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Education: Engineer (Ms. Sci. Eng.) and PhD My investment interests are focused on the global "macro picture" - with particular emphasis on resources and commodities. I am only interested in long-term positions - typically 4-10 years.
  • Best currency in 2011 1 comment
    Dec 29, 2011 6:32 AM

    The end of the year is a good time for a pause and for making a status. 

    Despite a turbulent year in the Forex markets, where currencies like Swiss Francs, Euros and gold all went up sharply against the USD they have all come right back down to almost exactly the level where they started the year. Only gold has given a slight return (in USD terms) having increased from 1,420 USD/ tr oz. to 1540 USD/ tr oz or so - a modest 7.7% return after a wild ride!

    But there is a currency which after an even wilder ride ends the year with solid gains (no - its not the Yen) - I refer of course to Bitcoin.

    Starting the year at 0.30 USD the exchange rate for Bitcoin has done pretty well ending the year at something like 4.2 USD for a respectable 14x return (1400%).

    This performance comes in spite of a mania in the spring and early summer which caused the price of Bitcoins to accelerate much faster than the Bitcoin economy grew and by June, the Bitcoin price was clearly in a bubble.

    The bubble coincided with two blows to Bitcoin when mybitcoin.com turned out to be a scam (classic case of third party risk) and there was a hacking incident on mtgox.com (a major Bitcoin exchange). However - unlike what many internet sites have reported - there was no security flaw in Bitcoin itself and despite hacking attempts and DoS attacks on the network in the fall the Bitcoin network has proven itself highly robust and has now remained "unhacked" for over three years running.

    The sharp correction in price (deflating the bubble) and the two incidents spurred an array of "I told you so - Bitcoin is dead" posts on the internet:
    Tim Worstall from Forbes on The end of bitcoin I and II
    Paul Krugman from New York Times on Bitcoin's "deflationary" flaws
    Charles Babbage from the Economist about Bitcoin's troubles
    and my personal favorite by Jon Nadler from Kitco with a sarcastic suggestion to pay Greece in Bitcoin
    (Nadler's critique is so amazingly uninformed that it is actually quite funny).

    But the data disagrees with all this gloom and doom!
    Since Dec. 31st, 2010 there has been:
    a 14x (1.400%) increase in the USD price of Bitcoin and
    a 6x (600%) increase in the average daily volume of Bitcoin (more than 60x when volume is measured in USD) and
    an 8x (800%) increase in the number of daily transactions in Bitcoin and
    a 72x (7.200%) increase in the computing power (hash rate) of the Bitcoin network (making the Bitcoin network the worlds greatest supercomputer by far).

    So in Dollar terms - 2011 has seen the Bitcoin economy grow by something like 6.000% despite all Krugman's nonsense about deflation leading to hoarding. The data proves him wrong (as does logic).
    The sheer number of new, great innovations in the world of Bitcoin in just the past 4 months is staggering and the marketplace is getting bigger and more reputeable all the time.

    Happy new year!

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  • matonis@yahoo.com
    , contributor
    Comment (1) | Send Message
    Nice article. Great to see bitcoin more on SeekingAlpha.


    6 Jan 2012, 04:23 AM Reply Like
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