Rainbow Charts ! not so much – but more interesting fundamental charts.

The “Rainbow Chart”

I recently came across a seemingly hair brain Bitcoin “Rainbow chart” that someone designed (for no apparent reason) other than to say “Buy Bitcoin”

The Chart has no explanation of why bands are the sizes they are or where any of that fits, it just seems to say “Buy now”, however while looking at it with some amusement  I was somewhat struck by a pattern, I then found that this pattern made a lot of sense when I matched that pattern back up to the fundamentals of Cryptocurrency distribution.

So lets explain it, but first I give you the “Rainbow chart” !

 

Rainbow Chart Bitcoin

There has to be a unicorn in here somewhere.

http://np.reddit.com/r/Bitcoin/comments/2ezwjq/bitcoin_price_with_overundervalued_bands_revised/

 

When looking at the bottom chart which is just a BTC V USD all time chart i was struck by a particular pattern that I recognized  of course we all recognize the run up, but then we see a “ditch” followed by a elevated “plateau”, and i was sure I’d seen that somewhere before, and then distributions aspects started to make sense.

So lets look at the BTC v USD chart and highlight the “ditch” and “plateau”:

 

The Bitcoin  BTC v USD chart

btc3

 

  • The Run up is circled
  • The “ditch” is underlined green.
  • The “Plateau” has line above with blue
  • Will explain volume in summary (2) pink lines below.

Next Chart

 

The Quark QRK v BTC chart  (will follow with QRK v USD)

qrk1

Notice the Run up the “Ditch” and the “Plateau” highlighted ?

 

Explanation :

I would like to remind the reader at this point that Quark is just 12 months old, but would like to explain why Quark is a “sped up” version of a Cryptocurrency distribution, the key was that of course Quark was primarily distributed (its units put into the market) over a relatively small time frame;( a 6 month period.)

This explains why the volume figures are “swapped around” from the BTC to QRK charts.

Quarks primary distribution ( when all its units were being put into the market) roughly ended at the pink vertical line, see that the volume was very thick and then tapered down as the reward tapered down to the trickle.

Both Bitcoin and Quark use “halving”  basically the Bitcoin reward started at 50 and halved to 25 , and then so on to 12.5 so you see how the system tapers off.

Quark did this but it was much less relevant as the whole distribution was tapered off in 6 months, the aim was to let the market work as quickly as possible BUT NOT give a monopoly to a tiny group.

Quark achieved this, the proof is that the price floored to near zero just after listing on “major” Crypto exchanges, it then had a huge bull run which caused a massive distribution which continues today, it bottomed again recently and distribution continues.

 

Quark v USD

qrkusd

Obviously Coinmarket Cap did not have USD volume data before round Dec30, which makes sense as Quark did not have a direct USD cross at that time, however the result is the same.

 

Bitcoin monopoly is being broken the market is taking over.

I keep trying to explain to individuals that most all Crypto currency are price manipulated though direct mining monopoly, however this monopoly can not be held indefinitely.

In a way it is two essential forces fighting each other, the strong human force that wishes to basically do whatever benefits the self, and does not trust others, but then the second force of decentralization which is mathematically designed to seek neutral control, i.e it is designed to break monopoly by letting the free market work, so it appears that humans always will try to fight the free market where possible.

To put this into facts, the Bitcoin mining monopoly is right now either broken or is being broken, it is being broken by large foreign competitors entering into the market primarily Chinese, and other BRICs nations.

When you think logically about this it makes perfect sense, in an ASIC mining monopoly arms race the “west” never had a chance, look at the points:

  • ASIC manufacture is primarily Chinese (i.e they own the manufacturing base)
  • Exchange rate advantage.
  • Energy advantage (in some cases free energy)
  • “Labor force” advantage.
  • BRICs Productive capacity is still in growth mode.

This perfectly explains the Bitcoin “Difficulty nuclear arms race”, which does not represent the price in any way, what you are seeing is the powerful force of decentralized algorithms essentially forcing the free market upon a monopoly, and this algorithm is basically designed to commit suicide rather than have a monopoly situation exist.

It will either “re-balance” or “self destruct” in this case the free market is driven by the strong forces of a global manufacturing base. (primarily Chinese)

The Chinese and others will soon control Bitcoin mining, and force the free market onto the Bitcoin Price valuation, that price will be much lower than present ($500) i expect.

 

 

What are the two scenarios?

 

Scenario 1

The Bitcoin “tail” that we see in the Quark chart, (as effective distribution into the real market occurs) extends long out into the future ( as the Bitcoin distribution is a much longer process)

But price steadily declines as Bitcoin seeks to find a “free market price” and “base money”.

 

Scenario 2

The tail will extend to a declining volatile point upon which large alternate monopoly competitors will have full control of the mining structure (they may well be very close) upon which it will essentially “self destruct”

At the point of “self destruction” It may be “Phoenixed” by being hard forked and redesigned into a superior decentralized algorithm, (which can not be monopolized easily)

but that will not guarantee a high price valuation that will guarantee a “market price.”

However in the mean time Quark has found a market price already and is not monopolized, so this should mean interesting times for that valuation.

 

Summary

 

If you understand simple monetary distribution economics all “Monopoly Crypto currency” that is to say a crypto currency with a mining monpoly, are initially a supply side monopoly, and should be priced as such, the “marketing” around them matters but only as a secondary point to this initial monopoly, buyers of the entity are subsidizing the monopoly at a price which the monopoly can choose.

This monopoly breaks down due to two (2) primary factors:

1. The mechanics of the design.

2. The information in the market.

then the base money price is found.

The two charts Quark and Bitcoin track along a similar path pattern despite one being years old and the other months old, this is because fundamentally this supply side monopoly rule holds for all crypto originally.

The Quark Plateau was the overhang of the strong human forces trying in a futile manner to hold onto an impossible higher than normal valuation at that time.

The Bitcoin plateau is the same scenario except this plateau may extend longer as the market will take over when the mining monopoly is broken, (this is happening)  this will occur when Chinese (or other) competitors have the primary or significant % of the mining production segment, upon which they will compete with themselves in a free market competition.

At this point Bitcoin will trend like Quark to “Base money” and they will both compete on that basis.

however Bitcoin will require a “restructure” and will have to be rebuilt to more represent Quark parameters.

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