According to a 2016 study by University College London, around $440 million dollars are spent annually on mining Bitcoin, enough money to employ about 14,000 people in the United States. In the same year the largest Bitcoin payment processor, BitPay, was only handling a few millions dollars of transactions per month. If you added up all the real economic transactions (not speculative transactions) it's possible that there was more money invested in securing the network (mining) than in real transactions. Since Bitcoin is billed as a cryptocurrencey and not crypto-store-of-value, this isn't a great advertisement. International bank wires, visa fees etc. are only around 1-2% of the transactions they facilitate. This year BitPay may reach $1 billion in transactions, but this is a figure which again will not stand well against the resources poured into Bitcoin mining. To translate that $440 million estimate for 2016, that meant that an equivalent value of food production, transport, communications, energy, manufacture etc. had to be destroyed to provide for the resources put into the Bitcoin network.
I'd also add that of the people who are using Bitcoin for real, non-speculative transactions, almost all of them are likely to be people who have accrued large gains in purchasing power from Bitcoin's appreciation and don't have national currencies to use so are forced to used Bitcoin. This leads to another problem, which is Bitcoin's epic deflation against assets...
Bitcoin is billed as a cryptocurrencey, but it lacks one of the most important features of a currency - stability.
The affects of a currency losing value against assets (inflation) are well known. The price instability causes assets to require repricing (sometimes daily), which in itself wastes time. In this environment consumers don't want to hold on to money, they want to spend it before it becomes worthless. But more importantly it destroys businesses ability to be able to plan anything as today's investment has an unknown price in the future. People don't know how to react as there is no reliable valuation for anything. It causes people to hold on to assets they can't value, loose their jobs, production to slow and business to go bankrupt.
The affects of a currency gaining value against assets (deflation) are less well known but have occurred. In this instance, you can buy more assets each passing day, week, month, year. This may sound brilliant for consumers, but it has the same affect as inflation: slowing production, bankruptcy and job losses. Productive (rather than speculative) business ventures carry considerable risk. If you invest $100,000 in starting or growing a business, you can not only loose all of it, but end up with less via debt, legal problems etc. When a currency is deflating (it can purchase more assets) the incentive to make such risky investments falls. Why would you invest it and risk it when you can leave it to go up in value?
An example of deflation of a currency against an asset is when there is a stock market crash - the currency buys more stock. This causes the economic turmoil above, where no one has a good measure of fair value and few want to make investment risks in such an environment. According to perennial Bitcoin bulls, Bitcoin will always be in this state of deflation against assets. The more people buy and hold Bitcoin the more assets Bitcoin will be exchangeable for. If Bitcoin were a de facto currency it would cause a deflationary depression that would never end, as Bitcoin is inherently deflationary with it's 21 million cap.
The purpose of a currency is to be a reliable medium of exchange. In itself it doesn't need any value, it just represents the value of what it is agreed it can be exchanged for. If the currency has a backing, like gold, it then becomes at risk to the deflationary nature of gold's limited supply. A currency should not make people incredibly wealthy for sitting at home doing nothing, producing nothing on the virtue of buying it before other people. If the whole world did this, there wouldn't be an economy. A genuine and usable cryptocurrency must have a mechanism for price stability to be able to compete as a usable currency against national currencies.
At writing, the coin market cap is $192 billion. Presumably a similar amount of money has entered the market. That's $192 billion (roughly equal to the GDP of Portugal) that has exited the economy which provides things people need and want, that provides jobs and the basis for future economic growth. These people are investing in something that is producing no physical value, little measurable value and is the most inefficiently powered transaction method available.
Bitcoin can't produce any wealth (assets) in the future to warrant it's $117 billion market cap and it can't be a stable medium of exchange. This has led some Bitcoin bulls to promote it as a store of value; that it should be a safe place to park your purchasing power for the future. But an asset is only a store of value in certain circumstances. Bitcoin has been an incredible store of value since 2009, while silver (also called a store of value) has lost more than half its value since 2011. An asset is only a store of value in certain circumstances. Silver and other precious metals have earned the title "store of value" over a long history in which they tend to have been stores of value over a lifetime. It became a store of value on the back of having real economic value which the speculative investment market causes an unproductive bubble on top of.
