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The bitcoin industry has had its fair share of problems and reputational damage. The digital currency has often had an image of being used for illegal means such as buying drugs online. The collapse of Mt.Gox in 2014, once the world's largest bitcoin exchange, is still fresh in the minds of users. Some members of the exchange are still waiting for compensation.

More recent issues include some exchanges not allowing people to withdraw their money in fiat currency. On top of this, the view of bitcoin as a currency for criminals is still prevalent after the major WannaCry ransomware cyberattack saw hackers lock peoples' files and ask for bitcoin in exchange to unlock them.

Still, Van-Petersen says that the industry is still extremely young and big improvements will come. A few factors will boost bitcoin adoption including better wallets, easier methods to buy the digital currency, use of it for money transfers in areas like remittances, as well as citizens of countries with volatile economies and currencies buying it.

"Volumes are going up, volatility is going down. A lot of people talk about the volatility, but if you are in Zimbabwe or Venezuela, this volatility is nothing. This is the interesting thing to me. I think in the West, a lot of people view it is as speculative, but emerging markets will get it, their needs will be different," Van-Petersen added.

While Van-Petersen is offering one way to value bitcoin in the future, others say that there are other factors to take into consideration.

"It's one way of slicing the pie to try and predict future prices which always relies on a lot of assumptions," Charlie Hayter, CEO of industry website CryptoCompare, told CNBC by email.

"Equating volumes to price value is one method of attempting a valuation, but it doesn't take into account the fundamentals of the ecosystem."

The fundamentals of what bitcoin is capable of from a technical point of view and how regulation is molded around its use will determine its value too, Hayter added.

Original post:
Bitcoin could hit $100000 in 10 years, says the analyst who correctly called its $2000 price - CNBC

On the up and up.

Bitcoin has been on an unbelievable run. The cryptocurrency is up around 124 percent for 2017. And thats after it gained 125 percent in 2016. In May alone, its up more than 60 percent. Its hard to know what the long-term impact or performance will be, but one things for sure -- investors are swept up in cryptocurrency mania.

One simple theory for Bitcoins vertiginous rise in recent weeks is that its turning into something of a self-fulfilling prophecy. Momentum begets momentum and buying begets buying when gains begin to come hard and fast.

Consider that Bitcoins price is up, on average, four out of every five days in May. Its up seven out of every 10 days in 2017. When you combine these types of batting averages with large gains, its sure to grab peoples attention and attract performance chasers and speculators who want to get in on the action. Seeing gains on top of gains increases investor confidence that those gains will last indefinitely. Confidence grows with each new high.

Contrast these results with the stock market. Since 1926, if you were to take the daily performance of the S&P 500 and break things down into gains and losses, the numbers show that its basically a coin flip between up and down days, with 54 percent of all days showing positive performance and 46 percent with negative returns.

Even during the huge bull market since early 2009, the daily returns have followed a similar pattern:

The positive days slightly outweigh the negative days, but its close enough that any time stocks begin to fall investors worry that the end is near for this lengthy rally.

The reason these types of statistics matter is that human nature makes it difficult for people to process losses in the same way they deal with gains. Research from the behavioral psychologist Daniel Kahneman shows that we regret losses twice as much as gains make us feel good. This bias is called loss aversion.

So the probability of seeing gains or losses can have a huge impact on our actions as investors.

Since the daily performance in the stock market is more or less a 50-50 proposition, loss aversion means that checking the value of your investments on a daily basis will make you feel terrible every single day. All those warm feelings you get from the winning days in the markets will be completely wiped out by the double dose of pain of the down days.

The simple solution to deal with this issue for stock market investors is to avoid evaluating your portfolio on a regular basis. The more you look, the more likely it is that youll see losses since stocks dont hit new highs every single day. While stocks alternate gains and losses, on average, if you lengthen your time horizon, the probabilities for a positive return are much higher.

Using the same data for the S&P 500 going back to 1926, all one-year periods showed gains roughly three out of every four years. Extend the time horizon to 10 years, and it was close to 95 percent of all periods with gains. Less frequent portfolio evaluations make it more likely that youll see gains, and, in effect, reduce the pain experienced through loss aversion.

Everyone seems to have an opinion about how high the price of Bitcoin can go or how quickly it will fall back down to Earth. Yet its impossible to forecast the emotions of other investors, and at a certain point thats all that ends up driving these types of price moves. But my guess would be that the current Bitcoin rally will start its downfall once the daily returns are more evenly balanced out between up and down days.

