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Ask HN: How much money has been invested *into* Bitcoin, in total?
Need help thinking this through. I can google answers for market cap, but that’s not what I want. I want to know how many $$ have actually been put into the asset, in order to know how much liquidity is there if people try to sell.
I totalled number of bitcoins mined each year, and average price each year. I assumed each coin was sold in the year it was mined, at the average price.
Result, lifetime inflows into Bitcoin of $21 billion.
How reasonable are my assumptions? Are there better approximating methods? Clearly not every miner sold, making my estimate too high. Or some may have waited to sell into the boom, making my estimate too low.
I’m counting the inflow as the first sale of a coin, as that is when it moved onto the market and became a traded commodity. That represents capital flowing into the bitcoin ecosystem.
I am asking this in light of Tether and Defi. Tether printed about $30 billion tokens in the past year, falsely claiming they are backed by dollars. If my numbers are right, this fraudulent $30 billion inflow dwarfs the lifetime inflow of hard currency into bitcoin.
Similarly, in the past six months Defi has exploded from almost nothing to having $40 billion in loans denominated in crypto, with crypto as collateral. This total also dwarfs hard currency investments.
Centralized crypto finance has seen similar growth. From nothing two years ago, now likely over $40 billion in loans. Both Cefi and Defi pay 8-12% interest on deposits, which is a higher interest rate than junk bonds pay.
So:
1. Are my estimates back of the envelope plausible?
2. Am I right in thinking that is it extremely worrisome that hard currency investments into bitcoin are 5x smaller than fraud and crypto debt inflows? And that the bulk of the latter happened in the past year?
I worry there is a Lehman like situation brewing where the assets everyone treats as valuable for collateral are worth much much less and could collapse at once.
- auganov 6y agoI'm not sure what your measure of first coin sales is supposed to represent. Let's say there's only two coins. You mine both, sell them to me for $1 and $100 respectively. I then go on to sell them for $1,000 each. You seem to consider the $101 to be a better measure of capital inflow than the $2,000 (or $2,101). Not sure why?
- graeme 6y agoHmm yeah this is precisely the point where I haven’t quite got things straight. I think the assumption I’m making is that the sale of coins you made to the third party is a trade between people in the market: you’re up $1899 but the new entrant is down $2000 until someone pays them. Whereas the $101 from the miner is actual capital extracted from the market. Of course, at some point the person who bought your two coins could find some kind of productive use for them and generate income from them (a new crypto finance or blockchain business management?). But that hasn’t happened yet so to date the value taken out of the system is miner’s earnings. However, I believe you’re correct. In terms of market liquidity the actual miner’s earnings doesn’t really matter. What matters is the state of market liquidity and how many people still want to invest. During a peak the actual inflows could be quite large. The bit I’m trying to reason through is how much of the total $1 trillion market cap can actually be sold at once. Current miner inflows are about $1.8 billion per month at present market prices, they’re selling 120% of what they mine based on stats I saw. But clearly other money could flow in. Do you know any good way to estimate it?
- auganov 6y ago> The bit I’m trying to reason through is how much of the total $1 trillion market cap can actually be sold at once. I'm not sure if there is such a measure. Let's say a stock has an indisputable dollar book value [0] value of $100 / share and nothing weird is going on. You'd expect liquidity to approach infinity as the price drops below $100. Past flows wouldn't matter at all here. If we operate under the assumption (which is a big assumption) that Bitcoin is fundamentally worthless and only traded by retail then perhaps some multiple of total cash balances at exchanges would be a good estimate of maximum liquidation value. While aggregate order books would be the minimum. I'm not sure how many Bitcoins are actively changing hands. Seeing widely different estimates (from 15% to 85%) for this. If this percentage is really low then it would seem perfectly plausible to me that there isn't enough cash to handle a big sell off. [0] Seems like you assume money made by miners is some equivalent of that for Bitcoin? But not sure why that would be the case. I have a hard time seeing how there is any price point for Bitcoin at which you can know for a fact you cannot lose money buying it. Also, if I bought all the Bitcoins, wouldn't the value be effectively zero?
- sarcasmatwork 6y ago>I assumed each coin was sold in the year it was mined, at the average price 100% incorrect.
- graeme 6y agoCan you elaborate? It’s obviously far from completely correct, but surely the bulk of them did, at least past the early years when the value was zero. Do you have any other estimation?
- tromp 6y agoYou can rephrase your question as: how many $$ have been spent on mining bitcoin (both capex and opex)? Although answering that question still requires assumptions about miners selling bitcoin to cover their costs...