This Coin Smashed All...Again...And Again To Pieces!

Aibek Burabayev - INO.com Contributor - Metals


A year ago I wrote about the comparative dynamics of three outstanding kinds of money of different generations – the older generation was represented by gold, the 20th-century generation was represented by the Dollar (Index) and for the modern generation I used the cryptocurrency Bitcoin (BTC). I think some of you have just discovered the serious value of Bitcoin as it just crushed the rivals doubling its value. The dollar index (DXY) gained only 8% as gold showed negative dynamics in 2015. Below I put the result of the poll you voted on a year ago for the 2016 year performance.

Chart 1. Voting results January 2016: You Bet On Safety

INO.com Bitcoin Poll Results

I noticed that there are a plenty of gold bugs among regular readers as gold gathered the most votes. The second position went to bitcoin and it shows that there are many modern enthusiasts among our readers. It looks like the least amount of optimism was felt about the US dollar’s future although it didn’t rank the last in 2015. Let’s see, in the chart below who the winner was.

Chart 2. Bitcoin Vs. Gold Vs. Dollar Index in 2016: Deja Vu!

Chart of Bitcoin vs. Gold vs. U.S. Dollar Index
Chart courtesy of tradingview.com

The majority of readers’ votes turned out to be wrong. Another brilliant victory of the cryptocurrency which scored even more than in the previous year hitting a 120% handle. It is amazing that bitcoin gained the maximum by the end of the year, making a Santa Claus Rally, which is more common for gold’s behavior.

At the start of 2016 it wasn’t obvious that the digital currency (blue line) could gain anything at all as it hit the minus 20% mark (the normal range for it) amid profit taking. It recovered above the zero point only in April and then rocketed above a whopping 80% level gain in June at the $773 mark. This sky-high level attracted sellers who pushed the price to $465 low with a temporary stop at the $600 level. The gain melted dramatically from 81% down to just 22% falling below a rising gold. This deep correction was just a step back before a new takeoff as the price started to smoothly elevate higher in August, this time without violent price action until the last week before the Christmas. By that time Bitcoin gained back its losses and crossed the 80% mark again. And then the above mentioned Santa Rally broke the 100% handle and on the 4th of January (not shown here) it scored almost 160% level at $1140, the level not seen since November 2013! The performance of Bitcoin in 2016 has significant difference compared to 2015 – this time it has obvious steady uptrend with huge volatility.

The dynamics of gold (orange line) in 2016 was described last month. This metal wasn’t at the top even among other metals so there is nothing I can add. It gained only 8.5%.

The US dollar (index) (red line) scored just 3.7% by the end of 2016. The fiat currency is an ultimate loser and it justified the lowest bet level made last year. Its price line looks flat like a skyline with the narrow range between -6% and +5% marks.

The “kid” again stole the show. I put an interesting statistics chart below for your information.

Chart 3. Confirmed Bitcoin Transactions Per Day: Exponential Growth

Bitcoin Transactions Per Day
Chart courtesy of blockchain.info

On the chart above, you can see the rapid exponential growth of the amount of daily confirmed Bitcoin transactions, which tripled in the last 2 years hitting the 300, 000 mark. This shows the stable growth of Bitcoin’s usage around the world. To compare the amount of SWIFT (interbank) payments is stable at 10-13 million transactions per day for the past 3 years. It surely can take some time to reach this level of fiat currency transactions, but it doesn’t look impossible anymore.

I need your valuable opinion again for this year and I encourage you to vote below:

Which instrument will gain the most in 2017?

View Results

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Chart 4. Gold/Bitcoin Ratio: High-Pressure Around Parity

Chart of Gold/Bitcoin Ratio
Chart courtesy of tradingview.com

Last year I was expecting a “dead cat bounce” in the ratio dynamics with a crucial resistance at 5 BTC level, which wasn’t even approached. The intermediate resistance set at 3.5 BTC mark either wasn’t triggered. The ratio topped the 3.3 BTC mark last February and then dropped down heavily to 1.67 BTC low last June.

Another good, but the last attempt higher was taken in August, during which the ratio reached the 2.9 BTC mark. But this gain was short-lived and the ratio closed the month much lower at 2.3 BTC. Last October the ratio broke further down below 2 BTC mark and this opened the way to a firm slide to the parity, not seen from the end of 2013 amid very low volatility. The strong support at this magic 1.00 BTC, where the prices of these instruments are equal, held well for the second time.

The ratio is now squeezed between the two blue trendlines and the pressure is rising as the range narrowed dramatically. The support sits on the parity where both the lower trendline and the previous bottom level are crossing. The gold/bitcoin ratio almost reached the upper trendline located at 1.5 BTC level last week. The breakup of it would start the reversal to the upside, which means the strength of the gold over bitcoin. The drop below parity has no visible supports except the zero point, which is much farther than it seems to be.

It’s so exciting to see how quickly the digital era develops. Who could imagine that something that did not exist a decade ago already reached the value of the perpetual favorite?

Intelligent trades!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

9 thoughts on “This Coin Smashed All...Again...And Again To Pieces!

  1. If We evaluate all concerned characteristics of Bitcoin,, we can observe that it can be neither consider as a Currency nor as an Asset, it is simply a Concept or a system or arrangement, on which, people at large scale have placed there trust or belief like such system or arrangement is having some Monitory or exchange or tender Value.

