More on Bitcoin

Last November, I wrote my only post ever on Bitcoin. At the time I didn't have a market forecast, but I thought that there would be a ceiling on the market caused by large "foundational" holders using upmoves to monetize their assets. The Bitcoin market collapsed shortly after I wrote the post. Then in mid- December the market started to move up on light volume.

At the time I guesstimated that maybe 40% of the Bitcoin were held by the large owners ("Bitcoin billionaires"). Since then, a Bitcoin data analysis shop, Flipside Crypto, has estimated that the 1000 largest Bitcoin addresses control 85% of the Bitcoins! Flipside also says that some of these addresses have been inactive for years, but are now starting to reawaken. I don't know much about Flipside, but their analysis may have merit. They keep track of Bitcoin on the individual address level. During December, the percentage of coins trading in the top 100 addresses fell pretty sharply. 

https://bitinfocharts.com/comparison/top100cap-btc.html#log&3m

If they are right, this may start moving up again. I'll keep a watch on it, although I will not trade the market.

Longer term, I continue to think that the future for all the crypto assets will depend on progress in making them more usable. Right now this doesn't look too promising. The Lightning Network is Bitcoin's hope for transaction expansion. But it has only had tepid usage so far. There are real concerns about its intra-day security. Ethereum got clogged up with just one crypto game, Crypto-Kitties. Probably more important, some of the crypto developers are cutting staff. It seems that a bull market was needed for their economic sustainability.

Finally, there may be a mathematical problem with the process all cryptos use to avoid "double spending". It's possible that all these processes are susceptible to certain kinds of hacks, such as 51% attacks. Recently a moderate size cryptocurrency, Ethereum Classic, experienced this. NOTE: this is not the Ethereum that most people know about. It's a smaller fork. So the whole idea may have inborn problems.

I usually say "time will tell" in cases like this. However, many basic questions of computer science have resisted proof for decades. For example P=NP and the security of RSA encryption. Easy to state; impossible to prove. So time may not tell.