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Bitcoin’s growth is like a virus

The price of bitcoin grows according to a straightforward mathematical equation, which correlates to phenomena found in nature as well as Facebook’s growth and share price.

 

Bitcoiners love drawing lines on charts. They love the idea that you can predict future price if you just find the right formula. If the line needs to be changed to fit the data, so be it. There are lots of these charts around, often with pretty colours and lots of crazy lines. Log charts are the favourite, because they show bitcoin continuing to grow exponentially.

 

Most of these charts are junk, wishful thinking, like children drawing fairies in crayon on the wall. They keep having to be updated because the price doesn’t fit them.

 

However, there is truth in the idea, and now we have a straightforward, convincing example that really fits the data well. Timothy Peterson of Cane Island Alternative Advisors makes the comparison between bitcoin and Facebook’s growth, using an equation that also fits the spread of viruses in nature. ‘We derive the relationships between price, number of users, and time, and show that the resulting market capitalizations likely follow a Gompertz sigmoid growth function. This function, historically used to describe the growth of biological organisms like bacteria, tumors, and viruses, likely has some application to network economics.’

 

This makes perfect sense, and it has long been recognised that the value of a network is a square factor of its size (which is what makes Facebook so valuable, and why it’s so hard for new social networks to gain a foothold).

 

Petersen’s formula fits bitcoin extremely well, giving a lower bound for the price. In a bubble or strong bull market, the price deviates significantly from this line, but it has never dropped below it.

 

It’s a very convincing piece of analysis and an explanation of why bitcoin should continue to grow and gain value. For what it’s worth, it suggests that bitcoin probably has bottomed for this cycle. And it suggests that, while bitcoin’s growth will slow, it still has a long way to go.

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Sunday 21 April digest

Welcome to the weekend, crypto lovers! Here are the top stories on Inferno from this week.

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The Fear and Greed Index – big moves coming for BTC

This is a great indicator for short term sentiment in the bitcoin market.

 

Warren Buffett famously said you should be ‘Fearful when others are greedy and greedy when others are fearful’. (He also said that Bitcoin is ‘rat poison squared’, but we don’t have to listen to everything he says.)

 

Anyway, he has a point. The herd is wrong when it comes to markets, and it’s the moments of maximum fear and panic-selling that are the best buying opportunities. There’s good reason for this: when everyone who is going to sell has sold, there’s no one left but buyers. Then a bunch of those who panic sold rush to buy back in when they see the price going higher… For the same reason, moments of maximum greed and exuberance are the time to sell – the bubble tops.

 

A while ago we published an article on the Cryptocurrency Fear and Greed Index. This index aims to capture the sentiment of the bitcoin markets. It takes several different indicators and rolls these into a single value, between 0 and 100. 0 represents extreme fear, while 100 represents extreme greed. The indicator takes into account bitcoin’s volatility, market momentum/volume, social media sentiment, survey data, Dominance and Google Trends data.

 

So why do we raise this again now? Well, the chart on the Index’s page shows that it has been extremely good at predicting tops and bottoms for bitcoin. In particular, a value above 70 is a strong sell signal, and below 10 is a strong buy signal. The data is remarkably accurate over the course of the last year – though it’s not available for before 2018, so it’s unclear how reliable it will be in a bull market.

 

Take a look at the chart. You’ll see that it recently hit 71 – its highest for over a year! Last time it went above 70, we saw a major sell-off.

 

Now, we don’t know the same will happen this time. Last year was a bear market, which is characterised by greater fear and a tendency for the Index to gravitate to lower values – when it did spike, the drop was hard. So maybe more greed is possible if the market is in an uptrend. But we would not be surprised if we saw another wave of fear grip BTC traders, with the Index heading down into the 20 zone and BTC back into the $4,000 region – or even below.

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Inferno: Long-term market report

It’s the Easter holiday, so we’ll take a break from our short-term market analysis to look at the big picture.

In our opinion the picture for bitcoin is more uncertain than ever for the short term, good for the medium term and excellent for the long term.

 

The context for short-term uncertainty is that single huge buy of 20,000 BTC, which took place suddenly after 15 months of the bear market. When BTC abruptly trades $1,000 higher, you have to be mindful of the possibility it will crash just as fast. At the same time, this did paint a higher high, and a degree of confidence has returned to the crypto market as a result. Traders are balancing their disbelief that this happened and that it could continue with their growing optimism.

