Comment: There's really no need to speculate quite as much

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There's really no need to speculate quite as much

First off, if you track any log growth based number on a linear scale, it always appears to stay flat for most of the left side and then shoot up at the end. It's the nature of showing long trends of low numbers steadily growing on the same chart as a few relatively large numbers rising fast (nominally) at the end. Changing to a log scale or showing percentage growth is more informative.

Doing this doesn't show that it's currently a bubble at all. By the mathematical nature of their creation, this is the natural progression of their adoption. Fortunately, we can use this to guesstimate where it might head down the road.

To best see what's going on, we need to identify the driving factors in this movement. Fortunately, with Bitcoin, we know the exact supply numbers, we have many stats to see various trends and we also have easily identifiable social factors. The best part is that most of these correlate to each other.

From what I see and hear, it is mostly the recent flight from unsafe storage of wealth that's doing the recent driving. Every other currency and even many (most?) assets are somehow now subject to confiscation, value manipulation and/or taxation. Obviously, people don't like this and are looking for private, secure confiscation-havens. Bitcoin provides this very well. Up to the level of comfort that a person has in Bitcoin being safe and retaining its value, which varies greatly for each person, they can store at least some of their wealth in them.

Up until this year, those people numbered very few. We can't ever know exactly how many people hold them but a rough estimate is easily displayed on one of the many Bitcoin charts online. What we do know is that it is driven by a combination of social awareness and the fear:safety ratio. Most 'awareness' aspects on the web depend on connections and media coverage so this is likely exponential. With Cyprus taking money, those aspects grew a faster.

Another factor is what amount the average person trusts Bitcoin to safeguard for them. Again, up until this year, that was lower per person. It depends on how many others have confidence as well, so once again, it's connection and coverage based, and that result is again, exponential. For 'some unknown reason', people are now willing to attempt to hide a bit more in them. I could guess that it's now maybe 20 or even 400 times what it was just months ago. Still, I doubt there are many people who have risked more than the low thousands of FRNs so far. This suggests that it is still "below 1" in the exponential factor and that this growth could break-over into its multiplying effect at some point. Perhaps that just happened this month.

So, we have gone from (very rough estimate here just to show the effect) essentially zero people placing zero value in them to where we stand. We've done this by starting extremely slow and growing two factors exponentially, with the result being their product. Scaled to fit, that's still just exponential growth at the lower end.

Enter the Bitcoin miners. In the beginning, a small number were able to mine a large number of them. While some may say this is the major unfair aspect of them, they did spend their personal effort on it long before others were willing to risk it. The result was that per miner Bitcoin ownership grew by the inverse of the log of time. (They mined less and less as time went on) However, as the price rose (from all factors listed here), their total value rose. We can look at the market capitalization and see this. The charts I use don't show much before August '10 but after that it's clearly logarithmic as expected.

The result of everything above is two multiplication products. First is the number of the members (exponentially growing) and the Bitcoin value; second is the number of members times the confidence level. Algebra says that we can directly correlate the market cap to the confidence level. If confidence now remains exponentially growing, the market cap will too. The single downside is that with Bitcoin (quantity) growth rates inversely logarithmic, this will gently mitigate one of the exponential factors (the attraction of mining).

Where the growth ends is at the breakdown of those exponential factors, i.e. confidence not growing or users not growing. But we still have one more aspect to follow. I can be assumed that there is some overall number which the entire global population is willing to safeguard from all the other bad investment options of today. Combined with its ease of use (much easier for a poor OECD person to store $4 in these than in metals or precious art), this number is actually strongly supported by all of it's attributes.

Personally, I think this is the big question. The masses all over the world are looking for anything to get off the financial grid. Anything they can do to hide their wealth (not just from it being known, but from it being stolen), they will likely do. Given the vast inequality of the poor's wealth to the rich's wealth, this suggests it's not a big number. But given the incredible numbers of people involved, it could grow much faster due to its affect on the confidence level factor. Remember, that confidence number is multiplied into the total market cap, meaning everyone's confidence grows as well.

This is why I tend to agree with some of the experts that suggest it could reach well into the whole percentages of global GDP. And the obvious next question is easily answered because Bitcoin numbers are very predictable.... The market cap divided but the Bitcoin numbers will result in each one being worth something that approaches $1M each.

Will it then crash? This question depends mostly on that confidence level. So, as I mentioned, as this draws in the large numbers of people with even small value to store, this suggests there will remain a certain level of confidence. And that is the entire basis for it's stability.

The last aspect to consider is the 'investors' looking for short term gain. I don't see them having that much of an overall effect on the base factors. They can alter the coverage (even make it negative) and they can pull out their portion of the cap but that doesn't necessarily filter down to the vast number of people who don't track every daily movement. That wealth will remain much more stable, continually flattening out the investor ripples more and more as time goes on. I think we're already seeing this. Looking at the sell-offs, they're getting larger and larger while the price ripple is shrinking each time. This tells me that confidence is steadily growing.

So, the overall summary for the non-math geeks is that they will likely grow logarithmic (which will always look like a hockey stick) with decreasing fluctuations until they approach $200-900K price each and then gently settle to some final number, leveled out as number growth becomes matched to market cap growth.

Just my two cents.