Well now it must definitely be too late to invest. Don't even think about it guys. It's a ponzi scheme slash not real money slash libertarian wet dream. I'd rather trust helicopter Ben with my savings than some obscure open source software that eats 10Gb of my disk space.
The market capitalization of US dollars is (correct if I'm wrong) $3 trillion.
The current market capitalization of BitCoin is above $5 billion.
There will only be around 21 million BitCoins.
If the market capitlization of BitCoin even gets close to a national currency like the US dollar, each BitCoin will be worth hundreds of thousands of dollars.
We are about to be at $500. Unless governments crack down on BitCoin(possible) I don't foresee this stopping anytime soon.
To me government intervention to the point of banning BitCoin seems like it would be, at this point, somewhat pointless. The Federal Government has known about BitCoin for some time and has yet to take any major regulatory action against it. I think if they wanted to shut it down they would have long before millions of people started using it, and long before major backers like Peter Thiel and the Winklevi had time to establish BitCoin-based companies and lobbying groups. You want to nip something like this in the bud before it becomes an entrenched interest - and they haven't done that yet.
The US gov waited until eGold was doing ~2 billion in transactions annually before it moved to shut it down. Given the growth rate of btc it just recently became big enough to get the attention of the federal gov. I think it is certain the US government will attempt to shut it down more a question of when and how elaborate their attempt is (e.g. Will they try to: arrest a few btc users, dump large sums of money into the btc markets to destabilize it, or build a cluster larger than the entire btc network).
And if they had already built the largest cluster of asics in the btc network we wouldn't even know as long as they distribute it enough and even join most pools for good measure.
A classic pump-and-dump(PnD) is when a large amount of an instrument (security/commodity/shares/etc.) are bought by a few entities (people/institutions/early investors/etc). Thus creating a scarcity of the instrument which when executed well will be followed by enough hype, as the common people usually see the "meteoric growth" as proof of a good investment and "a large number" of people believing in its future, rather than the reality of a handful.
This creates a situation where a lot of these novice/late investors start buying the security, usually using market orders (i.e. accepting the sellers offered price). Now since a handful of entities own a large number of the instrument and they offer few shares incrementally at higher levels, and keep selling more and more as the hype/momentum/# of small investors increases.
Eventually taking it to a point where a large amount(still not the majority) of the instrument is now owned by a large number of small investors hoping to make 10x-1000x like the early investors did. At which point they have a few choices/combination of choices(all :
1) Offer a large amount at a price point where the gen. public will not find it valuable, thus leaving only one direction for prices to go
2) Create a small sell-off by selling large quantities through a market order, thus making smaller investors panic
3) Wait it out to let the news, govts or some other external source to present a good opportunity for people to panic, and do one of the above
4) If they are big enough they can actually create #3
A well executed would further buy back the instrument while it crashes for a round of rinse-and-repeat.
There are a lot of examples of pump-and-dumps, a lot of them are legitimate, most are well established and usually don't intend losses for the later investors. The "dump" can just be profit taking, reducing risk, being satisfied with the earning etc. All companies that have raised financing can technically be classified as PnD
ex 1(legitimate):
(i) 2 individuals + 2 computers + 1 idea (100% share) [$10,000 valuation/opportunity cost.] => (ii) YC give 3-8% of share for $20k [25x to 67x profit on equity given] => ... so on ..
ex 2(classic PnD - There are plenty worth mentioning):
Crude oil futures rally from mid '08 - to its subsequent crash in early '09. I can write a thesis on this one. It was great fun, good times.
ex 3(currently playing out): Bitcoin :
This does not undermine the quality of the idea or its execution. Just the fact that a small number of early miners control a large quantity of the instrument. Prices are being driven up by mostly small order-sizes being executed on the sell side (not to be confused with [0]). There is a higher probability that these bitcoin's are being sold by early adopters.
It may be a few weeks early to say if it is a classic pump-and-dump. If it is I would expect to see <$250 possibly even <$100 prices in the next 3-12 weeks. The rational for this is too lengthy for this reply, might just be cognitive dissonance on my part.
I was more curious about why you thought bitcoin is a PnD, but the other info does provide useful context, thanks. There is some evidence that many miners have sold most of their early stockpiles. The min-1-year bitcoin-days-destroyed chart (sum of [coin amount * coin age in days] for coin groups older than a year [1]) shows this to a degree. The metric is also an underestimation of older stockpile movement, as any transaction (even between one's own addresses) will reset age to 0. But it is still hard to say for sure.
One twist about bitcoin is that most early adopters are strongly invested ideologically and/or emotionally, reducing some of the potential dumping power. The next year or two should be rather interesting. I could see some large corrections, but each month that passes gives bitcoin more staying power/legitimacy. So far, each downtrend has only resulted in a later movement to much higher levels.
That works the other way too...people who invest during a bubble are quick to say "it's not a bubble!" - I'm not saying this is a bubble (I won't pretend to know enough or have clairvoyance), but it's not a valid defense to say something isn't overvalued just because people had said that at prices it has since eclipsed.
Indeed. Saying that it's too late or that it's just a bubble means nothing, because the truth is that it could be either of those things, and no one will know which until everyone knows.