 

In the medium-to-long-term, of course, we believe that bitcoin has a bright future. Whether the bear market has ended or not, it’s closer to the end than the beginning and all the indications are that adoption will continue apace in the coming years.

 

There are several zones of interest for the coming days and weeks:

  • The $4,900-5,000 area, which has acted as support since the move up, and will act as resistance if price drops below it.
  • $4,200: the major resistance that BTC broke at the beginning of April to create a higher high. A retest of this level as support would be potential confirmation or invalidation of the new uptrend.
  • 200-weekly moving average retest. This will doubtless be a strong buy zone, from around $3,500 down to around $3,200.
  • Lower than $3,100 – our previous low for this cycle – and we can expect a drop into the $2,000 range and another leg down for the bear market.

 

Major analysts are split between different scenarios, with some bullish and some bearish, and some still holding to their belief that sub–$2k prices are likely.

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What movie character is your crypto?

Sometimes all those explanations of consensus algorithms and blockchain protocol features get a little wearying. Instead, it can be easier to understand what a crypto is really about using an analogy. Like movie characters.

 

Bitcoin. This is the James Bond of crypto. The movie character that has been around forever and is always popular. It’s as classic as a black tie dinner jacket, always in style and keeps going not matter what. And you Just. Can’t. Kill. It.

 

Ethereum. Garland ‘The Marietta Mangler’ Greene, the nasty, scary smart, ultra-dangerous dude played by Steve Buscemi in Con Air. Or Rockhound, the nutcase genius played by Steve Buscemi in Armageddon. Or Mr Pink, the hyper, slightly unhinged but seriously street-smart criminal in Reservoir Dogs, played by Steve Buscemi. (You ever wonder about Steve Buscemi? What’s his deal?) Anyway. Point is, you never know what you’re going to get. Smart and nuts is a bad combination (though it’s a hell of a lot more interesting than dumb and nuts). So treat it carefully.

 

EOS. Piggy, from Lord of the Flies (adapted as a 1990 film from William Golding’s book). There’s a group of you – let’s say, 21 boys – who have been thrown together by circumstance, outside of the normal rules of civilisation. You could work together and make a decent job of things. But here’s the thing: that kind of pressure can bring the worst out in people. And if you find yourself going against the herd, like Piggy does, or occasionally some block producer who disagrees with all the others, you’re going to have a bad day.

 

Litecoin. Any one of the Avengers films. There’s nothing new here, you’ve seen it all before, but meh. Whatever. It works. Kinda.

 

Ripple. Jordan Belfort, played by Leonardo diCaprio in The Wolf of Wall Street. He makes a career out of ripping off regular punters on an industrial scale and glamourises it in the process. But he doesn’t know when to stop and eventually he gets caught and goes to prison.

 

Bitcoin Cash. You know how ‘There can be only one?’ And how Connor McLeod, the immortal swordsman in Highlander, goes up against Kurgan, who wants to cut his head off and gain The Prize? And how McLeod sticks around forever but that’s it for Kurgan because he got his head cut off instead? And how you remember the name McLeod but not Kurgan, because Kurgan was the loser? Well, BCash is Kurgan.

 

BSV. The Emperor Commodus in Gladiator, played by Joaquin Phoenix. Dangerous, nasty, slightly camp and frickin’ mouthy, but ultimately can’t walk the talk. He comes to a bad end and thoroughly deserves it.

 

Dogecoin. Forrest Gump, played by Tom Hanks. Dumb as you like but somehow successful. Helped a lot by the fact he doesn’t have a bad bone in his body and doesn’t realise he’s kind of stupid, and has a huge following of people who love him.

 

Tether. The gas tanker in Mad Max 2: The Road Warrior. Played by a gas tanker. The tanker is massively valuable, guarded by the group of Settlers and violently coveted by the Marauders, a vicious gang who roam the post-apocalyptic wasteland in search of fuel. When the Settlers, helped by Max, try to escape with the tanker, carnage ensues as the Marauders pursue them. Most of both groups are killed. It turns out, after everything, that there’s nothing valuable in the tanker at all. It’s full of sand. But the Marauders don’t find that out until it’s too late. Get the parallel with Tether yet?

