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minorman
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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.
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  • Best Currency In 2013

    Best Currency in 2013

    Actually, I have no idea which currency did best in percentage terms this year - but one thing for sure: It was p2p-shared, blockchain-based crypto currency. In other words it was based on the Bitcoin protocol. However, since all the daughter crypto currencies combined are dwarfed by their mother I think it is safe to say that bitcoin (i.e. bitcoin the currency - lower case b) with its rise from $13.4 /XBT to its present price of ca. $730 /XBT (i.e. a 54.5 fold year-on-year increase - or 5350%). Of course, we remember, that this gain comes on top of last year's gain of 1400%. All in all, bitcoin is up 2430 fold in the past three years. Not bad at all. Bet you wished you'd bought a few when you first read about it on Seeking Alpha or elsewhere in 2011!

    With that out of the way, let's look at the drivers. What major milestones did Bitcoin (the protocol) reach to justify the run-up in bitcoin?

    So much has happened in 2013 that it is impossible to write a comprehensive list, so I'll simply list some of my picks:

    User adoption:

    It is hard to know exactly how many people use Bitcoin, but clues can be had from publicly available information.

    blockchain.info's excellent wallet service went from 77.000 accounts to 965.000 accounts during 2013.

    mtGox.com - a major bitcoin exchange based in Japan announced on December 19th , that it had reached 1 million customers.

    coinbase.com - a US wallet and merchant service launched in late 2012 announced on December 18th that it reached 650.000 users.

    Meanwhile the "official" Bitcoin client program (bitcoind/bitcoin-qt) was downloaded 3.1 million times in 2013 and China nearly matched the USA for total downloads during the year.

    The client, Multibit, which is the new "first choice for regular users" was downloaded roughly 470.000 times.

    And the bitcoin forum on reddit, , reached 90.000 highly active users - nearly 15 million page views in December alone.

    Venture capital attention:

    2013 was the first year to see major interest in Bitcoin businesses. Bitpay, a major payment processor raised $510.000 in January from Angles followed by $2 million from Founders Fund (Peter Thiel) in May followed just a few days ago by an investment by Li Ka-shing's Horizon Ventures.

    Coinbase, on the other hand, raised $5 million from Union square ventures and just weeks ago they raised another $25 million from Andreessen Horowitz.

    Bitcoin is also becoming a hot topic on www.secondmarket.com/

    bitcoin - the currency:

    Despite endless postulates to the contrary, there is a general trend that whenever there has been a run-up in bitcoin price, activity in the "real" bitcoin economy goes up. Bitpay sees this in their transaction stats which have grown explosively during the year.

    (click to enlarge)

    Last week, Bitpay announced that the cumulative bitcoin transactions processed by them reached an equivalent $100 million.

    And since Gyft joined the party, you can buy your groceries at Whole Foods with bitcoin...

    The site coinmap.org/ now lists more than 2000 physical locations where bitcoins can be spent.

    Getting bitcoins is also becoming easier. 2013 was the year where bitcoin ATMs started popping up and yesterday Lamassu (one provider of ATM machines) said it had sold it's 100th unit.

    Bitcoin - the protocol:

    Many exciting developments happened on the software side of things in 2013 including implementation of so/called bloom filters, but I personally am most excited about "micropayment channels" which have been introduced in the BitcoinJ implementation of the code. Clever usage of the Bitcoin feature "nLockTime" allows series of tiny transactions without excessive transaction fees and without bloating of the blockchain. This kind of technology paves the way for really futuristic stuff.

    This is programmable money at its finest. This is an example of the many reasons why many people say that Bitcoin is the "biggest thing" since the Internet. If you disagree - be sure you understand what you are talking about first!

    Much new development that builds on top of the Bitcoin protocol is under way. This is clearly evidenced by the enormous interest in Bitcoin on Github.

    (click to enlarge)

    Silk road

    Allegedly the "only" real commerce backing bitcoin value was shut down bi FBI on October 02. Did bitcoin crash? Yes - for a couple of hours. Today it is stronger than ever - and used almost exclusively for non-controversial uses.

    Conclusion

    The Bitcoin protocol is fantastic success. It seems highly probable that the bitcoin currency will continue to ride on that success so as I've said before I recommend anyone have a (modest) exposure to the high-risk asset, bitcoin.

    Disclosure: I am long BITCOIN.

    Tags: bitcoin, xbt
    Jan 01 8:42 AM | Link | 6 Comments
  • Best Currency In 2012

    About this time last year I wrote an instablog about the best performing currency of the year 2011. There was one currency, which gained 1400% against the USD last year - and this same currency is again - by far - the best performing currency this year gaining another roughly 220% against the FEDs USD . .

    That is a two-year yield of 4400% vs. USD (from 0.3 USD/BTC to 13.4 USD/BTC). In gold terms, bitcoin is also doing well.

    But why does bitcoin keep going up?

    Several factors could be at play here. I'll just list a couple.

