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gold performance 2012

During 2012 Fiat Currencies And Gold Collapse Against Bitcoin

by Trace Mayer, J.D. on December 31, 2012 · 28 comments

Reading time: 19 – 32 minutes

Obviously, over the past couple years gold has completely collapsed relative to Bitcoin; gold’s performance relative to Bitcoin is worse than the Argentina Peso against the USD.

The currency collapse has continued unabated. Once again all major fiat currencies have fallen relative to gold. And once again Bitcoin’s performance absolutely crushes gold and silver.

With Bitcoin now entering its fourth year the numbers speak for themselves. All major currencies are rapidly collapsing against Bitcoin. Ominously, under International Accounting Standard 29 there is a case that even gold is in hyperinflation relative to Bitcoin as the presentation currency under IAS 1, 19.9 and IAS 21. And Bitcoin is just getting started.

With Bitcoin performing so well many are probably wondering: “Bitcoin is still around, what the hell is going on?” So let’s take a look at where the money is being made.

Bitcoin users incur about US$400 of daily transaction fees to send approximately 50,000 daily Bitcoin transactions.


200 day moving average bitcoin market capitalization

This chart displays the 200 day moving average of Bitcoin’s market capitalization. This is important to discern the long-term secular trend with regard to Bitcoin and effectively filter out the daily noise. The Bitcoin market capitalization is a function of (1) the number of bitcoins in circulation multiplied by (2) the exchange rate which depends purely on the demand for bitcoins because supply is publicly known.

The number of bitcoins in circulation is constantly expanding but at a predetermined rate. During the first four years the rate was 50 bitcoins every 10 minutes. But then in late November 2012 at block 210,000 the block reward was slashed to 25 bitcoins every 10 minutes. Thus the supply of bitcoins is known and any future expansion has already been discounted by an efficient market into the current exchange rate.


Thus, with supply known the exchange rate of Bitcoins is composed of (1) transactional demand and (2) speculative demand.

Transactional demand is very interesting because bitcoins are a medium of exchange vehicle resulting in an oddly positive elasticity of demand because there are lower embedded costs in terms of timefees and privacy relative to substitutes or alternatives such as bank wires, checks, Visa, Mastercard, Paypal and etc. Consequently, the price of bitcoins is irrelevant to the transactional demand component. Whether bitcoins are $0.05 or $1,000,000 and because they are divisible without cost to 21 quadrillion atomic units therefore they perform and deliver equally to the user the value of transaction value exchange services.

Speculative demand is from individuals who desire to hold bitcoins in anticipation of a rise in price relative to other assets. Because bitcoins are a sterile asset, like gold, any rise in price functions as a wealth transfer from other assets in the economy to holders of bitcoins.

Make no mistake about it, Bitcoins add incredible value to users because it is censorship-resistant or in other words non-politicized currency. It allow users to send any amount of money to any other person instantly without a fee to anywhere in the world without any restrictions whatsoever. E-Gold, GoldMoney (payments have been restricted to only among Jersey based holdings), Liberty Dollar and even gold through confiscation by FDR, Stalin, Hitler and Mao were all censored.

But Bitcoin is a completely different and wholly new rapidly metastasizing beast: the censorship-resistant digital financial honey badger.


As many who invested during the Internet bubble of the early 21st century came to understand many metrics can be ‘puffed up’ or faked. This is certainly true with regards to the Bitcoin economy and one reason I like to monitor total transaction fees.

When bitcoins are sent the sender can optionally include transaction fees to benefit from faster processing and confirming by the Bitcoin network, the largest distributed computing network in the world. Transactions without fees will still be confirmed it just may take extra time and really is not a big deal at all. By including a fee then hungry Bitcoin miners prioritize the transaction and include it in a block resulting in faster confirmations of around ten minutes at most.

The prioritizing of Bitcoin transactions takes place automatically in an auction type market. If Bitcoin ever grows in scale to a size like Visa with 12 billion transactions in Q2 resulting in $2.2B of net operating revenue then this is how scarce resources would be rationed. But currently that is not a concern because there is a ginormous amount of excess mining capacity for current usage levels.

