My Two Cents On Bitcoin

Everybody and their dog is buzzing about Bitcoin, whether they're investing analysts or not. So I'll toss in my two pennies. Like most everybody, I thought it was a bizarre scheme when I first became aware of it. I hadn't heard of blockchain though, and the two are different animals. Blockchain is the enabling technology for cryto-currenies, but likely will be the enabling technology for all the business world of the future. It's just making its debut into our consciousness with a screwball thing like Bitcoin.

There is a school of thought that goes like this, "Blockchain is to value now as the internet was to information in 1995". By "value" is meant any business transaction where green visor humans push pencils to update everyone's ledger in a brick and mortar unit. They may push some of these results onto the internet, but the "unit" is now becoming the block in blockchains on the 'net.


As an article from back in June in ripple.com explains:

Venture capitalist William Mougayar calls blockchain “the second significant overlay on the internet, just as the web was the first layer back in 1990”. When most people think of blockchain, Bitcoin instantly comes to mind. But the potential that excites Mougayar and many others goes far beyond financial transactions made using such digital currencies. It touches on what we at Ripple have for many years called “the Internet of Value.” ...

In the US, a typical international payment takes 3-5 days to settle, has an error rate of at least 5% and an average cost of $42. Worldwide, there are $180 trillion worth of cross-border payments made every year, with a combined cost of more than $1.7 trillion a year.

This is archaic when we have something like the internet. Of course the first thing that comes to mind with this is security of all that value online. But the internet nerds claim blockchain itself has never been hacked is not hackable. The "on ramps" have all the normal problems such as lost or hacked passwords, thumbdrives and so on. But the blockchain itself is said to be an advancement in security.

But anyway, back to the Bitcoin craze. It is less predictable whether crpto-currency will be a standard in the future as blockchain will probably be. I am getting the impression that Bitcoin is now dragging the budding blockchain stocks around with it and thus making them a danger. I had three blockchain tech stocks in the fund, but they had run so much, two more than doubling, that I've parked them on the sidelines for now.  I'm a believer in blockchain, but I just don't know about crypto.

Bitcoin itself appears to me to be at a precarious technical juncture. I say "technical" because there appears to be no way to value Bitcoin fundamentally. About the closest thing to such a valuation I've seen is given by an article from The Economic Times  titled "Bitcoin: This One Factor Could Tell How Far Bitcoin Will Plunge". The idea is to value the Bitcoin price by the value of bitcoin transactions - by how much it is actually used as a medium of exchange. As the following graph from the article shows, this value gauge has grown in close proximity to the price, up until about a month ago.

I have added an estimate of what this transaction value has been since 12/20/17, where the graph stops, from the total number of transactions from the running total at blockchain.info, which assumes the value per transaction has stayed about the same and the processing flow has been operating OK.
The graph suggests the price of Bitcoin has overheated and is due for a cool down. This agrees with convention technical behavior in that the price action seems bent on forming a classic head and shoulders top way up there above its "value":

The price action seems like it's stalling around the shoulder area of $15000 to $17000, which would complete the right shoulder of a major top. I like the blockchain enablers, the real ones, not just the jokers with no credible history of running a business who are slapping on a "blockchain" hat to jump their stock. But I am going to wait until Bitcoin works its way out of this sticky wicket one way or the other before dabbling with blockchain anymore. The good stocks here may be a lot like the good networking stocks of 1995.