The Bitcoin Economy – A Cyclical Microcosm

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Summary

Macro economic theory suggests cyclical booms, busts and recessions, I believe the Bitcoin Economy is taking on a similar pattern.

There are four possible cycle positions, we are currently in a bear market.

Unless something happens that’s meaningful enough to change our current pattern, history will not repeat itself, but it will rhyme.

Reverberations in Cyberspace

Regardless of your opinion of the business cycle, it appears that it’s here to stay under our current financial system. As we’ve seen time and time again, the economy goes through periods of growth, overheats, and then we have a pull back in activity, a recession.

I think that Bitcoin (BTC-USD)(COIN)(OTCQX:GBTC) and the cryptocurrency market at large are getting to a scale that they too are starting to exhibit some of these tendencies. However, since the cryptocurrency market is also growing exponentially, it’s more like a spiral than a circle. As time passes, the market grows larger, and the cycle gets more impactful.

Cyclical Behavior of the Cryptocurrency Market Cap

I took the log of the cryptocurrency market cap and put it on the same chart as the log of total transactions confirmed by Bitcoin and Ethereum (ETH-USD). Then I just put a simple trend line on the data. Take a look.

log transactions and log market capData Source: Coinmarketcap.com and Blockchain.info

Instead of looking at time in years or months, we’re looking at it by the number of transactions confirmed. We are in the area marked #3 right now.

This is interesting isn’t it? As I mentioned before, by running regression on the market cap of all cryptocurrencies and the total number of confirmed transactions, you will see a correlation of 94% with samples taken monthly.

Here’s a similar chart that only includes Bitcoin, not the entire crypto market. This should look familiar to you, based on the previous chart.

Read more at:  Seeking Alpha

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