Thus, the current average transaction fee of 0.0005 BTC, with a cost of about $0.00675 or a little more than half a penny, will result in the highest priority and extremely quick confirmations.


200 day moving average bitcoin transaction fees

The above chart shows the total transaction fees Bitcoin miners received on a daily basis and is normalized to a 200 day moving average to filter out the daily noise. As the chart plainly reveals Bitcoin is rapidly being adopted and used on a daily basis.

Bitcoin users incur about US$400 of daily transaction fees to send approximately 50,000 daily Bitcoin transactions with optionally included fees. And that is just transactions where people are actually sending Bitcoins and want priority processing. From my own experience I pay for priority processing in less than 10% of transactions and I do not engage in many Bitcoin transactions because Bitcoin is used merely as a settlement currency and is not yet widely adopted by all the merchants who I purchase goods and services from.

For example, I only need to buy VPN services from Private Internet Access once per year (tip: always use a VPN and never trust a VPN that does not accept bitcoins).

So, despite the usage base still being relatively small and niche there is obviously a significant amount of actual economic activity going on under the hood of Bitcoin. As adoption increases beyond the currently niche base the network effects will really start to take hold making it even more useful and valued.

paypal sucks


The current King of the Internet payments ecosystem is Paypal. It has 117 million activity registered accounts in 190 markets, had $1.37B of revenues in Q3 2012, represnts 40% of eBay’s revenues which has a $67B market capitalization (40% would be $26.8B), had ‘$4,423 in Total Payment Volume every second in Q3’ in 6.4 million payments per day. Paypal expects to process $10 billion in mobile payments in 2012.

Paypal is clearly the golden goose of eBay and wields monopoly power which it has used to the chagrin of some users who started the website Paypal Sucks. Lately, it has begun to target particular types of businesses, like those with millions of users such as MediaFirePutlocker and DepositFiles, and stop processing payments.

One of these large file upload sites recently integrated Bitcoin as a payment option and the effect on new wallets being created has been noticeable adding more users in two weeks than GoldMoney has in total.

new wallet users dec 2012

And the market has a way of financially rewarding the solutions, instead of refuges, because they add more value to society.


Where could Bitcoin prices go? Really, really high. Or they could become worthless overnight. After all, even though Bitcoins are tangible and therefore immune to counter-party risk like gold they are illusions because they are non-corporeal. Perhaps there needs to be a new category of currency as discussed in The Great Credit Contraction; illusory tangible money. But how high is really, really high?

First, let’s put into perspective how the past performance of gold’s complete collapse relative to Bitcoin could affect your net worth.

17 January 2011 we recommend using Bitcoin to protect your privacy in Bitcoin – The Best Financial Privacy Is Probably Here … Probably. If you had traded one ounce of gold for bitcoins then today you could trade those bitcoins for 31.6 ounces of gold.

19 December 2011 in Solid Bitcoin Consolidation Finally Bears A Bitcoin Breakout I stated:

Taking the current price of $4.00, the 200 day moving average of about $8.50 and extrapolating this upleg with a 12x 200dma top we could see a price of around $80.00 per BitCoin. Is this speculative? Yes. Would I bet on seeing $80 per BitCoin by around June or July? Maybe if the odds are around 5%. But I would take a bet for BitCoins to hit $7.50 by June or July at around a 50-70% probability.

If you had traded one ounce of gold for bitcoins then today you could trade those bitcoins for 3.25 ounces of gold.

Obviously, over the past couple years gold has completely collapsed relative to Bitcoin; gold’s performance relative to Bitcoin is worse than the Argentina Peso against the USD.

Second, Bitcoin is still in beta version 0.7.2. This is still experimental software. As more features get built and released it will be even more powerful and network effects will take even greater hold.

Third, buying a Bitcoin (Money Over Internet Protocol) is like buying stock in the Internet, Email or VOIP. Imagine if you could have bought stock in HTTP (Hyper Text Transfer Protocol), SMTP (Simple Mail Transfer Protocol) or VOIP (Voice Over Internet Protocol) and you received value every time every website is ever visited, every email ever sent or every call ever made over the Internet whether through Vonage, Skype, etc. and just like there are businesses built completely around HTTP, like Google or Yahoo, or VOIP like Skype (founded in 2003) so likewise there are companies built completely around Bitcoin. Microsoft purchased Skype in May 2011 for $8.5B.

