A few independent reports have trickled in regarding the amount of real money that came into the cryptocurrency market last year.
One estimate is from Nikolaos Panigirtzoglou at JP Morgan entitled “Flows & Liquidity: The emergence of cryptocurrencies.” According to his analysis:
The net flow into cryptocurrencies is very much a function of coin creation which is controlled by computer algorithms and in the case of bitcoin is diminishing over time. Figure 6 shows the net amount of money invested every year since 2009. The cumulative amount has totaled around $6bn since 2009, well below the current market cap of $300bn.
He illustrates this over time with the bar chart below:
Note: that Panigirzoglou’s analysis above was published last month. It is unclear how much his calculation(s) may adjust upward given the fervent energy through the holiday season.
Robin Wigglesworth, a reporter with the Financial Times, posted a new note from Citi research about a week ago entited: “Cryptocurrencies are the answer; what is the question?” A couple bullet points from the note:
- In 2017, cryptocurrencies grew from a market cap of less than $20bn to around $500bn. We estimate this surge was driven by net inflows of less than $10bn.
- We think current prices require inflows of approximately $25bn/year to be sustainable. For 2018, this seems likely to be exceeded. We would expect bitcoin to continue to make gains but for larger alt-coins, particularly ripple and ethereum, to outperform.
They don’t give a range, but less than $10 billion could sync with the JP Morgan analysis depending on which spot exchanges and OTC service providers they spoke with (in addition to the market data they may have used).
I typically don’t write about price action, however, the price of bitcoin has been especially volatile the past few weeks. It has declined about $5,000 (~25%) since its most recent all-time high last month. And both ether and XRP have recently seen new highs. Will this last throughout the rest of the year?
Note: I was quoted in The Wall Street Journal last month saying this is some kind of bubble:
The most recent moves brought bitcoin’s year-to-date gain to about 1,560%. For many skeptics, though, that is proof that bitcoin is a massive bubble.
“It’s clear that people are putting money in simply because they think other people are going to put in money,” said Tim Swanson, the founder and research director at Post Oak Labs, a San Francisco advisory firm. “We’re seeing the actual illustration of speculation. Somebody should take a snapshot of this and put it in the dictionary.”
Let’s check back in a few months to see if there are any more cash flow estimates.
Update: Chainalysis posted an explanation for the post-December price decline which looks at ‘net inflow’ at exchanges. See also: J.P. Morgan Perspectives: “Decrypting Cryptocurrencies: Technology, Applications and Challenges” (pdf)