Metcalfe's Law

Metcalfe's Law states that the value of a network is proportional to the square of its user base. The more users that adopt a network, the more valuable it becomes.

Since crypto-currencies are token based payment systems on the internet, it follows that their value will increase exponential with their increased use.

This in turn has been used to defend the current price of Bitcoin. However, there is one thing about crypto that this particular defenders of Bitcoin's astronomic rise in price has left out.

Crypto tokens represent both ownership of the network and the use there of. A Bitcoin account does not represent a user, but a potential user. Opening a Bitcoin account does not in itself represent usage, nor does the purchase of Bitcoins represent usage. It represents ownership.

It is only when crypto is used to perform transactions between external accounts, or in trade for something other than crypto that we can say that we are dealing with usage.

By all accounts, the vast majority of crypto holders are owners with no intention to use the crypto for anything but speculation. The user base is extremely small.

Furthermore, it is well known that Bitcoin cannot ever function as a convenient currency. As a technology, it has already become obsolete. The use of Bitcoin in commerce is therefore destined to go to zero in the not too distant future.

It follows from this, using Metcalfe's Law, that Bitcoin will go to zero. The large number of nodes in the Bitcoin network has nothing to do with adaption of Bitcoin as a currency. It is all speculation.

Metcalfe network

By Woody993 at English Wikipedia - Transferred from en.wikipedia to Commons., CC0, Link

Climate Related Deaths in England

Old, sick and frail people are more likely to die during winter than during summer. This is no secret, of course. It has always been this way, and this is the way things are even today, despite modern houses and heating.

Modernity has brought relief, but it has not managed to balance things out completely. Winter is still the season when people are most likely to die.

The average cold weather death toll for England is 25000 people. Better heating and better houses could no doubt reduce this number by quite a lot. But it will never be zero. Winter will always be the harshest of the seasons.

The trend in cold weather deaths was until recently downwards. However, that appears to have changed. 34000 excess deaths were recorded last winter, and 40000 excess deaths are expected this winter.

Something dramatic appears to have happened. Fewer people are able to keep sufficiently warm through the winter.

Since houses are unlikely to have changed much in quality over such a short time span, and winters are no colder than usual, we can only conclude that energy prices must have gone up or people in England have become poorer.

Quite possibly, there's a mix of both higher heating costs and lower incomes. Whatever it is, one thing is certain, the increase in climate related deaths in England is not due to global warming.

Paying the Electricity Bill

It is a built in feature of crypto-currencies that it gets more and more difficult to calculate new tokens. While the first ones are relatively easy to calculate, the last ones are extremely difficult and time demanding to find. As the number of registered tokens increases, it takes an increasing amount of computer power to find new ones.

A consequence of this is that more and more electricity is consumed in order to calculate new tokens. Since the calculations are a race among "miners" in which the fastest has the most chance to find the most tokens, the computers used are of the fastest possible kind. As such, they are veracious power consumers.

At this point, with Bitcoin fetching almost 9000 dollar per coin, the profitability of mining, and the need to be fast, has pushed up power consumption for mining Bitcoin to the equivalent of Irland's total demand. That's about 1.5 billion dollar per year. This electricity bill has to be paid, and it is the people "mining" for Bitcoin that have to pay these bills. With huge bills to pay, they have to sell some of their tokens to finance their operation.

The result of this is that the supply of Bitcoin will go up. Keeping in mind that value is a function of perceived utility and scarcity only, we see that the increase in cost of "mining" crypto does nothing to increase the value of such tokens. All that the increased cost does as far as the crypto tokens are concerned is that it pushes up supply. The increasing supply of crypto from "miners" will put downward pressure on these currencies.

Also, having invested in hardware dedicated to find crypto tokens, the "miners" will create new variations on crypto tokens so that they can continue their profitable business. The supply of crypto will increase dramatically until prices for crypto meet the production cost. As long as production cost is lower than the market price, new tokens will be generated.

Each crypto-currency may be limited in number. However, there is no limit to the number of currencies that can be created. There used to be only one crypto-currency, namely Bitcoin. Today, there are more than 1000 different ones. That's inflation at at a truly staggering scale, and it's only going to get worse. By the time supply finally meets demand, there may be many thousand crypto currencies, and their price will reflect the price of production, not of Bitcoin, but of the cheapest one available.

Value is after all utility and scarcity. With nothing much separating crypto-currencies as far as utility is concerned, they must be viewed as a whole. It is not the price of mining the final Bitcoin that will limit the supply, but the price of mining the first few tokens of a future crypto. That price is way less than a dollar per unit.