Fourth, Bitcoin makes payment of taxes more voluntary because the probability of being caught is decreased and even if caught it is impossible to seize the bitcoins without the private key. Plus, their flexibility allows them to be used in many creative ways by estate and tax planners or asset protection specialists. Bitcoins have not been made illegal in any jurisdiction and some jurisdictions like Sweden or France have granted significant protections to Bitcoin entrepreneurs. Plus, there are no silly FBAR or FACTA reporting requirements for bitcoins held in a bitcoin address not held with a third party.

Fifth, the 22nd largest site on the Internet, WordPress, which creates the open-source software that powers over 100 million blogs, announced on 15 November 2012:

PayPal alone blocks access from over 60 countries, and many credit card companies have similar restrictions. Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons. Whatever the reason, we don’t think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they can’t control. Our goal is to enable people, not block them.

Bitcoin is a digital currency that enables instant payments over the internet. Unlike credit cards and PayPal, Bitcoin has no central authority and no way to lock entire countries out of the network. Merchants who accept Bitcoin payments can do business with anyone. …

With Bitcoin we join a new digital economy that doesn’t leave anyone behind, essentially making financial transactions open source — something WordPress.com is behind 100%. We’re proud to support bloggers from all over the world by providing a Bitcoin option.

A McKinsey Research report found that the Internet accounted for about 3.4% of total GDP, contributed to 20% of GDP in mature countries and ‘The Internet economy, now larger than that of Spain, surpasses global industry sectors such as agriculture and energy.’

Sixth, the FDIC insures $9T of bank deposits. Of course, with such counter-party risk how good is that guarentee? Additionally, there are approximately $20-30T of bank deposits in offshore tax havens.

It would be ironic if the massive wealth transfer the gold bugs have predicted goes not to holders of gold but to holders of bitcoins.

Seventh, a significant portion of the price paid for many collectibles, like the $120m Scream or diamonds, is largely due to the scarcity, ease of transportability and general censorship-resistance and immunity to counter-party risk characteristics that are shared with Bitcoin.

Eighth, companies can drastically reduce their expenses by accepting Bitcoin. According to the National Retail Federation ‘Credit and debit-card fees have tripled over the past 10 years, to about $50 billion a year. That money comes straight out of retailers’ profits’ and in this economy both consumers and merchants are looking to cut costs anywhere they can. Think about it, every gallon of gasoline has embedded a $0.25 fee to the credit card company.

For example, Amazon had net income of $631M on $48.1B of revenue. Assuming they pay 0.5% transaction fee to accept credit cards, which would be extremely low compared to the 2-4% most small businesses pay, then that would add $240.5M to the bottom line; an increase of 38%!  And Amazon is just one potential company to accept Bitcoin.

Plus, many of the small businesses that currently accept bitcoins keep those proceeds stored in Bitcoin instead of exchanging them for fiat currencies. This increased demand for bitcoins and decreased demand for fiat currencies has a tremendous leveraged effect on the fractional reserve banking.

Ninth, a significant amount of capital is held by corporations on their balance sheets as working capital and generally classified as current assets. For example, on 16 December 2008 I wrote about how Oil Majors Should Just Buy Real Gold and revisited the topic on 28 November 2009 in Gold And The Oil Majors Revisited.

On 8 December 2008 gold closed at $772.25 and by 27 November 2009 gold closed at $1,177, a 52.4% gain. …

In 2008 the five oil majors repurchased about $54.2B of stock.  Exxon with $35.4B, Chevron with $6.8B, Total with $1.3B, British Petroleum with $2.6 and Conoco Phillips with $8.1B.  The average price of gold in 2009 through October was about $941.

So let me get this right. Instead of holding increasingly worthless colored coupons the oil majors could have diversified their currency holdings to ensure they could make payroll and with about a third of what was spent on the share repurchases could have bought the entire annual production of platinum and the entire above ground stockpile of silver.  Or assuming the average price of gold they could have bought about 1,791 metric tons of gold.

