While nobody was paying attention...

User avatar
Steve Sokolowski
Posts: 1804
Joined: Wed Aug 27, 2014 3:27 pm
Location: State College, PA
Contact:

While nobody was paying attention...

Postby Steve Sokolowski » Sat Mar 11, 2017 7:32 pm

While everyone was paying attention to the bitcoin ETF decision, my focus (and money) was on Ethereum. The rationale was simple. In the event of ETF success, every altcoin would have been pulled along with Bitcoin. In the event of ETF failure, ETH would be seen as a safe haven, or at least a coin where bitcoins can be dumped into on exchanges that don't support dollars, like Poloniex.

However, the real story here isn't whether Ethereum was a stable choice while the bitcoin markets had extreme volatility yesterday. I believe that the ETF decision represents a major shift in the industry's future, and that we will ultimately see that a trend reversal occurred for bitcoin yesterday. The current bear market will last until the blocksize debate is resolved.

Our payouts now cost more than $3 in fees, and our usage of the bitcoin network has declined by more than 75% since last year. The reduction in usage comes from more customers preferring other coins, and from our own decision to hold more money in our wallets, to use credit cards to buy items online, and to sell in larger batches. With "normal" transactions now costing more than $1, I think that it is reasonable to project that absent a miraculous and immediate conversion to Bitcoin Unlimited, users will be paying $20-$50 by the end of the year. If this price sounds ludicrous, look at how fees are increasing exponentially even now.

$50 fees exclude all but the most expensive purchases as a percentage of the purchase price. There are uses that would support fees like that, such as Wall Street trading. Stockbrokers routinely charge amounts in this range to execute trades, so bankers won't have problems spending that much. Unfortunately for them, bitcoin can't be bought as a stock, because the ETF rule change was rejected, and that is the long-term problem for Bitcoin. Without investors to support such high fees, people will permanently change to other coins for their everyday purchases and Internet of Things applications.

Bitcoin is a network that is more expensive, is slower, is less reliable, displays extreme volatility, has fewer features than tens of other coins on the market, and many of its Core developers don't care about any of these things. Litecoin, despite its obsolete codebase, is API-compatible and is a far less volatile store of value than Bitcoin has been. DASH, while overpriced because mainstream banks will never work with a currency specifically designed for anonymity, has a number of features that nevertheless make it appealing to a different audience. Monero has no blocksize limit and many additional currency features. Ethereum, meanwhile, has demonstrated it can survive a hard fork, can do contracts as well as money, suffers from less inflation than Bitcoin and most of the other coins, and has a far more functional development team behind it than Bitcoin does.

Bitcoin had nothing going for it other than a "network effect" and the potential for the network to become a sort of "investor's paradise" where big money was able to trade against other firms and store huge amounts of cash in it. What does Bitcoin have to look forward to now? There is no network effect. The "network effect," if it existed, was from legitimate merchants and darknet sellers accepting bitcoins for small transactions, both of whom are now looking for other options. There is no ability for people to buy billions of dollars of bitcoins for their retirement accounts. The only use now is for speculation and a "store of value."

To see why this is, consider two merchants who are selling the same item when the BTC fees are $2. One charges $20 and accepts ETH, or DASH, or LTC, and the other one only accepts BTC and charges $18. The BTC-only merchant cannot charge much more than $18 because if he did, people would see that the same product is available elsewhere at a lower cost, and for every cent above $18 he charged, some of his customers would go elsewhere. The ones who don't leave are those willing to pay a "convenience fee" because they prefer bitcoins, and each of them has a price at which they become fed up and buy elsewhere.

Furthermore, regardless of which side you prefer, it is certain, without question, that a hard fork is coming. The fork is going to cause panic, a split in value, and the largest DDoS attacks in history that cause the network and exchanges to grind to a halt. Even if everything goes perfectly, people are still going to sell because they think others are going to sell. In the meantime, users can expect to wait for hours after spending several dollars to execute that trade - something which lost us $50 earlier today.

The inevitability of lower bitcoin prices is what has caused DASH to soar to ridiculous levels, and why I think that ETH is poised to explode in currency applications. As an investor, is it more likely that bitcoins will be worth $2000 or ETH be worth $36 six months from now? When transaction fees reach $20, even though people will still use bitcoin, which network will you be buying things with?

The ETF rejection was a fundamental change in the direction of the industry. It's not an accident that altcoins are up across the board today.

----------------

I edited this post to clarify that it was written when ETH was worth $20. The point of the price comparison in the second to last paragraph was to ask which coin would rise in value by 180% first, and the statement is confusing when starting from current prices.
Last edited by Steve Sokolowski on Mon Mar 13, 2017 8:36 am, edited 3 times in total.
123_joseph
Posts: 2
Joined: Sat Mar 11, 2017 11:57 pm

Re: While nobody was paying attention...

Postby 123_joseph » Sun Mar 12, 2017 12:01 am

Hi i don't know as much as you but before I was holding back on Bitcoin when everyone doubted it when it was at around £150 in 2015. It is now at around £1000. I feel every time something goes wrong it is automatically classed as dead. Don't you think the ETF just slowed down the progress of Bitcoin instead of stopping it? I feel if the ETF passed Bitcoin would have sky rocketed and you could have bough some other crypto and they would have rebounded eventually - the way bitcoin did instantly after it. Today Ethereum has been climbing constantly I used to always hold off on these but don't you think they are just starting out really? (Just my thoughts could be wrong but I held back before on a chance of making easy money.)
User avatar
Steve Sokolowski
Posts: 1804
Joined: Wed Aug 27, 2014 3:27 pm
Location: State College, PA
Contact:

Re: While nobody was paying attention...

