8 ms·

Bitcoin's monetary velocity is now higher than USD M1

35 points by hanniabu 6y ago

jariel 6y ago
This has nothing to do with BTC and the precipitous drop in M1/M2 Velocity has everything to do with macro trends + COVID which are worth discussing. BTC is not used as a currency the 'velocity' of it is basically irrelevant.
1996 6y ago
Good, it may take a while (I'd say another 10 to 20 years) but I see crypto replacing fiat, with the help of technologies such as lightning for the payment layer, after central bank crypto will have proved a failure. It'll just be too convenient to have a worldwide currency, and payment in that same currency. I estimate the final BTC ath to be at about 1M/BTC, to conveniently have 1 cent per Satoshi. Having to really balance budgets instead of always having the possibility to print their way out may destabilize quite a few governments in the process EDIT: can't post a reply because of the amount of downvotes (sorry if truth hurts!) but to comment on the very good analysis below by hellen__keller, the answer below by johnyzee that the size will increase in due time is the correct analysis. No need to increase the blocksize prematurely like BCH did. Wait until lightning or or other constraints make it necessary. I think Blockstream will wait for an important milestone, like 200k USD to push for that change: this milestone will make it necessary too, if you want to let people move their exchange funds to their offline wallet. Just do some quick math assuming 1k investment per person and you'll see a BTC at 200k with the same fees as now would swamp out this investment. So fees can't be kept constant until after the final ath is reached. And lowering the fees will reduce the miners gain, so it can't be postponed too much, otherwise that would destabilize the fine economic balance. My bet is that the blocksize will be increased before the next halving, or the one after that, as soon as a nice milestone is reached. A nice round numbers will facilitate coordination.
- helen___keller 6y ago
  > lightning for the payment layer Lightning is still settled on-chain. The most optimistic deployment of lightning would be one transaction on-chain to open a channel with your bank, and maybe one or two on-chain "update" transactions per month to true-up your channel liquidity, deposit a paycheck, etc. Extrapolate to the size of the working population of just the united states, and we've already far exceeded the possible number of transactions that the blockchain can handle, putting aside the entire financial system that will also be settling major transactions on-chain, much less expecting the entire rest of the world to join in on the fun. A simple truth: If crypto replaces fiat, the vast majority of transactions in the world will be done with crypto-backed IOUs ("crypto standard"). Publishing transactions on-chain will be reserved for the world's richest and most powerful institutions, because the rest of us can't afford the fees.
  - thebean11 6y ago
    Bitcoin needs to greatly increase transaction volume anyway in the next few decades to increase fee revenue. Once block rewards get close to zero fees need to incentivize mining.
  - johnyzee 6y ago
    Transaction throughput can easily be increased a hundredfold right now, with a simple increase in block size. As far as I know, this is the plan, once it becomes necessary (for example due to Lightning adoption picking up). It is only out of principle that bitcoin developers have so far chosen to keep the block size limit extremely low (incidentally limiting transaction throughput too).
    - Majromax 6y ago
      > with a simple increase in block size. "Simple" changes to the bitcoin protocol aren't simple because it's a coordination problem. As long as more than 50% of mining power is behind the older protocol, the longest block history will remain under that protocol. Nodes which can switch will have incentives against doing so, because mining an embiggened block that does not become part of the official history orphans the mining reward. From another perspective: any breaking change to the bitcoin protocol involves politely asking miners to execute a 51% attack on themselves.
      - aeternum 6y ago
        This is true, but breaking changes, aka hard forks have occurred in the past and blocksize has already been successfully increased from 1MB to 2MB. It will all come down to whether miners think they can make more from having fewer higher fee txns vs. more lower fee txns in a block. My prediction is that more lower fee txns will win since competition from other cryptocurrencies will cap the txn fee that people are willing to pay.
        1996 6y ago
        > My prediction is that more lower fee txns will win since competition from other cryptocurrencies will cap the txn fee that people are willing to pay Exactly my analysis too.
- globular-toast 6y ago
  When I read comments like this I mentally translate it to "I hold Bitcoin".
  - zepto 6y ago
    Yeah - this is a much bigger problem with Bitcoin than the analysis of use cases, energy consumption of technicals: The primary incentive structure of Bitcoin is to incentivize holders to discredit anything but bullish information. I.e. Bitcoin’s real danger is the cognitive bias it creates in the minds of the holders.
  - 1996 6y ago
    lol - I'm out mate! I watch on the sidelines! To be more clear, I'm retired, with enough stupid cash to not care anymore, and just a enough XMR to buy stuff if needed. I'm trying to push more people to XMR actually. That's the future
- jariel 6y ago