Tenth, Bitcoin would make a wonderful settlement currency for a small country which could primarily export information technologies. For example, Iceland has an extremely protective freedom of speech legislative environment where the statutes were crafted by Wikileaks members who were targeted with a Banking Blockade because of political speech. Icelands wants to use its extremely cheap geothermal power to run data centers.

Ice Servers is a pround Icelandic company that sells webhosting services, accepts bitcoins and takes advantage of these three competitive advantages: (1) better legal protections for website owners, (2) cheaper power and (3) great geographic location for US and European markets. This is a prime example how the Icelandic economy which is currently about twice the size of the Bitcoin economy can integrate with it.

So, Bitcoin is cheaper, faster and more private that fiat currencies, bank wires and credit or debit card payment systems. Bitcoins are not subject to counter-party risk so holders do not need to worry about their bank or financial institution failing like Wachovia, Fanny Mae, Bear Stearns, Lehman Brothers, MF Global, etc. and need a bailout that comes from printing fiat currency out of nothing.

So, really, there is no limit to the upside potential of Bitcoin as it continues to suck in capital resulting in an expanding financial event horizon. Gold, with no counter-party risk, is a refuge from the current unstable and failing fiat currency fractional reserve banking and financial system. But Bitcoin is not just a refuge but also a solution to that zombified system. It would be ironic if the massive wealth transfer the gold bugs have predicted goes not to holders of gold but to holders of bitcoins.

And the market has a way of financially rewarding the solutions, instead of refuges, because they add more value to society. And that is what gold’s currency collapse relative to Bitcoin is signaling; a massive wealth transfer has started from holders of assets in the traditional fiat currency system, gold, silver, etc. and other assets to holders of bitcoins.

Keeping those thoughts in mind then let’s consider some potential bitcoin prices in comparison to other data points within the worldwide economy.

Investment Marketcap BTC price @ 10.5m bitcoins BTC price @ 21.0m bitcoins
Cardero Resources (CDY) $41M $3.90 $1.95
Brazil Resources Inc. (BRI.V) $45M $4.25 $2.12
Uranium Resources, Inc (URRE) $56M $5.30 $2.65
Bitcoin on 31 December 2012 $141M $13.43 $6.71
ATAC Resources Limited (ATADF) $168M $16.00 $8.00
36.7B ISK – Iceland M1 (GDP=$6.8B) $289M $27.52 $13.76
Gold Resource Corp. (GORO) $809M $77.01 $38.50
4.5% of Tulsa, OK $44.8B GDP’s $2B $192.00 $96.00
Junior Gold Miners ETF (GDXJ) $2.8B $269.52 $134.76
91.6B UYU – Uruguay’s M1 (GDP=$46.7B) $4.8B $457.14 $228.57
Western Union (WU) $8.1B $771.43 $385.71
Skype $8.5B $809.52 $404.76
4.5% of Singapore’s $257.4B GDP $11.6B $1,103.14 $551.57
Silver Wheaton Corp. (SLW) $12.2B $1,163.81 $581.90
Newmont Mining Corporation (NEM) $22.1B $2,107.62 $1,053.81
Paypal (40% eBay) $26.6B $2,533.33 $1,266.67
Goldcorp (GG) $28.6B $2,719.05 $1,359.52
Barrick Gold Corporation (ABX) $33.4B $3,180.95 $1,590.48
4.5% of NYC’s $1.28T GDP $57.6B $5,487.86 $2,743.93
AAPL’s Total Current Assets [TCA] $57.7B $5,495.24 $2,747.62
Mastercard (MA) $61.3B $5,838.10 $2,919.05
Visa (V) $101.9B $9,704.76 $4,852.38
7.5% of Internet’s $1.5T GDP $112.5B $10,714.29 $5,357.14
TCA of 5 Internet Major’s (AAPL, GOOG, EBAY, AMZN and FB) $149.4B $14,228.57 $7,114.29
HSBC $202.4B $19,276.19 $9,638.10
TCA of 5 Oil Major’s (XOM, CVX, BP, COP and TOT) $336.6B $32,057.14 $16,028.57
Apple Inc. (AAPL) $489B $46,526.67 $23,263.33
7.5% of System D’s $11T GDP $825B $78,571.43 $39,285.71
4.5% of world’s $55.6T GDP $2.5T $238,095.24 $119,047.62
Fed’s Adjusted Monetary Base $2.6T $250,761.90 $125,380.95
FDIC insured bank accounts $9T $857,142.86 $428,571.43
165k tons of gold (5.82B oz) @ $1650/oz $9.6T $914,285.71 $457,142.86
Tax haven bank accounts $30T $2,857,142.86 $1,428,571.43