Postby Steve Sokolowski » Sun Mar 12, 2017 7:04 am

123_joseph wrote:Hi i don't know as much as you but before I was holding back on Bitcoin when everyone doubted it when it was at around £150 in 2015. It is now at around £1000. I feel every time something goes wrong it is automatically classed as dead. Don't you think the ETF just slowed down the progress of Bitcoin instead of stopping it? I feel if the ETF passed Bitcoin would have sky rocketed and you could have bough some other crypto and they would have rebounded eventually - the way bitcoin did instantly after it. Today Ethereum has been climbing constantly I used to always hold off on these but don't you think they are just starting out really? (Just my thoughts could be wrong but I held back before on a chance of making easy money.)


I didn't say that Bitcoin is dead (feel free to interview Mike Hearn about that one), but I do think that at present, it does not have the potential to grow like altcoins do. Smart businesses saw what was going to happen to bitcoin and the innovation shifted towards altcoins some time ago, and those use cases are starting to be released as real products now.

Another way of looking at future investment potential is "Bitcoin is dead until the hard fork." I think that the current bear market will again reverse into a bull market when the fork occurs. I'm not concerned with how much bitcoin is worth today, even if it goes up initially, because I know that there will probably be a chance to spend $200 or $400 and get in during the chaos, regardless of what happens before then. Even if the fork does not crash bitcoin to those prices, it's still unlikely that the returns from bitcoin will be anywhere close to those of the most innovative altcoins before the fork.

It's just simple economics - the demand for transaction space is starting to outstrip the supply, so either the price will go up or competitors will increase production and take your market share. In this case, I think that the maximum transaction fee people will be willing to pay is now far lower because the Wall Street crowd, which would pay the high fees, is eliminated.
123_joseph
Posts: 2
Joined: Sat Mar 11, 2017 11:57 pm

Re: While nobody was paying attention...

Postby 123_joseph » Sun Mar 12, 2017 6:42 pm

All good points there.
Do you think at the moment you are best to invest in altcoins such as ethereum at the moment even though it is hitting new highs or do you feel it will level back down or keep soaring because the bitcoin ETF was rejected?
User avatar
Steve Sokolowski
Posts: 1804
Joined: Wed Aug 27, 2014 3:27 pm
Location: State College, PA
Contact:

Re: While nobody was paying attention...

Postby Steve Sokolowski » Sun Mar 12, 2017 8:23 pm

123_joseph wrote:All good points there.
Do you think at the moment you are best to invest in altcoins such as ethereum at the moment even though it is hitting new highs or do you feel it will level back down or keep soaring because the bitcoin ETF was rejected?


I'm not a short term investor; my profit from this pool goes 75% into ETH and I've never spent any of it (the other 25% is sold to hold for the IRS.) I think that the true value of ETH in the long term is much higher than the current valuation (edited to clarify: $19), for the reasons I stated above.

If you're looking at the technicals, ETH looks exactly like the BTC chart, with a cup and handle, though over 9 months instead of 3 years. That would make sense if you consider that technology increases exponentially, so later technologies should have a shorter maturation time than earlier technologies. Thus, the TA lines up with the fundamentals. We would expect an ETH bubble if they are right, but again, I don't "trade" and it's usually impossible to beat buy and hold in these coins. If the TA is right, don't be surprised to see ETH go to $100 before the crash.

ETH does have proof of stake looming over it in the future, but I don't compare that to BTC's problems because the developers are pretty much in agreement of the plan forward.

DASH, on the other hand, is overvalued. I would rather take my chances with BTC than with DASH. DASH may have a little bit of upside, but a coin doesn't double in value in the course of one day and not suffer a major panic sale. The DASH chart is just ridiculous; DASH may be worth this much at some point in the future, but once we release X11 mining we'll be selling all our blocks until this bubble pops. The reason I think ETH still has room to grow in this cycle is simply because it hasn't done this hyperexponential growth as typically occurs towards the end of bubble cycles.
Last edited by Steve Sokolowski on Thu Mar 16, 2017 8:01 pm, edited 1 time in total.
nukepower
Posts: 52
Joined: Tue Jul 26, 2016 12:18 pm

Re: While nobody was paying attention...

Postby nukepower » Sun Mar 12, 2017 11:07 pm

I'm gonna stick to BTC, LTC, ETH , and ZEC .. I have often thought about buying two of the low end 150 mh X11 dash miners and let them run solo on nicehash ,while my GPU's btc and ltc type miners keep doing pools were i can. Me, i was paying attention, i don't care no offense intended at you ,,, buy yea a lot don't know about that ETF in the US:A exchange in NY is tiring to get passed,this month, if it hasn't yet, i didn't read your whole post yet or look it up ...really don't care any more the prices are nice and I'm having fun mining .. it's a hobby to me ,,, but no offense what so ever intend by my commit..I don't trade either some of it i don't understand nor want to, i would much rather mine coins and sell , less stress and really no BS to deal with other then keep the gear in top shape and replace it as needed ... and Taxes ofc in the US..
pindabaas
Posts: 4
Joined: Mon Mar 13, 2017 5:51 am

Re: While nobody was paying attention...

Postby pindabaas » Mon Mar 13, 2017 5:54 am

Great post.

I couldn't agree more. I've been selling all my BTC for ETH right before the ETF got declined and haven't been inclined to sell it back to BTC before they make any changes.

I am holding a few BTC long (5+ years), because I do believe BTC will always have a major market cap within the cryptocurrency space, regardless of transaction times etc.

ETH is awesome and I've been buying heavily ever since the DAO got hacked.

Return to “Prohashing Blog”

Who is online

Users browsing this forum: No registered users and 2 guests