Basic Attention Token. The smartly-dressed guy who kicks off at the end in any of the Bruce Lee films. You don’t usually see him pull out all the stops until fairly late in day – the early fights are just too easy for him – but when it happens, you’d better be paying attention.

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McAfee: BTC MUST hit $1 million by 2020

It’s a matter of basic maths, says the man who earlier bet the contents of his trousers on an epic bullmarket.

 

Eccentric antivirus mogul John McAfee has put his, er, reputation on the line for bitcoin in the past. Back in 2017, he stated his belief that bitcoin would reach $500,000 by 2020 – and what he would do if he was wrong. Then bitcoin’s price increase accelerated, and he doubled down:

When I predicted Bitcoin at $500,000 by the end of 2020, it used a model that predicted $5,000 at the end of 2017. BTC has accelerated much faster than my model assumptions. I now predict Bircoin at $1 million by the end of 2020. I will still eat my dick if wrong.

 

Then came the crash. It was just a correction, he assured us. Bitcoin would be back. And it would definitely be back by 2020. But the bear market stretched on. By the end of 2018, $1 million looked a very, very long way away. $3,100 to $1 million in 2 years? It wasn’t looking good.

 

McAfee held to his statement, though he did suggest how he would go about fulfilling his promise if it came to it:

If the worst comes and  I lose my Bitcoin bet (keep in mind I promised to eat my dick. The cutting it off first was added by the media), I will probably subcontract the task to a relay team of Bangkok prostitutes with instructions to carry out the task slowly, finishing as I exit

 

As bitcoin bounces from an apparent bottom, his confidence is renewed and he has restated his belief that bitcoin will hit the seven-figure mark by December 2020.

More and more headlines converging on a prediction that I cannot mathematically lose. All you “Eat your dick” airheads – please identify yourselves by commenting appropriately, so that at the end of 2020, the people who could add, subtract and multiply can have a good laugh.

 

Ok, so will bitcoin hit $1 million one day? Quite possibly. Will it hit it in 20 months – soon enough to save McAfee from (at best) a humiliating fate?

 

Never say never with bitcoin. But it would take a bull market the like of which we have never seen. Bitcoin would need to appreciate 200 times over in 20 months. Historically it has never done this and every bubble has been accompanied by a crash that puts it in the wilderness for a period of time.

 

Good luck, John, you’re going to need it.

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Tuesday Inferno market update

Last night saw a slide below $5k, followed by a bounce. Are lower price coming for BTC?

 

After an extremely bullish week at the start of this month, the last weekly candle closed on Sunday as a doji: a candle with a flat body, indicating a narrow trading range, and wicks up and down.

 

Dojis typically signal indecision, and that’s exactly what we’d expect after a $1,000 rally through multiple support lines. Many traders will be taking profit, disbelieving that prices can go higher in the near term. Others are convinced the bull market is on. The market is at a point of inflection, and once again it’s decision time. This kind of situation also calls for extreme caution on the part of traders, who risk being burned heavily if they make a wrong move – or converserly, profiting handsomely if they call the market right.

 

Last night, BTC sold back down into the $4,900 range, as it has done several times now, bouncing off a gently-rising support line. The last few 4h candles have show rising price on faltering volume. At this point, indications are still that the market favours a downward move. RSI on the daily is still close to the 70 (overbought) area.

 

Against that, we are clearly seeing a measure of confidence return to the crypto markets, and a Golden Cross is looming as the 50-day moving average rises to meet the 200-day moving average. BTC is currently trading above both, which is theoretically bullish.

 

However, we are still wary after that huge spike in price, brought about by just one large buyer. It’s entirely possible his motives were bad: to manipulate the market into thinking the bullrun was here, then sell the coins he had bought at the top. At the moment, we simply don’t know how this will turn out. The overall trend is unclear.

 

In other news, Binance has announced it is delisting BSV following Craig Wright’s legal action against @hodlonaut, and Calvin Ayre’s insults towards the exchange. Several other major crypto services have joined Binance and stated that they will no longer be supporting BSV.

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Staking is not as new as you think

Staking is the new mining – but it’s been around a looooong time.

 

‘When PoS?’ ‘Is this a masternode coin?’ ‘What’s the best masternode coin?’ These are all questions you’re likely to encounter sooner or later on the Discords of the crypto world.