  1) No, crypto will never replace fiat. Thought the risk if printing money is always there, it's much much worse to have zero monetary policy implied with a fixed currency. A 'super hard' currency (i.e. 1 USD = 0.001 grams of Gold, without even fractional lending) would destroy the economy quickly. Currency is not a store of value it's a medium of exchange. As the economy expands it needs 'more currency' like more oil on a bigger engine. Hard currency starves the engine. Also, the first external shock (covid, war) will wipe out the economy because the panic to fixed currency will shut everything down. So we want monetary policy. If you want a longer term store of value, put your money into something. 2) It is not convenient to have a 'worldwide currency', it's totally the opposite. Currencies exist to facilitate exchange within an economy. Usually currencies map to markets. The bigger the market, the less monetary policy can help in regions. This is one of they key problems with the Euor right now - France/Italy/Span etc. have completely differing views as to 'what to do with monetary policy' than Germany/Netherlands/Sweden. The default 'strict' nature of Euro is actually hurting Spain and Italy quite a lot. They cannot restructure their economies fast enough (i.e. lowering wages is impossible) vis-a-vis Germany ... so the jobs go to Germany. Normally, the reduction of competitive ability of Spain would be instantly resolved by lower value of their currency. Every Spandiards iPhone just got more expensive, but that would be an accurate reflection of their economy. A 'global currency' is nonsensical, because where can one trade those currency units for value - if everyone is using national currencies, then the value of said 'global currency' is irrelevant other than in terms of the local economy you want to buy stuff from. If every country in the world 'used the same currency' then it'd have to be 'very strict' meaning 'no monetary policy for anyone' meaning massive problems. Put another way: when the US trades a lot of 'stuff' with China - there is absolutely no way for those two nations to avoid having to hold some kind of credit from that other nation. Be it RMB or USD or whatever. There is no way around that problem. Magically putting trade deficits in some magical 'global currency' just papers over the problem, it does nothing. So no - a 'global currency' does not help anything, because you can't imaginary wish away the underling credit or debt that various economies 'owe' each other. Finally - it's possible that some kind of international instrument arose that was backed by real assets - for example a 'World Bank Dollar' that was properly managed and backed by real-estate or some kind of measurable commodity value. Now that just might work - the problem there is that the scale necessary of assets would just be too much. And of course, there is no institution that we trust, internationally. So no, BTC does not solve any problems at all.
- AnIdiotOnTheNet 6y ago
  > It'll just be too convenient to have a worldwide currency, and payment in that same currency. I think if it were that convenient then we'd already have a worldwide currency. We don't because it really doesn't solve many problems and there are a lot of reasons states want control of their own currency.
  - 1996 6y ago
    > states want control of their own currency. If I were you, I'd question whether the states interest are always aligned with their citizen interests
thendrill 6y ago
He is talking of the "velocity" of funny money. I would wager that most (90) of the bitcoin being traded now is old bitcoin that did not have the value that is current
- thebean11 6y ago
  > I would wager that most (90) of the bitcoin being traded now is old bitcoin that did not have the value that is current What does that mean? You could say that about everything from real estate to gold to AMZN stock.
  - thendrill 6y ago
    That you could buy tesla stock 10 years ago for 10 usd and it is worth 40 times today at 400 usd. But 10 years ago you could buy a pizza for 10k btc and today that is equal to gdp of a small country. Does this not seem completely upside down? What I want to say is looking at all this numbers without perspective makes no sense...
    - rfd4sgmk8u 6y ago
      Just to use the actual values, Telsa IPO was $17USD in 2010 Its closer to $715USD right now, after a 5:1 split last year, so $17->$3575 in 10 years. It has been traded on the public markets since. 10 years ago you could not buy a pizza for 10k btc. Laszlo choose to trade 10k BTC for a pizza, bootstrapping a value exchange on an experimental p2p software network. It was an adhoc tx, not done on a public market (which did not exist at the time). I don't think it upside down. Assets can gain value over time, especially when you have inflation of the monetary base feeding into these assets, and a growing audience participating. Makes sense!
cjlars 6y ago
Is this source properly separating BTC purchase transactions with trading transactions? Because if not they'd be way overstating BTC velocity.
Majromax 6y ago
Leaving aside any significance of this statistic, I'm not convinced the calculation is right. The website describes the calculation as: > Bitcoin`s velocity is calculated by dividing the 90 day estimated USD transaction volume by the 90 day average USD market cap. (This is the equivalent to the $BTC circulated divided by the Bitcoin money supply.) ... but this isn't how M1/M2 velocity are calculated. Those statistics effectively divide GDP by the money supply. In so doing, they only transactions related to production or consumption. Purely financial transactions (e.g. buying a stock or bond or foreign currency) don't affect the statistical calculation of money velocity. However, these sorts of transactions make up the bulk of Bitcoin transactions, leading to a comparatively inflated transaction volume. If you include foreign exchange transactions, then one 2019 estimate (https://www.bis.org/statistics/rpfx19_fx.htm https://www.bis.org/statistics/rpfx19_fx.htm) found about $6.6tn in global forex per day, of which the USD was on one side of about 88%. Call that $5tn/day to round down, giving a quarterly figure is about $300tn/quarter (at about 60 trading days per quarter), which is by itself about 16.5 times the current $18tn M1 money supply (https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL). That "forex velocity" is about an order of magnitude higher than the official M1 velocity. Effectively, I don't think this chart is comparing apples to apples.
weitzj 6y ago
Is this analogy true? Mining Gold + having a mass of gold relates to Money As Mining bitcoin + Energy relates to Bitcoin