    At this stage, we must point-out that Bitcoin not having any kind of intrinsic or absolute value, also there is none mechanism available to determine or derive any such value, so whatever price quoted are just demand - supply driven.
    Since the introduction, Bitcoin is sustain or survive and become successes to grow it’s price, just and only Due to its Mass acceptance, its valuation is created through demand and supply, so apart from other risks, if any negative buzz will spread about it, that will destroy its so deemed value, and most probably we found very sharp and immediate price erosion in Bitcoin, due to heavy and mass selling pressure.
    As far as comparison of Bitcoin with any other Currency or Asset class is concerned, I firmly believe such exercise totally meaningless and foolish, because I think, History meant for repetition, and we found History of “Tulip Mania” once again, in form of Bitcoin, which is nothing more than a Technology supported improved version of “Tulips”

    1. just think of how much of the "normal" fiat currency that is traded over the internet- all your electronic transactions- if the internet shutdown, the whole world economy would shut down, people would starve and there would be anarchy

      1. no -- there would be *chaos*, most certainly NOT "anarchy" !!

        (Anarchy is quite a different thing...)

        Other than that, I have to agree with @bill in that internet services cannot be halted just in order to "stop Bitcoin". On top, being a decentralized peer-to-peer Crypto coin, Bitcoin as well as Alt coins do not have a single point of vulnerability for a government to attack at. That's why -- unlike paper currencies -- these Coins are independent of any government decree (or "fiat" act): it's designed this way, but apparently a hard to grasp concept.

        Also, all decentralized P2P Crypto coins can even be used/traded/paid with independently and without an internet connection using "paper wallets" and a face-to-face marketplace like "localbitcoins".

        Simply look at Venezuela for a real-life example of how far people will go for their money and -- hence -- for using bitcoins! That is a textbook example of a country in chaos -- and not anarchy, by the way 😉 , as there are rules, rulers, and government power who coincidentally have caused that very chaos...

        All said, it would not be prudent to stay away from Bitcoin "just because it could go away" or become "illegal"; it's much more likely your dollar-in-hand will suffer this very fate much sooner. Still no one avoids dollars (yet).

      1. @tim apparently means that Bitcoin cannot possibly be in the interest of the powers that be, and he is sure right on this.

        Trouble is that decentralized peer-to-peer Crypto coins cannot be stopped nor controlled, this is why I mentioned the Venezuela example above (i e despite draconian punishment in Venezuela people are still using Bitcoin alright). Same story if it happens in ANY other country (it did in Cyprus a few years back, it's now happening in India and Greece as well). Hence it's obvious that "Bitcoin theory" that it cannot be stopped holds, and reality in those countries proves that this is so.

        It was the same thing with the internet in the early 90s. It still happened, and, no, it is NOT in the interest of those in power -- that's why they have to accuse "the Russians" of "hacking the elections" in order to throw dirt on everyone who uses that "new source of information" in order to break free from mass-media deception or CNN reports of "Saddam having weapons of mass destruction". (So -- WHERE EXACTLY IS the fake news: Breitbart, WikiLeaks, other independent media sources; or rather the big networks, NYT, NPR & friends?)

        Same thing with internet encryption, too: PGP has been declared to be "weapons" and subjected to export controls, they have arrested and mistreated Phil Zimmerman, inventor of PGP and "strong encryption" technology for everyone, for ten years or so until he emigrated to Switzerland. They could not stop (nor control nor make it illegal) though.

        Therefore, Bitcoin and similar Crypto coins will continue no matter what. You can't stop them by making it "illegal".

  2. Good Day,
    I'm interesting to know more about Bitcoin. I'm seeing different Names to invest, but when you find out, all of them are not in USA, they are in London, Scotland. I don't trust them, they want deposit by Credit card, that I don't like to give. I'm Canadian, how it works, for tax purpose? I enjoy reading trading view.com. Thanks.

    1. Hello @Grace,

      first of all, if you're willing to pay the additional PayPal fee, you may use PayPal deposits with a good number of existing Bitcoin exchanges, wherever they may be located. The ones you seem to have found in England or Scotland will likely incur "foreign currency charges" (on top of the credit card industry's usual rip-off exchange fees rather resembling Bureau de Change prices or shady street traders than Forex rates), so it might be prudent to avoid those not for reliability issues but for cost reasons!

      Off the top of my head and if you're in Canada, you might want to look into the Canadian virtual currency exchange cavirtex.com who used to accept local Interac payments. (The seem to have merged with Kraken exchange now but still should have services tailored to Canadian users.) Other than that, you can always find buyers and sellers connecting on localbitcoins.com (just go to the localbitcoins website and search for your geographic are), albeit prices vary and usually have counterparty risk priced-in (because traders are protecting themselves against credit card charge-backs and other fraud scenarios that way). Also, you might find an online scenario faster and easier (localbitcoins offer both face-to-face transactions and some eBay-style online marketplace). It's a matter of taste and your personal needs. Both ways have advantages and disadvantages.

      When using ANY way of exchanging your paper currency for bitcoins, you should never leave any significant amounts of either dollars or bitcoins in an exchange (they can go bust, disappear, become insolvent over night). So always take your money and run -- by sending it back to your own PC or to a secure paper wallet you hold in your hands/have in your safe for larger amounts.

      To learn these and similar basics in advance, you might want to check out startusingbitcoins.com where all these are covered, see in particular http://startusingbitcoin.com/blog/3-how-to-buy-bitcoins/ and other really excellent intros.

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