anonymity isn’t a concern except when doing consumer transactions, but when there’s large profit to be made through shady dealings, there’s nothing like moolah. There never will be. IMO.


#14

If you apply my theory, then my rationale is that everytime we have a big news story, such as Zimbabe Coup or Venezuela Bond Default, then the market manipulators go to work, and the explanation for the huge swings in BTC that day are the political news occurring.

How many people in Zimbabwe do you think are buying and selling wheat using BTC? How many in Venezeula are buying groceries with BTC? None.

Are some wealthy people in those places doing it - possibly, but the market manipulations get paired with political destabilization news events.


#15

That explanation seems very dubious to me. Assuming tons of rich people wanted to hide their assets using crypto currency, it’d work for a few but then demand pushes prices higher. After a few days, new investors looking to buy crypto would realize that they’re buying at an unsustainable premium, holding would mean that once support for this high price point fails, they’re standing to lose a LOT of their now-crypto wealth. My guess is that there are much better money laundering/asset hiding tools out there and holding crypto does not sound to me safe enough to risk your entire wealth on.

The only reason they’d have to hold on to Bitcoins would be if they really believe that the current price levels are gonna keep increasing and are waiting to convert into USD/Euro at the highest exchange rate. With a currency that can lose 20% of its value in one day, I cannot imagine most of them willing to take that much risk. Much safer to buy Bitcoins with indian/russian/chinese currency then immediately sell them for USD/Euro. You take advantage of money laundering aspect without taking much market risk.


#16

The bubble is being inflated because of people chasing a rising asset. Normally in a free market a rising price reduces demand. Investments are an exception as price rises can cause more demand (more people wanting to try to get rich quick, afraid of missing the train, etc).

Everyone wants to own an asset when it is rising in price. Once bitcoin starts falling in price no one will want to own it and the bubble bursts.

I do think there is quite a bit of manipulation in the bitcoin market since it is unregulated though… I am sure there is lots of wash trades to help push up the prices. There hasn’t been a way to short it so it is easier to manipulate the price upward without much downward force.

I have to think this bubble is at the ending stages… I see media news about bitcoin everywhere. I recently read an article about a pole dance instructor that decided to start investing her money in bitcoin. I can’t imagine there are many suckers left on the sidelines to buy into this scam. The old joke on Wall St. is that once the shoe shine boy recommends a stock it is time to sell.


#17

@TripleB, your analysis seems fairly spot on. There might be even more to the manipulation.
http://www.zerohedge.com/news/2017-08-06/mysterious-trader-nearly-unlimited-bankroll-said-be-manipulating-bitcoin-price


#18

Maybe TripleB is the manipulator?


#19

You seem to misunderstand the mechanics of bitcoin, and so I question any other conclusions you may draw about it.

Specifically, the idea that supply has been constrained is mostly wrong. Supply is exactly one half of what it was back in 2013. Currently, 12.5 bitcoins are created roughly every 10 minutes. From late 2012 until the middle of 2016, 25 bitcoins were created every 10 minutes. Prior to that (all the way back to when it started in 2009), it was 50.

Furthermore, this decrease in supply has nothing to do with how hard it is to mine. Mining difficulty is controlled by supply and demand of miners. If more computing power is used to mine bitcoin, it will get harder. As the price goes up, so do the incentives to mine; thus more miners enter the market, driving up the difficulty. This has nothing to do with supply though. A new block (with 12.5 btc) is generated every 10 minutes regardless.

So, the idea that a 100x price increase has been driven by a .5x supply constriction seems pretty unlikely.

Furthermore, this paragraph illustrates a lack of understanding of the equation of exchange. Just because people are in and out of the “currency” quickly, doesn’t mean the volume of transactions won’t drive the price up. If bitcoin is used in such a manner, it should follow this theory, and the price will be dictated by the velocity of the transactions.

In fact, while it’s not being used for everyday transactions currently, bitcoin’s price already has a strong correlation to its daily volume.


#20

Excellent discussion here - I’m really appreciating the points of view.

I’ll add two:

1 - I don’t think it’s correct that for big, early owners of bitcoin, that transaction costs are nil. I think there are real costs involved in any transaction in the network at this point. And I’m not sure how/why transactions added to the blockchain spur an increase in the exchange price, even if they are shams executed for low cost.

2 - I’m in the group who bought a bunch under $300 and is sitting tight. But there’s an important reason why I’m sitting and not selling at the moment: lack of technical knowledge. There have been at least two forks in the blockchain, and those have produced offshoot currencies with real value (bitcoin cash and bitcoin gold). Before I sell my bitcoin, I need to figure out how to save my keys to these forked currencies, otherwise, I fear that I’ll lose my claim to them.

That second group may not be large (people may know how to claim their other currencies, or may not know that they exist at all) but it could certainly form a large enough group who doesn’t trade to affect the price somewhat.

In case anyone wants to point me in the right direction, I use Multibit HD on a Mac to store my coins . . . I just can’t figure out how to extract my keys. One day, I’ll really sit down and research it. Until then, I won’t sell.