35 points by hanniabu 6y ago

This has nothing to do with BTC and the precipitous drop in M1/M2 Velocity has everything to do with macro trends + COVID which are worth discussing. BTC is not used as a currency the 'velocity' of it is basically irrelevant.

1996 6y ago

Good, it may take a while (I'd say another 10 to 20 years) but I see crypto replacing fiat, with the help of technologies such as lightning for the payment layer, after central bank crypto will have proved a failure. It'll just be too convenient to have a worldwide currency, and payment in that same currency. I estimate the final BTC ath to be at about 1M/BTC, to conveniently have 1 cent per Satoshi. Having to really balance budgets instead of always having the possibility to print their way out may destabilize quite a few governments in the process EDIT: can't post a reply because of the amount of downvotes (sorry if truth hurts!) but to comment on the very good analysis below by hellen__keller, the answer below by johnyzee that the size will increase in due time is the correct analysis. No need to increase the blocksize prematurely like BCH did. Wait until lightning or or other constraints make it necessary. I think Blockstream will wait for an important milestone, like 200k USD to push for that change: this milestone will make it necessary too, if you want to let people move their exchange funds to their offline wallet. Just do some quick math assuming 1k investment per person and you'll see a BTC at 200k with the same fees as now would swamp out this investment. So fees can't be kept constant until after the final ath is reached. And lowering the fees will reduce the miners gain, so it can't be postponed too much, otherwise that would destabilize the fine economic balance. My bet is that the blocksize will be increased before the next halving, or the one after that, as soon as a nice milestone is reached. A nice round numbers will facilitate coordination.

