Can the Bitcoin Exchange Rate Reach $100,000?
By Aat de Kwaasteniet on ALTCOIN MAGAZINE
A study by the way of the invested capital in Bitcoin.
(Dutch version here.)
Total money invested in Bitcoin
Users of the coinmarketcap website can see that Bitcoin has a Marketcap of about 121 Billion Dollar. Some people, especially beginners of cryptocurrencies, think that the marketcap is the value that is totally invested in Bitcoin. A misunderstanding.
The marketcap is simply a multiplication of the number of coins that have been put into circulation (the circulating supply) times the last given rate.
So for Bitcoin at the time of writing (12–05–2019) this is: 17.696.250 BTC x $ 6.851,44/BTC = $ 121.244.882.765
If someone decides to buy 1000 Bitcoin at the current exchange rate of $6500, 6.5 million dollars will be invested. But if this purchase increases the exchange rate by 10 dollars, the marketcap of Bitcoin will not go up 7 million but 10 times the circulating supply = +/-176 million dollars. So the marketcap is no measure of how much money is actually invested in Bitcoin. But the question remains, how much Fiat money has been pumped into the bitcoin economy so far.
Actual capital invested
If we want to know how much money has been invested in Bitcoin, we can do a survey through the exchanges that Bitcoin offers against a Fiat currency. According to Coinmarketcap/markets we can deduce that there are 46 exchanges in the world that offer Bitcoin at USD, EUR, CNY etc. We also know how much money is invested in Bitcoin against a Fiat currency. The list of CMC will not be complete but it is useful. From these exchanges we could retrieve the historical data and then find out how much Fiat money has been deposited to buy Bitcoin. But unfortunately this is a dead end. The exchanges do not provide access to this kind of data. In addition, there are also exchanges that went bankrupt, hacked or just stopped. So there is no data available.
A second method could be to do a large representative interview survey among users and ask them how much they have invested in Bitcoin. I think the method will show a rather large statistical deviation because many users/investors do not say what they have invested for privacy reasons. In addition, this method is not suitable for me, behind the desk in my attic where I write this article, in terms of manpower and financial resources to realize.
The mining method
However, I think we can calculate in a fairly easy way how much has really been invested in the Bitcoin economy. We do this on the basis of the mining rewards.
We know that an average of 1800 bitcoins are mined everyday. In the beginning of the Bitcoin history, from 3 January 2009 to 27 November 2012 it was 7200 Bitcoin per day, and from 28 November 2012 to 9 July 2016 it was 3600 bitcoins per day and now the earlier mentioned 1800 BTC/day.
Assuming that all these new bitcoins are sold directly by the miners because they have to pay their bills (electricity costs, depreciation, etc.) and they just want to make a business profit, then there must have been buyers for those bitcoins and that BTC is bought by someone for the market price of that day. By looking at the daily growth through mining and the daily exchange rate, we can calculate how much Fiat money comes in per day and, added together, what is totally invested in the Bitcoin economy.
Now, the smart reader will notice that Bitcoin’s trading volume is many times higher than the 1800 Bitcoins at current rates = 1800BTC x $6,500/BTC = $11,700,000. But then realize that the rest of the trading volume on a day consists of shifting BTC back and forth from one user to another user, where the amount of money invested does not change much. Because for every buyer, who adds money to the total invested capital, there is a seller, who withdraws capital from the total. Net changes are therefore not much, except if a trader sells his stock at a loss and leaves Bitcoin, then a surplus of fiat money has been added to the total invested capital.
It will also be noted that Bitcoins can be purchased with altcoins. But keep in mind that 99% of the altcoins do not have a direct Fiat-altcoin pair on an exchange. The altcoins can generally only be purchased with Bitcoins. Someone who buys Bitcoins with altcoins initially bought the altcoin with Bitcoin and hasn’t invested any new fiat money to buy that altcoin. Of course he bought the Bitcoins in question with Fiat on an exchange, but on the other hand there was someone who sold the Bitcoins took money away from the Bitcoin economy.
It would only be possible raise the invested capital if you could buy altcoins directly with Fiat money, like Gulden(NLG) is traded on Nocks for EUR or ETH-EUR on various exchanges. This increased the invested fiat capital directly but, because these markets are not very large compared to Bitcoin-Fiat, it has been neglected.
The first time a bitcoin was traded on an exchange was July 18, 2010 on Mt. Gox. we know the first bitcoin was traded there for $0.07. Unfortunately no data of the early times has been kept. That’s why the price information has been interpolated here and there from known points in the history where the price was known. From before the introduction of Mt. Gox no real data per day can be found which Bitcoin was worth. There were more than 4 million bitcoins which were sold here and there privately but there is no way to find out how much money was invested in bitcoin at the time but it probably isn’t about millions and it’s not worth to bother with.
There is of course the Pizza story of 22 May 2010. The price that was used to pay for the pizzas was €0.0025.
On June 19, 2011, the BTC world is startled by the first exchange hack. Mt. Gox loses 4019 BTC with a price of $17,77 a piece.
November 28, 2012 is the first “half” of the BTC reward. The price was then $12.25.
Data from 28 April 2013 is available via Coinmarketcap. And although it shows some irregularities here and there, this data is useful for our purpose.
Adding all daily revenues together gives us a maximum amount invested in Bitcoin. I specifically say maximum because probably not all Bitcoins are sold directly on the market and there will be miners that have hoarded the Bitcoins or that they have lost their BTC and so on.
All data is put in a spreadsheet which you can find here. From the spreadsheet a graph has been created.
The graph and table show that on May 11, 2019, a total of more than $11 billion was invested in Bitcoin using this calculation method. It has been rising rapidly since January 2018. The market is now absorbing around 12 million dollars of new bitcoins per day.
The capital invested so far in the bitcoin economy is calculated at USD 11 billion.
And in a year’s time, at unchanged exchange rates, the capital invested will have grown by 4.3 billion to more than 15 billion.
But if the rate rises again to $20,000, as many predict, the new capital inflow needed will be around $12 billion in 2020. That’s a doubling of the capital invested now. I do not know if that is feasible. There will be some sort of balance between growth and price.
Fortunately, next year there will be another halving of the Bitcoin reward, because otherwise that growth would become unaffordable.
And what about the question of what the article started with? Can the exchange rate also be $100,000/BTC? Yes, it can, but only if you invest more than $90 million a day in Bitcoin, or an inflow of capital of $32 billion a year. But if that happens after the bitcoin reward has been halved (expected on May 24, 2020), only 45 million dollars a day will be needed, or 16 billion dollars a year to keep the exchange rate at that $100,000. Or at least that amount is needed to absorb the influx of new bitcoins in the market.
I hope to have given you food for thought again.
Other stories from the writer:
Miners, Blocktime and Orphans, a trinity.
Which crypto becomes the future payment system?
The Good, the Bad and the Ugly, Classifying the crypto-coins.
The white hat ethical investor
The nonsense of…. TPS (transactions per second)
Crypto ranked by numbers of users
Fact check Gulden website