The Great Credit Contraction continues as holders of capital will increasingly seek safe and liquid assets. The currency wars are heating up and the foreign exchange oceans of capital are getting increasingly tumultuous due to politicization of the medium of exchange.

Bitcoin’s liquidity has greatly increased during the past year and can allow the creative user to completely disinter-mediate from the current fiat currency system. All major fiat currencies have continued declining relative to gold. But gold has completely collapsed relative to Bitcoin.

Therefore, holders of bitcoins continue to be beneficiaries of a tremendous wealth transfer from holders of fiat currencies, gold, silver, real estate, stocks, bonds and pretty much every other asset. Bitcoins have already turned out to be the trade of the decade for many of our readers and may likely be THE trade of the 21st century before these massive worldwide currency wars and collapses play out.

To learn how to greatly reduce your learning curve and safely buy or store bitcoins consider reading The Free Bitcoin Guide. If you want to acquire more than $50,000 of bitcoins then I can likely assist you for a small fee for the time to train you on how to safely and securely store them and help in the acquisition. You can contact me here.

free bitcoin guide




For those interested in the expanding Bitcoin business community then I recommend watching this presentation.


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ABOUT THE AUTHOR: Trace Mayer, J.D., author of The Great Credit Contraction holds a degree in Accounting, a law degree and studies the Austrian school of economics. He works as an entrepreneur, investor, journalist and monetary scientist. Follow him on Twitter. This is merely one article of 242 by .
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{ 21 comments… read them below or add one }

1 KRT December 31, 2012 at 9:37 pm

Great article Trace. You’re starting to turn me to the dark side! Is that “real is going to change” clip really from a TV show?? Bitcoin is in a bubble! ;) jk

I’d be careful about comparing a penny stock performance to a large cap performance. (ie) comparing performance of Bitcoin to Gold. I’m sure I could find all kinds of penny stocks that went from $0.01 to $0.05 in the same time frame. Percentages can be deceiving.

2 Todd December 31, 2012 at 10:07 pm

Sounds good, looks good but I dont understand: It would be ironic if the massive wealth transfer the gold bugs have predicted goes not to holders of gold but to holders of bitcoins. Bitcoins is not a tangible assett so how is it any different than fiat currency, its medium/currency???

3 Jon Matonis January 1, 2013 at 11:12 am

“It would be ironic if the massive wealth transfer the gold bugs have predicted goes not to holders of gold but to holders of bitcoins.”

Great quote and many solid points, Trace. Maybe the site should be called Run To Bitcoin. ;-)

4 Trace Mayer, J.D. January 1, 2013 at 12:03 pm

KRT, yes, the clip is from the Good Wife. And yes, it happened back during the July 2011 bubble!

I agree with your assessments on comparing between extremely micro-cap currencies, like Bitcoin, and much larger and more established ones like Gold, USD, etc. However, it is important to keep in mind the rapid speed of adoption which is possible in the Information Age. So far Bitcoin has had no material issues scaling to handle all the increased usage. Skype, Google, email, YouTube, etc. all scaled extremely quickly as a result of ‘going viral’. That is the nature of the network effects I mentioned.

Just like Skype, Google, email, etc. Bitcoin could very quickly, 3-7 years, become an established major currency. It does not need to take millenia like gold or centuries like the USD and accompanying US legal and military infrastructure, etc.

5 Trace Mayer, J.D. January 1, 2013 at 12:05 pm

Jon, thanks Jon. Perhaps I should call it Run To Wherever The Money Is To Be Made. But it does raise an interesting issue of how much of gold’s market capitalization is a result of its monetary demand. Perhaps 95%? So sure, gold can never become worthless, but it could go to $150-200 per ounce. Bitcoins, of course, could become worthless as I mentioned in the article.