helen___keller 6y ago
> lightning for the payment layer Lightning is still settled on-chain. The most optimistic deployment of lightning would be one transaction on-chain to open a channel with your bank, and maybe one or two on-chain "update" transactions per month to true-up your channel liquidity, deposit a paycheck, etc. Extrapolate to the size of the working population of just the united states, and we've already far exceeded the possible number of transactions that the blockchain can handle, putting aside the entire financial system that will also be settling major transactions on-chain, much less expecting the entire rest of the world to join in on the fun. A simple truth: If crypto replaces fiat, the vast majority of transactions in the world will be done with crypto-backed IOUs ("crypto standard"). Publishing transactions on-chain will be reserved for the world's richest and most powerful institutions, because the rest of us can't afford the fees.
- thebean11 6y ago
  Bitcoin needs to greatly increase transaction volume anyway in the next few decades to increase fee revenue. Once block rewards get close to zero fees need to incentivize mining.
- johnyzee 6y ago
  Transaction throughput can easily be increased a hundredfold right now, with a simple increase in block size. As far as I know, this is the plan, once it becomes necessary (for example due to Lightning adoption picking up). It is only out of principle that bitcoin developers have so far chosen to keep the block size limit extremely low (incidentally limiting transaction throughput too).
  - Majromax 6y ago
    > with a simple increase in block size. "Simple" changes to the bitcoin protocol aren't simple because it's a coordination problem. As long as more than 50% of mining power is behind the older protocol, the longest block history will remain under that protocol. Nodes which can switch will have incentives against doing so, because mining an embiggened block that does not become part of the official history orphans the mining reward. From another perspective: any breaking change to the bitcoin protocol involves politely asking miners to execute a 51% attack on themselves.
    - aeternum 6y ago
      This is true, but breaking changes, aka hard forks have occurred in the past and blocksize has already been successfully increased from 1MB to 2MB. It will all come down to whether miners think they can make more from having fewer higher fee txns vs. more lower fee txns in a block. My prediction is that more lower fee txns will win since competition from other cryptocurrencies will cap the txn fee that people are willing to pay.
      - 1996 6y ago
        > My prediction is that more lower fee txns will win since competition from other cryptocurrencies will cap the txn fee that people are willing to pay Exactly my analysis too.
globular-toast 6y ago
When I read comments like this I mentally translate it to "I hold Bitcoin".
- zepto 6y ago
  Yeah - this is a much bigger problem with Bitcoin than the analysis of use cases, energy consumption of technicals: The primary incentive structure of Bitcoin is to incentivize holders to discredit anything but bullish information. I.e. Bitcoin’s real danger is the cognitive bias it creates in the minds of the holders.
- 1996 6y ago
  lol - I'm out mate! I watch on the sidelines! To be more clear, I'm retired, with enough stupid cash to not care anymore, and just a enough XMR to buy stuff if needed. I'm trying to push more people to XMR actually. That's the future
jariel 6y ago
1) No, crypto will never replace fiat. Thought the risk if printing money is always there, it's much much worse to have zero monetary policy implied with a fixed currency. A 'super hard' currency (i.e. 1 USD = 0.001 grams of Gold, without even fractional lending) would destroy the economy quickly. Currency is not a store of value it's a medium of exchange. As the economy expands it needs 'more currency' like more oil on a bigger engine. Hard currency starves the engine. Also, the first external shock (covid, war) will wipe out the economy because the panic to fixed currency will shut everything down. So we want monetary policy. If you want a longer term store of value, put your money into something. 2) It is not convenient to have a 'worldwide currency', it's totally the opposite. Currencies exist to facilitate exchange within an economy. Usually currencies map to markets. The bigger the market, the less monetary policy can help in regions. This is one of they key problems with the Euor right now - France/Italy/Span etc. have completely differing views as to 'what to do with monetary policy' than Germany/Netherlands/Sweden. The default 'strict' nature of Euro is actually hurting Spain and Italy quite a lot. They cannot restructure their economies fast enough (i.e. lowering wages is impossible) vis-a-vis Germany ... so the jobs go to Germany. Normally, the reduction of competitive ability of Spain would be instantly resolved by lower value of their currency. Every Spandiards iPhone just got more expensive, but that would be an accurate reflection of their economy. A 'global currency' is nonsensical, because where can one trade those currency units for value - if everyone is using national currencies, then the value of said 'global currency' is irrelevant other than in terms of the local economy you want to buy stuff from. If every country in the world 'used the same currency' then it'd have to be 'very strict' meaning 'no monetary policy for anyone' meaning massive problems. Put another way: when the US trades a lot of 'stuff' with China - there is absolutely no way for those two nations to avoid having to hold some kind of credit from that other nation. Be it RMB or USD or whatever. There is no way around that problem. Magically putting trade deficits in some magical 'global currency' just papers over the problem, it does nothing. So no - a 'global currency' does not help anything, because you can't imaginary wish away the underling credit or debt that various economies 'owe' each other. Finally - it's possible that some kind of international instrument arose that was backed by real assets - for example a 'World Bank Dollar' that was properly managed and backed by real-estate or some kind of measurable commodity value. Now that just might work - the problem there is that the scale necessary of assets would just be too much. And of course, there is no institution that we trust, internationally. So no, BTC does not solve any problems at all.
AnIdiotOnTheNet 6y ago
> It'll just be too convenient to have a worldwide currency, and payment in that same currency. I think if it were that convenient then we'd already have a worldwide currency. We don't because it really doesn't solve many problems and there are a lot of reasons states want control of their own currency.
- 1996 6y ago
  > states want control of their own currency. If I were you, I'd question whether the states interest are always aligned with their citizen interests

