(The Secret Bull Market Originally Posted March 14th 2014)
Note in the bottom right corner says: Disbelief Phase Coming Soon to a Theatre Near You. — Does everyone have their popcorn ready? ?…..Ok here we go now lets clear some thing up. What is the barter system? Answer:
- A barter system is an old method of exchange. Th is system has been used for centuries and long before money was invented. People exchanged services and goods for other services and goods in return.
Simple enough question but you would be surprised the amount of different answers you will get.
Sounds simple enough right. Like say I want a sheep and you need a cow we can meet up and we can do an exchange of COW/SHEEP. Let say sheep are in short supply maybe then I need 2COW/SHEEP….whatever the agreed upon exchange rate as soon as you make the deal you guys have a market!
What you are looking at is nothing more than a fraction….like 1/2, x/y or COW/SHEEP or EUR/USD or BTC/USD…..see where this is going? Don’t worry be patient it gets better. Fractions that we all learned in 2nd grade is the magic of markets and it never gets old to watch lol. Anyway in our market of COW/SHEEP or EUR/USD we are only really concerned with the part we own in the end. So If I go long COW/SHEEP I go hope with a cow and the other person a sheep. Another example if I sell someone Bitcoin for USD I will go home with USD while they take home BTC at an agreed upon exchange rate we look at as BTC/USD. To own BTC in exchange for USD is what I am doing here. If the person would accept one of my cows for it I would express this relationship as BTC/COW and you would ask well how much btc do I get for the cow?
Lets say I get 100 BTC for my Cow then my fraction/ratio will change to 100btc/cow. This is no different than BTC/USD because markets are fractal it is exactly the same except instead of the denomination being cow it has become the USD.
In our modern economy we believe the barter system to be dead and gone simply because we have changed the medium of exchange. By definition this is true but structurally nothing has change at all. Lets look again at this cow example. I know my cow is worth $10,000 or 10k/Cow. I also know that my cow is worth 100btc. So we have the value of the same cow in 2 different markets with two different denominations right? Well in grade school we learned how to handle fractions or some of us did if you were awake and not drooling on your desk trying to hid the fact you were asleep behind one of your text books.
What happens when you divide 2 fractions? In our example lets say we divide (100btc/cow) by ($10,000/cow) = 100btc/$10,000 or 1btc/$100.
Your BTCUSD exchange rate would be $100/BTC. This simple logic is of massive importance in markets. We will revisit this point later.
2.) Similar assets in markets tend to exhibit correlation over time albeit to varying degrees. We see this in FX, Stocks, and in crypto. This phenomenon has to do with our perception of exchangeability between these assets.
3.) How does this all play into BTC? Glad you asked! It takes all of that to get us to this point. I entered the BITCOIN market space in mid early Novmember 2013 which if any of you recall was a very volatile period in the market prior to the Mt. Gox debacle. At that time we saw BTC hit all time highs well over $1,000 only to be followed by an entire year of pain for longs. So what happened? There are endless technicians on twitter with a myriad of opinions. There are millionaires and billionaires on CNBC, & BLOOMBERG ready to give you a different story. How about that TIM DRAPER or MARC ANDRESSEN surely all of them couldn’t have all gotten this wrong this year that called for a massive bull market and are holding tons of BTC with far more intel than the public. How did so many BTC bulls get left holding the bag exactly? And if all of them are buying then who is out selling everyone??? Back to fractions we go ?!
It comes back to our COW/SHEEP cross…..like our BTC/USD we have a choice of how we would like to obtain BTC. I could give you X amount of Sheep for it and if your not interested in my sheep I could give you a dollar equivalent amount of USD. To make it more simple:
LTCUSD is really LTC/USD which is right now $3.70. BTCUSD is BTC/USD which is right now $354. Divide BTCUSD/LTCUSD and your cow goes away! You get LTC/BTC = 0.01045…. So what good does that do me?
The often under rated secretive exchange in lawless Belarus probably made arguably the best case for regulations in capital markets I have ever seen. What happens when you get a couple guys really good at math in a country that checks nothing against a market full of kids for the most part who don’t seem to know basic mathematics and are prone to herd behavior…..yup you guest it RAPE!!!