6 Trace Mayer, J.D. January 1, 2013 at 12:06 pm

Todd, you may want to carefully read Why Bitcoin Is Tangible – Digging Into The Guts Of Bitcoin.

7 John January 1, 2013 at 8:32 pm

Once again Trace, you amaze me. You were my first ‘gold’ go to guy and now I can help but jump in on bitcoin. I should’ve listened back when you first brought it up here but there’s such a steep learning curve! I’ve applied to Mt. Gox for an account and await the final authentication. I’m thinking of moving over some platinum (its been depressing watching it drop below gold so far) and a bunch of cash. I’m a little under your $50g but maybe its worth your consultation/training fee nonetheless to do it right? I’m thinking around $30-$35,000. If I recall, you’re an iPhone guy too. What are your thoughts and recommendations (warnings) on the iPhone and apps?

8 Trace Mayer, J.D. January 2, 2013 at 10:09 am

John, Glad to help. I really wish platinum were performing better like the fundamentals seem to indicate it should.

Yes, there is a pretty steep learning curve with Bitcoin but that is what I made the Free Bitcoin Guide for. I would really recommend playing around with it and having a pretty firm understanding of how it works before trying to make a larger investment though. Plus, it could always become worthless; they are an exceedingly speculative investment/speculation. Although a fairly liquid one compared to most speculative investments like junior gold miners, private companies, etc.

Even at around $30-35k it still might be worth having me walk you through it. I have been helping quite a few people acquire bitcoins lately. It seems like costs end up being around $1,000-1,500 (after slippage) and the bitcoin acquisitions happen, usually, without going through MtGox so it would be a little safer and more private plus at the end of the day it is probably cheaper.

9 Erik Voorhees January 2, 2013 at 10:35 am

Great article, Trace! My favorite part, and a crucial point: “Whether bitcoins are $0.05 or $1,000,000 and because they are divisible without cost to 21 quadrillion atomic units therefore they perform and deliver equally to the user the value of transaction value exchange services.”

10 John January 2, 2013 at 1:35 pm

Ok. I’m just waiting to close a deal and I’ll be in touch through email. Thank you!

11 Trace Mayer, J.D. January 2, 2013 at 1:35 pm

Erik, you get it!

12 Trace Mayer, J.D. January 2, 2013 at 1:36 pm

Sounds good John.

13 Stel January 2, 2013 at 3:36 pm

I`m sure Bitcoin have a possibility to make you money. But since i´m a saver and not a speculator i stay with gold. Watch what really BIG money does and the path is clear. The dollar is toast, it´s just a matter of time and the only veichle that can absorb the imaginary value of the dollar is gold. It has been choosen lon long ago.There is zero percent chance of big money running for Bitcoin. Bitcoin is for (so far) people of small worth.

Bitcoin might run along when this monetary system implodes but i mostly concern myself of getting my money back. With gold I have a +5000 year history to comfort me. With an expected revaluing of +20x I´ll probably get a speculative return with the safety of gold :)

14 Marius January 3, 2013 at 3:05 am

The episode from the good wife actually happened in January 2012 and caused a small bubble: from $5 to $7 and back to $5 iirc. Small relative to Bitcoin’s overall moves, that is. The July 2011 bubble wasn’t related to that.

For anyone interested in buying: I can sell up to 2500 Bitcoins for Euro SEPA transfer, at 3% over the mtgox price. The benefits of not using mtgox in this case are
-Trading for a fixed price without moving the market
-Fixing the agreed upon price before any money is sent
-No need for lengthy verification processes or slow intercontinental money transfers
-Personal help in answering questions you might have

I’m registered as a company in the Netherlands, “Mqrius’ Bitcoins”, KvK code 55307442, and the feedback I have received for various transactions is visible here: bitcoin-otc.com/viewratingdetail.php?nick=Mqrius

15 Leo January 3, 2013 at 1:03 pm

Stel, you say you’re a saver not a speculator but then you say you’ll probably get a speculative return with the safety of gold.