    1) Bitcoin has in November reached block 210.000. This means that the bitcoin p2p network has been running smoothly for four years (longer than almost any centralized e-currency ever has), and - more importantly - with block 210.000, 50% of all bitcoins to ever be issued are now in circulation. The next 25% will be issued over the next roughly 4 years.

    This is the beauty of deterministic monetary inflation - No central banker wildcards here!

    2) The "bitcoin economy" finally started to gain serious traction 2012. With awesome merchant services like bitpay.com (and others) accepting bitcoin payments (while getting payouts in regular fiat currencies) it is much easier than as ever before; and with companies like bitinstant.com which allows you to purchase bitcoins for cash at 700.000 locations, in places like Walgreen's, buying bitcoins has never been easier. Serious stores like bitcoinstore.com which allow you to buy your next computer or tablet directly with bitcoins are also coming of age. As a result of all this, the average number of daily transactions has exploded from about 3,500 transactions/day (worth $500,000/day) a year ago to 40,000 transactions/day now (worth $3,000,000/day). Chart1 Chart2

    3) Attention from big players.

    In 2012 the hosting service wordpress.com, which is the 22nd most accessed website in the world (hosting the blogs of The New York Times, CNN, Reuters and many, many more) have started accepted bitcoin - and for all the right reasons:

    "PayPal alone blocks access from over 60 countries, and many credit card companies have similar restrictions. Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons. Whatever the reason, we don't think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they can't control. Our goal is to enable people, not block them."

    Furthermore, the ECB published a serious 55 page report on "virtual currencies" - of course highly centered on bitcoin (as it is the only game in town, really) - showing how (even) central bankers are beginning to understand that bitcoin is not just a fad or Ponzi, but a real near-future contender in global market for monetary services.

    4) The bitcoin business space has also started to attract venture capital in 2012. The service provider coinbase.com was funded by y-combinator and the bitcoin mining company, Coinlab, also received funding from Draper Associates and Geoff Entress. Mining hardware manufacturer, Butterflylabs, also attracted significant venture capital from an undisclosed source. Finally, Fred Wilson, principal of Union Square Ventures, has also expressed interest in Bitcoin a couple of times.

    5) Many, many more developments in 2012. Partial list:

    Bitcoin magazine started shipping;

    Launch of The Bitcoin Foundation;

    Blockchain.info launched an excellent hybrid ewallet service;

    The Bitcoin conference in London was a success;

    The birth of provably fair gambling and Satoshidice, Bitzino and others;

    bitcoin-2-email service Coinapult;

    in-game item exchange is rising;

    Explosive growth in the bitcoin reddit forum; ...

    -

    Remember, there will only ever be 21 million bitcoins. Period.

    The current "market cap" of all the bitcoins in circulation is just 140,000,000 in USD terms - and it is not yet "viral". If bitcoin goes "Gangnam style" you'd better be ready.

    Perhaps it is wise to own a couple?

    Dec 30 10:34 AM | Link | 12 Comments
  • What Happens To A Currency When The Rate Of Monetary Inflation Is Suddenly Dropped To Half?

    With many fretting over the fact that helicopter Ben under QE3 is increasing the monetary base by nearly $1 million every minute (!!) there is a currency where the opposite is about to happen.

    In five days and a few hours from now, the block reward will drop from 50 BTC to 25 BTC which - exactly as planned - means that the annualized rate of monetary inflation in the bitcoin currency will drop from 33%/yr to 12.5%/yr.

    This event (which roughly coincides with the four-year birthday of the bitcoin system) marks the historic turning point when exactly half of all the bitcoins - to ever exist - have been issued. The other half will be issued asymptotically over the coming decades with the next 25% in coming four years and 12.5% in four years after that and so on.

    (click to enlarge)Fig 1. Deterministic money. - Total bitcoin vs. time.

    Fig 1: Bitcoin vs. time. The supply of bitcoin is entirely deterministic - and cannot be printed by any central bank or otherwise inflated by decree.

    The fact that the bitcoin supply rate is about to be cut in half may naturally be the cause for the recent increase in the bitcoin price, but we can't know for sure about cause and effect. The reason is that Wordpress - which according to Alexa ranking is the 22-most visited website globally - recently started accepting (enthusiastically suppoting, actually) bitcoin and such great news might also be helping bitcoin along. But then again - it could also be a reaction to the fact that ECB now has started to discuss bitcoin in a serious way.

    Whatever the cause(es) - the bottom line is that the future is bright for bitcoin and its purchasing power.

    (click to enlarge)Open source, deterministic-supply, borderless money - vs. government decree money. Which is more "solid" in the long run?

    Fig 2: Government decree money (Zimbabwe- and US-dollars) vs. open source-, deterministic, borderless and frictionless money.

    Bitcoins are currently worth roughly 12 USD/BTC (up 140 % YTD) and may be bought in 700,000 locations.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I am long Bitcoin.

    Tags: UUP, UDN, Bitcoin, Forex, USD, EUR, BTC
    Nov 23 1:14 PM | Link | 6 Comments
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