If you’re frustrated with the current, stagnant, price of Bitcoin then I have news for you: Bitcoins aren’t fungible. Ten years on, Bitcoin has much more in common with the fine art of the Masters than it does gold or cash or even diamonds. I guess you can compare it to the tracking of fiat currency or diamonds based on their serial numbers. Unlike paintings that can have gaps in their provenance, Bitcoin has a perfect chain of custody because an immutable and incorruptible decentralized ledger is built in, called the Blockchain. J.P. Koning made it very clear in Bitcoin Magazine:
“Fungibility is a particular concern for bitcoin because bitcoin, unlike cash, sea shells or silver coins, has a cryptographically provable history of ownership. If the identity of a particular bitcoin’s previous owners or the nature of the transactions they engaged in was to be revealed and deemed illegal, could this cause a future where new or unspent ‘virgin’ bitcoins are worth much more than old bitcoins or where coins associated with Silk Road transactions lose a great deal of their value”
So, the older that Bitcoin is (the closer to ten years old it is) and the more it’s been circulated (bought and sold), the higher the chances are that it’s been stolen or involved in crime. As a result, a market has developed for virgin bitcoins—coins that are freshly mined and have never been circulated—and are willing to pay a premium for them. Travis Kling of the Ikigai hedge fund points out:
“Miners can offer virgin cryptocurrencies that have a 20% premium, as it is easier to prove that they are not linked to money laundering. Therefore, buying directly from the miners would become more attractive.”
“A large % of BTC is stolen. You are probably holding some stolen BTC now. The longer that BTC trades, the higher the percentage of theft. Eventually, all BTC will have been stolen multiple times. This is yet another reason that perpetual debasement (which Bitcoin doesn’t have) is highly desirable because virgin mined coins don’t have this stigma. The chain of ownership it is on the public ledger. All theft can later be traced ex-post facto (at any time in the future when the theft is reported and investigated). The Statute of Limitations would probably be at least 5 years.”
As a result, freshly- or recently-minted Bitcoins are preferred, especially by collectors and hodlers. While tainted Bitcoin doesn’t really affect the day-to-day or small investors who have dirty wallets filled with random “nonsequential” Bitcoin, it can really affect investors and collectors who own large blocks of sequential coins. It’s sort of like buying pallets of money with consecutive serial numbers. Buying virgin Bitcoin is like getting unmarked bills.
According to BCFocus:
“Mining is the process through which a new Bitcoin is generated. The reward that you receive for mining is a virgin Bitcoin which has never ever been available to anyone. It has not been purchased or sold by anyone and you are the first person to obtain it.”
If you’re going to get a pallet, armored truck, or cargo plane filled with stacks of hundred dollar bills, you won’t want it to immediately and already be under investigation by a team of anti-terrorism, antifraud, or antitheft financial forensic accountants from the Financial Action Task Force (FATF) who might not be on your tail, per se, but are spending bottomless federal resources to recover and return exactly the Bitcoin that you possess to the people from whom it was stolen.
Even at a 20% premium, Adam Back couldn’t find any takers “I had a go at persuading some of these folks to take that premium. They preferred to cold hold 50btc virgin mined coinbases and forgo that premium. Apparently 20% premium on lots is not enough.”
I had a go at persuading some of these folks to take that premium. They preferred to cold hold 50btc virgin mined coinbases and forgo that premium. Apparently 20% premium on lots is not enough.
— Adam Back (@adam3us) August 20, 2018
There’s a reason why it’s so hard for hedge funds, international merchants, and other financial services to get their hands on virgin bitcoin from Bitcoin miners is because these miners all have their very own plan. Frank Holmes of HIVE Blockchain Technologies lays it all out on a platter:
“We’re hoarding the coins… we mine virgin coins and in fact, we are getting offered premiums for our coins because they’ve never been tainted. We never buy the coins… anytime it has a huge surge we will sell one, two or three percent… and as soon as it corrects we just mine more and replenish ourselves… We want to wait until we get at least 20,000 coins and then we can turn around and use our quant models, so we’re doing things very unique…”
Everyone is scrambling for the theoretical 17.30 million Bitcoin that have been heretofore mined and are in circulation right now, of the 21 million total Bitcoin that will ever be mined. It’s a Mexican standoff between miners, hodlers, individual investors, international trade, and institutional investors. In all their minds, there will be only a total of 21 million Bitcoins ever available to anyone. It turns out that the Blockchain cuts both ways: it keeps everyone honest by making sure that a Bitcoin is a bitcoin—no counterfeit coins, ever; however, it’s also impossible to launder or revirginize Bitcoin. Until someone can figure out the process of Bitcoin revirginization, the current Bitcoin price might be based on dirty, rotten, crime-addled, Silk Road garbage coins while the actual freshly-mined coins are being bought, sold, and traded off-exchange via over-the-counter (OTC) and dark pool trading.
So, as of the writing of this article, one Bitcoin is worth USD $6,580.96; however, each virgin coin demands a premium of at least USD $7,811.99—and it goes up from there. Bitcoins aren’t fungible. The newer the better. 80% of cash carries traces of cocaine. Just assume 80% of crypto carries traces of a crime, then act accordingly.