Bitcoin Commentary

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I think the price of a bitcoin is going to be hovering around the cost to mine a bitcoin for a while, but it will see some spikes and drops. It can be calculated how much it would cost to invest in mining bitcoin versus buying bitcoin. People with deep pockets will choose the cheapest of the two. Over 3600 new bitcoin get mined every day. At $250, that is nearly $1 million everyday of new bitcoins that people will need to buy in order to sustain the market so price don’t rapidly decline. Bitcoin mining is inflation. This is also what the treasury does with the USD. With Bitcoin, this inflation is temporary. Every 4 years, the number of bitcoins that the miner earns gets cut in half.

The number of miners is growing at a rapid pace. There is an all time high of the hash rate right now and it constantly growing over time so every week it reaches another all time high. There are plenty of people that are buying bitcoin and saving them as a store of value. The value of the USD is growing so more bitcoin can be purchased for less. That might be partly a reason for the declines in 2014. There are plenty of people that want to buy bitcoin at lower prices. Currently, you can see many buy orders at the exchange that go about 25% down from the going rate. There are fewer sell orders until about 50% above going rate. So, more people are ready to buy then there are to sell as of the writing of this article. The technology and the computing power dedicated to bitcoin is already huge and it is growing at an exponential rate. This computing power will be directly proportional to the going rate. Over the long run, you can see that both the computer power and price have steadily grown since 2009.

Bitcoin will be used by the masses for many different purposes in the future. It is inevitable since the utility Bitcoin offers for near free will be able to fiercely compete with banks and credit card companies. Once more people see this truth, more people are going to want to buy and hold onto bitcoin as a store of wealth. This, in turn, could make the value of bitcoin go up. When will this happen? We can’t say exactly, but it could take several years or several months. There are only about 13.8 million bitcoin available right now and there can only ever be 21 million bitcoin. The network behind bitcoin will be comparably more powerful than some banks holding hundreds of billions as a store of wealth. Since there is no mining at banks, it is like comparing apples and oranges.

Currently, all bitcoin is worth about $4 billion. I think it will be worth hundreds of billions in the not too distant future. That being said, multiply the $250 by about 25 if all of bitcoin would be worth $100 billion. A lot of very rich people don’t want to buy bitcoins right now because it would be like funding the competitors of their current investments. Someone that is well vested into banking stocks will not want to see bitcoin take 10% of the market. That would be a loss for them unless if they owned a significant amount of bitcoins or had stake in a 3rd party Bitcoin app. There are a lot of people that don’t want bitcoin to succeed since it is a transfer of wealth and power.

There are also a lot of semi-rich and powerful people that do want to see bitcoin succeed. It will be used to send money around the world for free without having to give the banks a cut in the transfer. It will be used as simply a store of wealth. It will be used to safely make small purchases online so you don’t have to worry about entering your credit card information for a $0.99 purchase at a random website in China or Argentina. It has so many more uses than I have mentioned. Many books can be written about just a fraction of the possibilities. Bitcoin will be worth a lot someday – it might be the world’s most valuable banking system someday. It might be the biggest international trade network that has ever existed.

Bitcoin can be compared to gold or modern currencies with free banking services attached to it. I say free services because the costs of transactions will be offset from the user just like the costs of e-mailing are not directly billed to the user; the costs of using Bitcoin will be taken care of by 3rd party apps that put advertisements in the free services that they provide. 3rd parties will give Bitcoin credit lines to individuals and entities that have good credit. There will be Bitcoin Credit Reporting Agencies (BCRA’s) that have information just like the current Credit Reporting Agencies (CRA’s). The BCRA’s will be attached to transactions on the Bitcoin Blockchain.