Cryptocurrency mining farm

By Marco Krohn - Own work, CC BY-SA 4.0, Link

The Announcement Before the Collapse

Bitcoin will never function as a convenient currency. It is slow and expensive to use, and will for that reason be replaced by something faster, cheaper and better.

That means that Bitcoin will have no utility at all in a not too distant future. Since value requires both scarcity AND utility, its value will be null, and its price will quickly go to zero.

This has been known since Bitcoin traded at 3 dollars a coin. Bitcoin's technical drawbacks as a currency has never been a big secret. Yet, here we are a few years later, and Bitcoin is trading at 8000.

The reason for Bitcoin's success, despite its known technical weaknesses, must be attributed to a rather naive belief that software upgrades and technological advances would fix the problems.

Those speaking against Bitcoin, warning about its limited utility, have been viewed at cranky skeptics, reactionaries and anti-technology. Bitcoin buyers have ignored the skeptics in favor of the rosy picture painted by enthusiasts.

However, the technical problems with Bitcoin are now so obvious that even the proponents have to admit that the skeptics were right. Prominent Bitcoin promoters have stated in plain English that Bitcoin will never function as originally intended.

There has been an announcement, so to speak. Everybody now knows that Bitcoin will not be a widely used currency.

Yet, apart from a flash crash a week and a half ago, nothing has happened.

The reason for this is that there is always a short period of calm after an announcement. Apart from a few that immediately get the message and leave (the flash crash), everybody are looking around to reassess their position. Did they really hear what they heard? How many got the message? What does this mean?

People are grasping with the significance of the announcement. Many are clueless about what Bitcoin actually is. They are invested in it to get a part of the action, but have little insight into what they have bought. Others are better informed. None of them are completely sure how to interpret the message.

Some left immediately after the announcement. But were these well informed or badly informed? There's confusion and an eerie calm.

The calm can last for weeks. However, once the announcement has been made, it will inevitably lead to a collapse. This is how bubbles burst. Someone that the manics believe and trust makes a statement that is so glaringly obvious that even the most enthusiastic must admit it to be so.

It remains to be seen if the announcement from a week and a half ago was clear and concise enough to lead to a collapse. Those still invested in Bitcoin are clearly hoping and believing that it will have no future impact. However, sentiments appear to have changed. There is much less enthusiasm. The mania may already be over. If so, there will be no stopping the collapse when it arrives.

Big Volume Days

Big price moves are usually accompanied with big volume. With the price changing rapidly, a large number of potential trades are turned into real transactions.

What should be noted in this respect is the relative size of the volume between up days and down days. Up days with higher volume than down days indicate strength and confidence. Down days with higher volume than up days indicate weakness and concern.

As of late, Bitcoin has had more volume on down days than up days.

Diminishing Volume

When a price is considered right, there is a lot of bid and ask, and volume is high. There is plenty of trading activity.

However, if either the sellers or the buyers find the price wrong, there will be little bid or ask. As a consequence, the volume goes down. The price needs to be readjusted in order to find a new equilibrium.

This is why speculators pay attention to volume. A diminishing volume indicate that a big move is about to occur.

This is of particular interest when there has been a flash crash, with prices restored to its former level. If volume remains healthy, things may remain stable. However, if there is diminishing volume, a real crash is increasingly likely to follow.

Furthermore, if prices change on diminishing volume, chances are that the price move is in the wrong direction. The correction will be in the opposite direction. If prices change on increasing volume, the change is in the right direction, and is likely to continue.

Unfortunately for Bitcoin holders, the recent all time high reached after the flash crash from a week ago has been on diminishing volume. A dramatic price drop in the near future appears increasingly likely.

A piece of brass pretending to be a store of value

By Steve Jurvetson - https://secure.flickr.com/photos/jurvetson/8410385932/in/photostream/, CC BY 2.0, Link

The Great Stilling

Global winds have reduced in strength since the 1960s, and nobody knows why.

Earth is slowing down in its rotation, and nobody can figure this one out either.

However, the mystery of the above is relatively easy to explain, so it's not like there's no available theory to explain it.

Gerald Pollack suggested several years ago that our planet's rotation is most likely sustained by radiation from our sun. A sustained decrease in solar activity should then mean a slowing down of both wind speeds and rotation.

As it happens, our sun is gradually decreasing its activity, and this has been going on for a long time. We are approaching a solar minimum. A slowing down of Earth's winds and rotation is exactly what we should expect.

Current prediction for Sunspot Cycle 24

By David Hathaway, NASA, Marshall Space Flight Center – http://solarscience.msfc.nasa.gov/predict.shtml, Public Domain, https://commons.wikimedia.org/w/index.php?curid=28557779