Bitcoin is often touted as being valued, because it is rare. Yet there are billions of other tokens that have virtually the same properties, sometimes better. They are not so well adopted, but neither is Bitcoin itself. If BitPay do $1 billion of transactions this year, I am assuming the economy of real Bitcoin transactions amounts to $2 billion dollars, roughly equivalent to the GDP of Greenland with a population of 56,000. The internet was doing much better with real users by this point and the uses of the internet were much more obvious.
Bitcoin does have interesting and useful properties and it has opened avenues which may be useful in the future, but are you buying Bitcoin for that? Are you paying 1% to covert your national currency to Bitcoin to pay a merchant so they can pay 1% to convert it to their national currency? Probably not, you are likely buying it because you think it will go up in value while you and no one else produces anything or does anything to back that value. That increase in value comes from people doing productive jobs, getting paid and pumping up the Bitcoin price with that value.
With that said, if you want to increase your purchasing power via speculation my guess is that the crypto markets will continue to grow until someone develops a crypto that can attach itself to the real, productive economy. So far no crypto has done so to an extent that would make it anything approaching a sound investment. Bitcoin isn't particularly appealing as it would take maybe something in the region of a $100 billion inflow for you to double your money and pull backs don't take much volume to shave off huge percentages of the market cap. There's quite a lot of coins that have slipped a lot and occasionally these get a good pump. But a better method would be to go with what drives a lot of the market, which is buzz. In that case I would go with EOS, which has just gone up about 100% on volumes that would barely affect Bitcoin. Another angle is to buy small caps. Some of the older ones get heady pumps and some of the newer ones often get better. As an example, ETP, was recently added to BitFinex. It was at ~$40M, fell to ~$20M before shooting up to ~$140M. So that's one you could have made 7X on in a week or so. In this category I am looking at three that are below $15M: EDO, SAN and AVT. I consider all of these to be junk, which no one will remember in a few years, but they will likely have their pump(s).
If you want real value, invest in where you think the most real wealth will be produced or where people will spend their excess wealth on luxury items (that destroy real wealth). For the former I am looking at tech and science areas that will open new grounds or save considerable time, as a dual example companies that produce automation robots. For the latter the main area I am looking at is marijuana stocks in Canada, where lealisation is seemingly around the corner. These have already gone up a few hundred percent and could sink their teeth into a very large untapped market.
I'd also add that of the people who are using Bitcoin for real, non-speculative transactions, almost all of them are likely to be people who have accrued large gains in purchasing power from Bitcoin's appreciation and don't have national currencies to use so are forced to used Bitcoin. This leads to another problem, which is Bitcoin's epic deflation against assets...
Bitcoin is billed as a cryptocurrencey, but it lacks one of the most important features of a currency - stability.
The affects of a currency losing value against assets (inflation) are well known. The price instability causes assets to require repricing (sometimes daily), which in itself wastes time. In this environment consumers don't want to hold on to money, they want to spend it before it becomes worthless. But more importantly it destroys businesses ability to be able to plan anything as today's investment has an unknown price in the future. People don't know how to react as there is no reliable valuation for anything. It causes people to hold on to assets they can't value, loose their jobs, production to slow and business to go bankrupt.
The affects of a currency gaining value against assets (deflation) are less well known but have occurred. In this instance, you can buy more assets each passing day, week, month, year. This may sound brilliant for consumers, but it has the same affect as inflation: slowing production, bankruptcy and job losses. Productive (rather than speculative) business ventures carry considerable risk. If you invest $100,000 in starting or growing a business, you can not only loose all of it, but end up with less via debt, legal problems etc. When a currency is deflating (it can purchase more assets) the incentive to make such risky investments falls. Why would you invest it and risk it when you can leave it to go up in value?
