The big news is that Bitcoin has now hit a new record, surpassing the $4,700 mark. As my regular blog readers (and podcast listeners) will know, I have some reservations about the current wave of apparent crypto-enthusiasm. Don’t get me wrong – I like the idea of bitcoin and cryptocurrency in general. And I’m sure that crypto is going to be the future of money.

Because, not to be facetious, but how could any central bank (or tax authority!) resist? Blockchain technology offers the allure of a massive public ledger, where every single transaction is broadcast to (and stored by) every computer on the network. Imagine a world where every asset and/or every casual purchase is a matter of public record. It’s triple entry accounting – every cryptoRand (or cryptoDollar) would contain both its current ownership, and all of its ownership history. All you’d need is the right algorithm to read it.

But that dystopian vision aside, that’s not where all my bitcoin-specific reservations come from.

So let me ask some questions.

Question 1: What Is Really Driving The Bitcoin Price Surge?

I know that this is the million dollar question. But all the standard explanations don’t really seem to check out.

So before anyone tells me that the price surge is just a sign of bitcoin achieving mass acceptance, here is a chart of bitcoin trading volumes for the last two years:

Bitcoin trading volumes last 2 years

Just to be clear: the total volume of bitcoins traded has collapsed this year. And it was after the collapse that the price surge happened:

Bitcoin price last 2 years

This is not normal. When you get price surges, you expect volume surges. Not this.

But perhaps you’re not persuaded by that. Perhaps you’re thinking that the volume anomaly is just a reflection of the price going up – so people can’t buy as many ‘whole’ bitcoins. Maybe they’re buying parts of bitcoins.

Well, let’s look at the number of trades per minute for the last 2 years:

Bitcoin Trades Per Minute for last 2 years

Well that’s also near historic lows. And the dramatically lower number of trades per minute happens to coincide with the period of the price surge.

Again, this is not normal. You wouldn’t expect a drop in trading activity to correlate with massive price surges.

So what the hell is going on?

Here’s a possible response that I’ve heard before: “Oh, the data is wrong – the figures coming out of China are notoriously unreliable.”

Question 2: is there fake data?

Well, here’s the chart of trades per minute, split by currency:

Bitcoin trades per minute, last 2 years, split by currency

So whatever else, the yuan (CNY) trade appears to have dried up in 2017. Was 2016 just an anomaly for ‘fake’ bitcoin trade data (which we can now disregard, because the yuan trade has disappeared)?

Unfortunately, I don’t know.

Although if I’m honest, I think it’s weird that all this fake data would suddenly ‘correct’ itself right as the bitcoin network started having problems processing transactions. Just to remind you, the network first started having serious issues with processing times toward the end of 2016:

Size of bitcoin unprocessed transaction queue
This graph shows the number of transactions in the queue for processing – the more unprocessed transactions, the longer the processing queue

Isn’t this a more plausible reason for the drying up of the yuan trade? If trades stopped happening as quickly because the network couldn’t take the pressure – then that would certainly scare me off (if I were a Chinese day-trader).

But that aside, let’s just look at USD trading volume data alone then:

USD volume in bitcoin trade (measured in bitcoin)

Admittedly, I’m looking at the volume of USD-BTC trading volumes denominated in bitcoins. But it makes more sense (to me, at least) to look at it this way. Because there’s no discernible pattern here that says “Look at people buying lots more bitcoin.” 

And remember: this is assuming that all the Chinese yuan trading data is false.

If you assume that the trading data is mostly accurate, then you’re back to being baffled by really low volumes of trade.

And if you assume that the data is mostly false, then why are we even here?

Question 3: how is the BTC:USD price measured anyway?

I realise this sounds like a semantic question.

Here’s the thing though: Bitcoin (or BTC) trades on multiple exchanges. But when I look up the USD price of BTC on Google or Coinbase, I get a single price.

And I don’t know where it comes from.

Is it a straight average of the prices on all the exchanges? Is it a weighted average? Does it prioritise some exchanges and leave out others?

This is not a minor question.

For example:

  1. Let’s say that there are only two bitcoin exchanges.
  2. The first bitcoin exchange is where everyone trades, and the last traded price was for $4,000.
  3. The second is barely used, and seems to have some shady questions around where it came from. It mainly seems to be a place to launder money (because Bitcoin exchanges are unregulated, this is entirely possible). And the last trade took place at $10,000 (some heavy laundering, right there).
  4. If Google and Coinbase just use a straight average, then the quoted BTC:USD price suddenly soars to $7,000.
  5. On the other hand, if they use a weighted average of all trades closed in the last 24 hours, the BTC: USD price would barely register the $10,000 anomaly – and the price would remain constant at $4,000.

So the methodology is important.

Only, I can’t tell how anyone has arrived at the ‘average’ Bitcoin price.

My main point

The bitcoin network is meant to be decentralised, transparent, and self-regulating.

Right now, it looks opaque.

And if this were any other asset class, I’d be saying that the entire market looks like it’s being manipulated.

Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at Also, check out the RA podcast on iTunes: The Story of Money.