CRYPTOCURRENCIES
slowed, and integrated circuits cannot get much smaller as transistors approach the size of an atom.” Right now, the chips are 14 nanometers (nm) down from 22 nm, which refers to the width of the circuit back in 2011. The next chip they are talking about is the 10-nm chip and then the 7 nm. The new chips are trying to find a compromise between computing power and power usage but the focus seems to be on power consumption. Te shiſt in focus on power use seems to be creating the cracks in Moore’s Law but for now it seems to be intact. Regardless of whether Moore’s Law is increasing or decreasing, the adoption rate of bitcoin is greater than the rate of technical advancement.
The issue bitcoin miners face is that demand for bitcoin is growing so fast that the difficulty rate is trending higher. When the semiconductor improvements in technology and Moore’s Law cannot keep pace with the difficulty level, then price must rise and that is what is unfolding before our eyes. Look at the chart on Figure 3 and you can see that Moore’s Law if plotted against difficulty would show technology is not keeping pace with the growth of bitcoin. Moore’s Law is essentially the maximum limit of technology. When you add a supply shock to the system like we are having now, then prices rise. Technology suppliers of mining equipment have large backlogs of people trying to buy mining equipment and have resorted
FX
to taking bitcoin for payment so that they hedge themselves against the price rise in bitcoin. This backlog is exacerbating the price because only established players who have the bitcoin or upfront cash will get new mining equipment, which is choking out new entrants to the market. Te price will only settle when the log jam of people wanting to get into mining thins out. The constrained supply of mining equipment has created a perfect storm for price appreciation.
Top Reasons Why a Crash Is Unlikely
1. Futures Markets
A lot of concern has been voiced about the futures markets and what sort of impact it would have on bitcoin and the markets. In an interview with CNBC, Terry Duffy, chairman and CEO of CMA, said, “Today you cannot short bitcoin. So, there is only one way it can go. You either buy it or sell it to somebody else. So, you create a two-sided market; I think it’s always more efficient.” Normally you can use market action to gauge the sentiment of the comment. In this instance, the market bottomed short term and has gone on to reach new highs, which was viewed as a net positive.
Fig. 3
The futures markets do serve a purpose and have done a great job creating liquidity and allowing asset
FX TRADER MAGAZINE January - March 2018 35
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