thendrill 6y ago

He is talking of the "velocity" of funny money. I would wager that most (90) of the bitcoin being traded now is old bitcoin that did not have the value that is current

thebean11 6y ago
> I would wager that most (90) of the bitcoin being traded now is old bitcoin that did not have the value that is current What does that mean? You could say that about everything from real estate to gold to AMZN stock.
- thendrill 6y ago
  That you could buy tesla stock 10 years ago for 10 usd and it is worth 40 times today at 400 usd. But 10 years ago you could buy a pizza for 10k btc and today that is equal to gdp of a small country. Does this not seem completely upside down? What I want to say is looking at all this numbers without perspective makes no sense...
  - rfd4sgmk8u 6y ago
    Just to use the actual values, Telsa IPO was $17USD in 2010 Its closer to $715USD right now, after a 5:1 split last year, so $17->$3575 in 10 years. It has been traded on the public markets since. 10 years ago you could not buy a pizza for 10k btc. Laszlo choose to trade 10k BTC for a pizza, bootstrapping a value exchange on an experimental p2p software network. It was an adhoc tx, not done on a public market (which did not exist at the time). I don't think it upside down. Assets can gain value over time, especially when you have inflation of the monetary base feeding into these assets, and a growing audience participating. Makes sense!

cjlars 6y ago

Is this source properly separating BTC purchase transactions with trading transactions? Because if not they'd be way overstating BTC velocity.

Majromax 6y ago

Leaving aside any significance of this statistic, I'm not convinced the calculation is right. The website describes the calculation as: > Bitcoin`s velocity is calculated by dividing the 90 day estimated USD transaction volume by the 90 day average USD market cap. (This is the equivalent to the $BTC circulated divided by the Bitcoin money supply.) ... but this isn't how M1/M2 velocity are calculated. Those statistics effectively divide GDP by the money supply. In so doing, they only transactions related to production or consumption. Purely financial transactions (e.g. buying a stock or bond or foreign currency) don't affect the statistical calculation of money velocity. However, these sorts of transactions make up the bulk of Bitcoin transactions, leading to a comparatively inflated transaction volume. If you include foreign exchange transactions, then one 2019 estimate (https://www.bis.org/statistics/rpfx19_fx.htm https://www.bis.org/statistics/rpfx19_fx.htm) found about $6.6tn in global forex per day, of which the USD was on one side of about 88%. Call that $5tn/day to round down, giving a quarterly figure is about $300tn/quarter (at about 60 trading days per quarter), which is by itself about 16.5 times the current $18tn M1 money supply (https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL). That "forex velocity" is about an order of magnitude higher than the official M1 velocity. Effectively, I don't think this chart is comparing apples to apples.

weitzj 6y ago

Is this analogy true? Mining Gold + having a mass of gold relates to Money As Mining bitcoin + Energy relates to Bitcoin