Your statements that there are 0% chance of big money running for Bitcoin and that (so far) is for people of small worth are irreconcilable.

To quote Trace: “It is important to keep in mind the rapid speed of adoption which is possible in the Information Age”

The printing press had a long history too.

I’m only trying to help you see the light, so I will leave you with some quotes from Warren Buffet who no doubt has a good track record on speculation.

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

“Our favorite holding period is forever.”

16 vssa January 5, 2013 at 8:24 am

Here is my analysis of the bitcoin market:http://www.btcwallet.org/?s=bitcoin+market

17 Karen January 19, 2013 at 9:28 am

Clip from “The Good Wife”

18 CoinGuy January 25, 2013 at 2:36 pm

I like your comparisons, but I think you are underestimating when comparing to, say, Mastercard or Visa. If you are looking at the Market Cap of Mastercard, Inc, or Visa, Inc, you are looking at the wrong value.

A more accurate comparison would be to look at the dollars pushed through Mastercard and Visa, not their Market Cap. And likewise, the money NOT pushed through Mastercard and Visa.

If I charge $100 to Mastercard, I must have $100 (at some point) to pay the bill. And a responsible credit / debit card user has MORE than that amount of dollars.

So if I spend $100 in Bitcoins, I must have it (at that point) to pay the bill. And i likely have more.

You’re using a number $101.9B for Market Cap of Visa, but a more applicable number would be the total transaction volume that they push through. I don’t know if that’s public, but if they made 9.7B gross last year, and that’s, say, 2% of transactions, then you’re talking about $485B, a number that’s almost 5 times your number.

Another way to look at is by the number of users, and their average currency holding. How many people use Visa cards? In 2009, there were 309M Visa card holders. If each one has, on average, $68 in currency backing up their card (like in their bank account for which the debit card is issued), then that’s $21B in “Visa Currency”. If Bitcoin got to that level of popularity, spreading $21B over 21M bitcoins would mean that each bitcoin is worth $1000.

19 Trace Mayer, J.D. January 25, 2013 at 11:43 pm


The figures are meant only as signposts on possible valuation steps. Keep in mind that currencies are like storage containers; like a propane tank or a battery. Energy, value, is put into the storage tank and later it is taken out. This is part of what causes the price of currencies to fluctuate. With Bitcoin there is actually a developing stock market with a few assets that have 650,000+ BTC ($10m) market capitalizations. Plus, there are tons of other smaller issues.

So, the developing capital markets in Bitcoinland are taking energy out of the currency storage containers. While this causes the BTC to decrease it strengthens the overall Bitcoin economy. The developments are very interesting.

20 John January 26, 2013 at 4:13 am

Trace, I haven’t forgot you. It’s killing me waiting to close & watching bitcoin crack $18 from sub $13!
I’ve been through your beginners guide and checked out some youtube videos in the meantime. One guy had a good point about hard drives crashing and deflating the bitcoin volume. Is there any ‘protection’ from losing ones bitcoin a from this?

21 Trace Mayer, J.D. January 27, 2013 at 5:23 am

John, I know how you feel. I was working on a deal in Jul 2007 and as soon as closing the funds were going into physical gold. We didn’t have good funds released from escrow until Nov 3rd! Gold went from $600 to $800 in the meantime.

Yes, you can protect your bitcoins against a hard drive crash. In my Free Bitcoin Guide there is a section on cold wallets/brainwallets. I would recommend you start playing around with those to get a good understanding of how the encryption works. It is pretty easy actually once you get the hang of it.

For example,

The phrase bitcoin is really cool converts to the private key 5KeoZLodmz6jghYRXakYXNRGVqg683kQdeADWkSkbdnGzDqygaA for the public key 17NEJi3EFyDtjvqhDmU14EVkf5eJBtdF4g.

So long as you keep either the phrase or private key safe (in a TrueCrypt volume/hidden volume, in your head, etc.) then you will always be able to access those bitcoins. Encryption is math. Having the phrase allows you to easily do the math to get the private key. Having the private key allows you to easily do the math to create an output (transaction) to move bitcoins from a public key.

Clear as mud?

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