An example of deflation of a currency against an asset is when there is a stock market crash - the currency buys more stock. This causes the economic turmoil above, where no one has a good measure of fair value and few want to make investment risks in such an environment. According to perennial Bitcoin bulls, Bitcoin will always be in this state of deflation against assets. The more people buy and hold Bitcoin the more assets Bitcoin will be exchangeable for. If Bitcoin were a de facto currency it would cause a deflationary depression that would never end, as Bitcoin is inherently deflationary with it's 21 million cap.
The purpose of a currency is to be a reliable medium of exchange. In itself it doesn't need any value, it just represents the value of what it is agreed it can be exchanged for. If the currency has a backing, like gold, it then becomes at risk to the deflationary nature of gold's limited supply. A currency should not make people incredibly wealthy for sitting at home doing nothing, producing nothing on the virtue of buying it before other people. If the whole world did this, there wouldn't be an economy. A genuine and usable cryptocurrency must have a mechanism for price stability to be able to compete as a usable currency against national currencies.
At writing, the coin market cap is $192 billion. Presumably a similar amount of money has entered the market. That's $192 billion (roughly equal to the GDP of Portugal) that has exited the economy which provides things people need and want, that provides jobs and the basis for future economic growth. These people are investing in something that is producing no physical value, little measurable value and is the most inefficiently powered transaction method available.
Bitcoin can't produce any wealth (assets) in the future to warrant it's $117 billion market cap and it can't be a stable medium of exchange. This has led some Bitcoin bulls to promote it as a store of value; that it should be a safe place to park your purchasing power for the future. But an asset is only a store of value in certain circumstances. Bitcoin has been an incredible store of value since 2009, while silver (also called a store of value) has lost more than half its value since 2011. An asset is only a store of value in certain circumstances. Silver and other precious metals have earned the title "store of value" over a long history in which they tend to have been stores of value over a lifetime. It became a store of value on the back of having real economic value which the speculative investment market causes an unproductive bubble on top of.
Bitcoin is often touted as being valued, because it is rare. Yet there are billions of other tokens that have virtually the same properties, sometimes better. They are not so well adopted, but neither is Bitcoin itself. If BitPay do $1 billion of transactions this year, I am assuming the economy of real Bitcoin transactions amounts to $2 billion dollars, roughly equivalent to the GDP of Greenland with a population of 56,000. The internet was doing much better with real users by this point and the uses of the internet were much more obvious.
Bitcoin does have interesting and useful properties and it has opened avenues which may be useful in the future, but are you buying Bitcoin for that? Are you paying 1% to covert your national currency to Bitcoin to pay a merchant so they can pay 1% to convert it to their national currency? Probably not, you are likely buying it because you think it will go up in value while you and no one else produces anything or does anything to back that value. That increase in value comes from people doing productive jobs, getting paid and pumping up the Bitcoin price with that value.
With that said, if you want to increase your purchasing power via speculation my guess is that the crypto markets will continue to grow until someone develops a crypto that can attach itself to the real, productive economy. So far no crypto has done so to an extent that would make it anything approaching a sound investment. Bitcoin isn't particularly appealing as it would take maybe something in the region of a $100 billion inflow for you to double your money and pull backs don't take much volume to shave off huge percentages of the market cap. There's quite a lot of coins that have slipped a lot and occasionally these get a good pump. But a better method would be to go with what drives a lot of the market, which is buzz. In that case I would go with EOS, which has just gone up about 100% on volumes that would barely affect Bitcoin. Another angle is to buy small caps. Some of the older ones get heady pumps and some of the newer ones often get better. As an example, ETP, was recently added to BitFinex. It was at ~$40M, fell to ~$20M before shooting up to ~$140M. So that's one you could have made 7X on in a week or so. In this category I am looking at three that are below $15M: EDO, SAN and AVT. I consider all of these to be junk, which no one will remember in a few years, but they will likely have their pump(s).
If you want real value, invest in where you think the most real wealth will be produced or where people will spend their excess wealth on luxury items (that destroy real wealth). For the former I am looking at tech and science areas that will open new grounds or save considerable time, as a dual example companies that produce automation robots. For the latter the main area I am looking at is marijuana stocks in Canada, where lealisation is seemingly around the corner. These have already gone up a few hundred percent and could sink their teeth into a very large untapped market.