E-gold - no hopes... When the giant will die?

I am interested in what would you say about the statement that e-gold is the most stable currency from the predictability point of view. Nonsense? No! Amid the development of panic ideas about the future of e-gold it is worth to look at a possible scenario of “the last day of Pompeii”.

Well, let’s first of all see what we have at the bottom line for E-gold. It is not even the electronic money. In reality it is just a group of working scripts on a website, which prompts bits and bites to automatically circulate without having any operational economic sense. There is only electronic cash which exists only in the records of e-gold accounts and just moves from one account into another. Probably, some optimists may say that this can continue eternally, however, the common sense prompts that the currency, which loses its liquidity so swiftly, one day may cease to be of value. Let’s see from the economic point of view how the further rate of e-gold will build. For his purpose let’s first of all systematize all the users of e-gold.

• Exchange services • Users, making payments in e-gold Payment directions: • HYIP • Wages • “The Last of the Mohicans" – a number of companies that still have E-gold Merchant on their sites • Common users with the ‘frozen’ e-gold account value, which the other users refuse to accept.

The list of the users was given in the decreasing order on the basis of the possessed funds. It is necessary to see the special tendency in the interrelations of all these user types, which holds the imminent fate of the ex-leader of DGC industry. The matter is that there is an obvious trend of e-gold cash flowing to the exchange services entities. And it is necessary to admit that this trend is actively progressing. The exchange services more and more collect the notorious “gold” to their accounts. It happens that the owners of exchange services hope for a rapid growth of e-gold rate in respect to other currencies or for the e-currency fluctuation. However, today one can only see the downward tendency. It happens that the currency is gradually being consolidated in the narrowing circle of users. And this means that the future of e-gold looks as follows:

This chart shows the movement of money flows in e-gold. It is chaotic but rectified: there is a tendency of the decrease and flow of electronic cash into the narrowing circle of the users. But who do these funds flow to? Of course to the exchange service, the lion share of which are the automated ones.

According to the chart the exchange rate of e-gold decreases pro rata the number of the users. However, the exchange services do not allow it to fall rapidly. And if in the “a” row of the chart we saw that the exchange services represent only every thousandth or even rarer user, by going down we can see that the percentage of the exchange services is increasing. The number of users is constantly decreasing due to the ones who want to withdraw their money and don’t want to have anything in common with E-gold anymore. The number of such people also grows headlong.

Let’s try to see what happens to the exchange rate of e-gold depending on the site traffic.

In the summer of 2006 the cross-rate for the e-gold exchange - wmz was ranging from 6% to 7%. Then, following the annual chart, the e-gold traffic is decreasing twice. And that is interesting, during the summer months of 2007, the cross-rate for the e-gold exchange– wmz has already been about 10%-12%. Following the mechanisms of development the exchange industry has met the summer of 2008 at the rate of 24-26%, which shows the repeated decrease of the e-gold cross-rate - wmz. The decrease was coupled with the fall of the traffic, which has also decreased double. Here is the conclusion: the traffic and the exchange rate of E-gold show a geometric decrease with index 2 and a step equal to 1 year.

Can we expect the tendency to continue? To answer this question let’s look at the experience of Fethard whose flight over ‘the cliff’ threatens to turn into a headlong swoop and the lethal outcome in the near future. September of 2007 has become a starting point for Fethard to leave its positions. After the plunging fall to up to 25% of the cross-rate Fethard – wmz started losing 5-7% every month. To answer the question of when the rate of e-gold will crash, it is necessary to see the similar precedent in Fethard payment system. Of course, the external specific factors such as messages from the system owner about the state of affairs also have a place here. However, here it is also necessary to keep such psychological factor in mind that some users do stay with an electronic currency, the rate of which is falling headlong. After some definite percentage the load of optimism is rapidly exhausted and the currency dump takes place. We have looked at the history of Fethard just to see the threshold percentage. The practice has shown that after exceeding 50% a rapid currency dump takes place and great amounts of it concentrates at the exchange services. Today the market rate of Fethard in the exchangers that accept this currency (there are only a few of them left in the Internet) is more than 70%. This helps us to conclude that the crash of the rate e-gold – wmz will happen after 50%. Thus this crash will happen not later than at the end of 2009 or the beginning of 2010. It is very hard to guess this moment with a high accuracy, as comparing to the gigantic gold Phoenix e-gold looks like a baby chick. And this also means that e-gold is more influenced by the specific factors which haven’t influenced Fethard. The main one is the volume of e-gold active users. They have created their own market for themselves - the virtual economy where they pay for everything in e-gold. Today nobody but them keeps the rate and constantly maintains the exchangers as well. The latter long for the e-gold rate hike as nobody else, so they will “die in the last ditch” and one day will turn into a row of “e”s of our first chart. As soon as the tendency of exchanging services numbers increases to a 50% level for the exchange e-gold-wmz, then the dump and a rapid exchange percentage drop will take place.

With a big likelihood we can say that e-gold will die particularly from the excessive concentration of its e-cash in the exchangers and from the rapid drop of liquidity. However, there are four more scenarios:
• Revival of the system
• Adjudication of bankruptcy
• Purchase of the company and re-branding
• Merger of E-gold with some other payment system

The first option is rather a fantasy. The attention of the authorities to the frozen e-gold accounts looks too permanent right now. More likely the letters and figures on the switched off computer of the sleeping programmer will join into the script of the autoexchanger, than e-gold will get a new life.

The company’s declaration of bankruptcy is a more possible end for e-gold than a rapid drop of liquidity, as liquidity mainly depends on this declaration.

The third way is difficult as an ill fame of e-gold has stroke the roots of the associative memory of the Internet users so much, that no re-branding can help.

The forth way is the best solution both for e-gold and for the market. In this case, the owner of e-gold will get good money and the whole market will continue using the same cash but with another name. However, it is a great risk to buy such company only for its ready-made client base, as everybody knows the problems of e-gold with the law and some general stereotypes of the USA authorities that e-gold is the second Carder Planet.

Only one thing is obvious, the future of e-gold is not just hazy but covered by a black cloud with continuous thunder-storms. 27% for the exchange today threaten to become 35% tomorrow. And as soon as the interest grows up to 50%, and the cohort of the autoexchangers understands that they exchange e-gold only among themselves, then the last nail will be hammered into the crypt of e-gold. When will it happen? There are all the logical reasons to guess that it will happen in 10-15 months. And, of course, when e-gold crashes not only the exchangers will lose, but the users and the owners of the Internet-businesses will do as well. However, the most optimal behavior today is not the desire to earn the last cents on E-gold, but to foresee all the losses which can arise due to keeping e–gold as a part of your funds.

Arthur Salnikov, Chief Editor of «Trainex Journal»

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Comments

Joe Bob 2008/07/22 4:50 a.m.

At the following link, you can see the declining spend fees e-gold has been receiving on a chart. The decline has been drastic since the US Govt started legal action against e-gold.

http://scbbs.net/craigs/feetplot.asp

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