Hey guys, want to drop a bit of investing hype into your world – Have you ever want to master BLOCK CHAIN ECONOMICS! (panties drop) OK, let’s begin.
To start, Crypto is an asset, like 'gold' or 'cash', which has an agreed upon value, but no fundamental value – but that's not right, it has a fundamental value, and that is its 'exchangability' or fungibility. Exchanging Cash for Food has a lower exchange cost than exchanging Cars for Food – Effectively the markets for auto-trading have larger spreads, and thus higher costs, then markets for cash trading – However, gold, cash, crypto all have a cost, though they are kept relatively hidden. In addition to management of exchanges, new Gold is discovered, new cash is minted, and a new crypto is bonused.
That last bit is something 99% of crypto persons fail to understand. However, these bonuses are essentially like stock bonuses without any time restrictions, and thus they are effectively tied to Market Cap.
For Bitcoin, it works (almost exactly) like this:
Market Cap – $45,000,000,000
Bonus Payout (4%) – $1,800,000,000 (or $150 Million monthly)
Put simply, there must be $150 Million new investors in Bitcoin over the next 30 days in order for the price to remain unchanged. If there are more than that, then the price will rise, if there are less the price will fall.
People in crypto land find such math… complex. It's almost unsettling, moving on…
So that's all you effectively need to know to understand a crypto profit and loss.
Bitcoin has fixed bonus payouts of 4% of Market Cap, thus as the price goes up, the rate of new investors must permanently increase in order for the price to be sustained. The huge price swing we saw recently was due to cutting bonuses from 8% -> 4%, which will not happen again for another 3 years.
Ethereum pays bonuses of 11% (dropping to 6.5% August 1st).
LiteCoin, Dash ( most other coins) 10%
And that's all you need to know to understand the profit and loss of block chain. As the price goes up, the bonuses go up and a direct linear line, until the bonuses exceed the amount of new investment, and conversely as the price goes down, bonuses go down until new investment exceeds bonuses.
A little bit of extra info. These bonuses do not go to management. They are paid to outside parties and have no long term benefit. Effectively they are paid to rent out a security guard, and then immediately discarded. The average value place upon such services is around $100 Million to $200 Million annually, all amounts above that have been viewed as waste, for the most part.
But that's it:
Current Demand – Less Current Bonuses = Price Movement
Current Bonuses = X% of Market Cap
Bitcoin = 4% (changing 2019 to 2%)
Ethereum = 11.6% (changing August 1st to 6.7%)
Most others = 10%.
Obviously demand is unknowable, but you can sort of extrapolate that if the price goes up, then the level of demand was in excess of the bonuses. By how much may be difficult to say exactly, but you rest fairly well believing it to be more, in situations of escalating price.