 

Profitable mining is now out of reach of all but the best-funded and most technically savvy. And so the crypto community, with unrivalled sense of entitlement and belief in their right to something-for-nothing, have moved on to the next best thing: staking.

 

Proof-of-work is a costly consensus mechanism, requiring dedicated hardware and large amounts of electricity. Proof of Stake (PoS) uses coin balance, and not hashrate, as the scarce resource that helps determine the next block. In short, if you have coins, you can earn more coins.

 

There are different variations on PoS. There’s vanilla PoS, where anyone can stake any amount of coins, and a user’s chances of ‘mining’ the next block are in proportion to their balance. There are systems where a minimum balance is required, or where a limited number of stakers are voted in – delegated PoS or DPoS (like BitShares and others). There are systems where users can lease their tokens to a staking node (LPoS), like Waves. And there are masternode systems, like Dash, where large nodes play an integral but supplementary role in the network, facilitating specific operations like instant transactions and mixing, and receive large rewards from each block.

 

The rewards of PoS can vary significantly, then, with regular PoS systems often needing additional incentives to get people to stake. But for all that PoS is popular right now – especially Masternodes – it’s been around a long time.

 

The first coin to implement PoS was Peercoin, which used a hybrid PoS/PoW system. Launched in August 2012, Peercoin has fallen from favour, but it’s still around – crypto is hard to kill. Nxt was the first platform to use PoS alone. It launched at the end of 2013. Again, it’s still around – kind of – but it has evolved considerably since then. Newer systems like Waves use variations on Nxt’s PoS, and even Ethereum will ultimately implement PoS with Casper.

 

But it’s the Masternode coins that are really proving popular, since if you get in early enough you are on the gravy train forever. HODL, stake, and gain significant passive income from block rewards. It’s like mining without the hardware costs.

 

Staking is to 2019 what mining was to 2012. And, just like mining, the space is getting crowded and competition is rising. Get in while you still can.

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Sunday 14 April roundup

Greetings Inferno friends! It’s been an interesting week for crypto. Here are our main articles and stories:

  • Permabull: Bitcoin is now bullish. Tom Lee staggers everyone by stating that bitcoin is in an uptrend. Link
  • Tuesday Inferno market reportLink
  • The four types of trader. Are you a butterfly, cat, dog or tortoise? Link
  • China bans bitcoin – again. This time it looks like miners might be hit. Link
  • Friday Inferno market update. Link
  • 7 tips for crypto beginners. Link

That’s all! Be sure to check out our Telegram channel for regular updates.

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7 tips for crypto beginners

New to crypto, or still learning the ropes? Here are some of our top tips to keep you safe and successful.

 

  1. Don’t keep funds on exchanges. You might not be able to avoid using exchanges for buying and trading, but don’t keep funds there for any longer than you have to. Crypto history is littered with examples of exchange hacks and losses, and if your coins are stolen, they’re gone forever. Withdraw your crypto.
  2. Back up your private keys. Similarly, there are too many stories of those who have lost crypto because their wallets were corrupted, lost or destroyed. Don’t be one of those people. Keep digital and/or physical copies of your wallets and private keys.
  3. Don’t trust Crypto Twitter. It’s full of trolls, shills and the terminally uninformed. In short, while you can find useful information here, you’ll have to wade through mounds of garbage to get it. You may never recover your sanity or perspective.
  4. Learn to ignore trolls. This is like the rest of the internet, on steroids. You’re going to meet unpleasant people who will look to cause division and offence for the sake of it. They don’t like being ignored. Ignore them.
  5. Learn to ignore shills. There are plenty of crypto folk who want to get you to buy a coin for their own gains. You’ll learn to recognise them. They’re typically narrow-minded and incapable of seeing the bigger picture. They don’t add anything valuable. Ignore them too.
  6. Cost average. Unless you’re a legendary trader, don’t expect to call tops or bottoms of the market. Never go all in, and never go all out. The price can rise or fall more than you ever thought possible. There’s a time for making decisive moves, but if you make a decision in a hurry, it’s disproportionately likely to be a bad one. Save some dry powder for the unexpected, to average down your buy price or average up your sell price – if it comes to it.
  7. HODL. For the same reason, whatever else you do and whatever trades you make, HODL a few coins. Accumulate some crypto and then put some of it aside for the long-term. Forget about it and come back to it in two to five years. Future you will very likely thank past you for doing it.

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