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It may be obvious to state that an increase in volatility will cause investors to bail, but its helpful to understand the reasons behind this type of price action. Once loss aversion begins to be felt again in the price of Bitcoin, that will likely spell the end of its relentless rally. Unfortunately, figuring out when this will happen is extremely difficult, as predicting a change in market direction has almost no rhyme or reason.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story: Ben Carlson at ben@ritholtzwealth.com

To contact the editor responsible for this story: Max Berley at mberley@bloomberg.net

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Bitcoin, Stocks and the Fear of Missing Out - Bloomberg

Bitcoins astronomical rally has cryptocurrency bulls feeling vindicated. Not so fast, skeptics say.

The digital currencysmore than 100 percent surge in the past two months looks eerily familiar, argue the bears, pointing to November 2013, when the price quintupled in short order to top $1,000 for the first time. By Valentines Day it was worth around half that, and spent the better part of the next two years languishing below $500.

Then it absolutely exploded -- jumping more than $1,400 in two months. At its height last week, one bitcoin could buy about two ounces of gold. Its championstouted the arrival of blockchain into the mainstream, the coins underlying technology which they say can lift the poor out of poverty and make transactions more secure, inexpensive and efficient.

But signs of a top have emerged, detractors warn. On May 25, bitcoin surged more than $300 to a record only to turn tail and close little changed. The $600 round trip was the biggest daily swing in its history. It then slumped 8 percent the next day. Bitcoin was down 1.5 percent to $2,255.50 as of 12:35 p.m. in New York. For bears, that kind of volatility shows the assets unreliability as a store of value.

Here are some other reasons why they warn caution is warranted:

This months ransomware attacks serve as a reminder that bitcoin is still beloved by hackers and criminals because of its anonymity. The cryptocurrency plunged in 2014 after Tokyo-based Mt. Gox -- then the largest bitcoin exchange -- said it had been breached and then filed for bankruptcy. Its value sank again in August 2016 after hackers stole about $69 million from Hong Kong-based Bitfinex. The exchange has since repaid its customers.

The bitcoin community has beensplit for more than a year on how to upgrade its blockchain. The time and fees necessary to verify transactions have climbed to record highs, making it more difficult for businesses to use the currency as a means of payment.While bitcoin executives have said that 2017 might be the year the cryptocurrency really starts to scale, others arent so sure.

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Last week, more than 50 companies signed a pact to speed up transactions, but ideological differences have prevented similar agreements -- like the one reached last year in Hong Kong -- from actually being implemented. The much-touted SegWit upgrade was also released in October, but only a third of the community has embraced it.If the latest proposal fails to gain traction and the deadlock continues, digital currency users may dump bitcoin in favor of alt-coins that offer better blockchains.

As the surge sends the cryptocurrency world into a frenzy, it can be easy to lose sight of the bigger picture. While bitcoins value has increased more than 100 percent since the beginning of the year, its slice of the pie has shrunk as its digital cousins steal some of the spotlight. There are an estimated 700 rivals, according to Ron Quaranta, chairman of the Wall Street Blockchain Alliance.

Bitcoin dominated about half of the overall digital currency market as of Friday, down from around 85 percent in February, according to data from CoinMarketCap.com. Meanwhile, Ethereums share increased to about 20 percent. Some token fans arent sweating it though, as they say bitcoins potential demise doesnt really matter as long as another digital currency takes hold.

The general public doesnt understand bitcoin, and many regulators still dont either, which makes it tough to regulate. In 2015, New York started issuing controversial licenses to cryptocurrency companies, but only three had been issued as of mid-January, according to Coinbase, as many startups couldnt afford the costs of applying.

In January, the Financial Industry Regulatory Authority asked the public for help identifying the potential risks of blockchain. Two months later,bitcoin plummeted after the U.S. Securities and Exchange Commission rejected a proposal by the Winklevoss twins for a publicly traded fund based on the digital currency.

In a report last week about blockchain in China, analysts at Sanford C. Bernstein wrote that while the technology could benefit Chinese banks, its unlikely to start a financial revolution.

"We believe blockchain application is more likely to be evolutionary rather than revolutionary in developing countries like China," the analysts said. "Aside from the conservative regulatory attitudes toward financial innovations, the constraint of confidentiality and performance of blockchain technology would make it best positioned to be enterprise-oriented rather than consumer-end."

Whether its Hollands tulip-bulb craze in the 17th century or the Internet-stock frenzy of the late 1990s, history shows that markets self correct. Speculative markets usually run out of steam at some point. Determining the trigger is always the hard part. Given the breathtaking run in bitcoin as of late, some say its tough to believe the oft-cited mantra that this time is different.

Link:
Five Big Reasons Why People Are Still Skeptical About Bitcoin - Bloomberg