As early as April 12, 2013 at Forbes, I, Nick B. Steves, began to make the argument, to anyone who cared to listen, that over the period of January 1, 2013 to anytime in April, this chart:
reflected a decreasing trend in the ratio of speculative trade to transaction volume. The story was: If BTC was in a speculative bubble, why is the ratio of Trade/Transactions going down even while the price is skyrocketing? The only answer is that consumer demand for the bitcoin currency is exceeding the rise in exchange price? I told the story on Jim’s blog on April 15 and then gave it the most full-thoated defense I could muster on April 17, 2013, again at Forbes:
If the recent spike to $266 (or $90, either way still a big spike relative to Jan. 1 price) had been driven, as everybody and their barber and their mother and their Krugman bobblehead doll has been saying, by wild exuberant and insane speculation, we should have seen a steep rise in the trade volume relative to the transaction volume. But that is exactly what we DON’T see! On the contrary, the ratio has trended down (with lots of bumps) all calendar year. Post crash/correction last Thursday, the ratio is so low (less than 1 for a few days) that you really have to wonder whether the USD exchange price is over-sold (maybe by a factor of 2 or 3).
Note the title of that blockchain.info graph: “Trade Volume Vs. Transaction Volume Ratio”. What would you think it meant? When I hear “A vs. B ratio”, I naturally think we are talking about numerator A over denominator B.
Well, I was wrong. It’s B over A.
So the BTC speculative trade volume was rising relative to transactions over the period of Jan 1 through mid-April this year—which is sorta what you would expect if the trade price increased from $13 to $266.
My apologies to all who threw their life savings into Bitcoin based on my recommendation. You may now autodefenestrate at your leisure.
The good news is that since the mid-April crash, as you can see from the graphic, transaction volume has picked up considerably relative to trade volume, whilst trade price has been pretty boring and flat. So maybe now bitcoin is oversold. Who knows… I continue to maintain that I do not know the correct ratio of transaction to trade volume for Bitcoin or any other currency. But it’s still an interesting graph.
Last trade at Mt. Gox: $108.19. Happy trading Bitcoin fans!
