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Author Topic: Bitcoin value  (Read 4788 times)
Veltas
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February 10, 2011, 02:45:48 AM
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Now firstly, I'm no economist... I don't know much about economies at all, I'm just trying to lay down this idea about the current state of bitcoin inflation and what it means for the community.  If you know about economy and think I'm wrong you'd be doing me a favour by telling me because I'm eager to learn more about economy.

Right now the bitcoin is being affected by its own economy's inflation, and seems to have reached parity with USD.  This is a milestone, but meaningless to say the least.  What we should really be doing is thinking about how the bitcoin will continue to undergo increase in value.

I believe that the bitcoin will continue to undergo its rate of value increase, maybe not at quite the current rate, but nevertheless continuing for a long time.  This is because mining is limited, and the community is growing, so supply is less than demand and people are going to pay more USD to get their hands on spicey BTC.

The problem is, our community doesn't grow on trees and eventually we'll run dry.  There are only so many people that can be reached / care about bitcoin and although I don't see the limit anywhere near and have no idea when it will come, it will come one day.  At this point demand will level out and the supply will continue slowly increasing due to exterior inflation and mining.  This means a decrease in rate of value increase.  This isn't bad, but what is bad is if people see this and realise that their BTC isn't going to be worth this much again, or at least not for a long time, so they cash it all in and suddenly supply 'sky-rockets' and demand remains at the level it was before, so BTC would very quickly lose its value, which could have long-lasting damaging effects.

I believe that encouraging investors for the sake of the increasing value of BTC would be the cause, because relying on the increasing value of BTC means that when the value has reached its peak they're going to sell and buy something more worth it.  What BTC needs is people looking for an alternative P2P non-fiat money system, which has no tax or regulation by authority.  Our micro-economy can grow without people looking to gain money off of buying and selling BTC, and I believe will result in a long-term stability in BTC.

Please tell me what you think...

Veltas

EDIT: I've changed to the correct terminology for BTC inflation/deflation by removing it as much as possible, since when considering BTC as a product or as a currency the definitions change.

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February 10, 2011, 03:09:01 AM
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Deflation: The more valuable a bitcoin is.

Also, I am a freelancer. Been busy looking for work in this small economy.

theymos
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February 10, 2011, 03:13:04 AM
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I believe you are using deflation/inflation in the opposite way usually meant on these forums. Mostly we speak in terms of monetary deflation/inflation, where deflation = higher BTC prices.

The block reward halves every four years, so hopefully it will become insignificant by the time growth "loses steam". Assuming Bitcoin is not replaced by something else, prices should continue to rise forever, since people will lose bitcoins even when the price would normally be totally stable. But that's not really the point: the point is that value won't decrease unpredictably.

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February 10, 2011, 03:27:20 AM
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Also investors would not just be using bitcoin for growth, but as a store of value. Yes there is hot money going into bitcoin in the heavy growth phase, and when growth is not so quick that money will leave for better opportunities.

However, in the meantime a number of investment opportunities that are only denominated in bitcoin should become available allowing those investors looking for growth to stay within the bitcoin ecosystem. So as long as the bitcoin economy evolves and develops (things like profit making companies etc.) it will continue to grow , and is not likely to be a bubble.

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Veltas
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February 10, 2011, 03:40:55 AM
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Thanks for the intelligent responses, I've amended the inflation/deflation terminology.

Also investors would not just be using bitcoin for growth, but as a store of value. Yes there is hot money going into bitcoin in the heavy growth phase, and when growth is not so quick that money will leave for better opportunities.

However, in the meantime a number of investment opportunities that are only denominated in bitcoin should become available allowing those investors looking for growth to stay within the bitcoin ecosystem. So as long as the bitcoin economy evolves and develops (things like profit making companies etc.) it will continue to grow , and is not likely to be a bubble.

My worry is; just how far will this go?  There will be a decrease in community influx, it is inevitable.  When this will come, I can't tell, but when it comes the steady increase in bitcoin value would be at stake, and investors storing their 'value' would quickly move on to somewhere more profitable.

I'm not even talking big time investors, I mean everyone; you, me.  Anyone could be an investor in this scenario, and I feel the only way someone would stay with bitcoin in this situation is if they needed it for its original purpose of a free currency with no taxes or restrictions and a P2P payment method.  So I stand with what I said about encouraging investors, I think it's a bad idea.

The block reward halves every four years, so hopefully it will become insignificant by the time growth "loses steam". Assuming Bitcoin is not replaced by something else, prices should continue to rise forever, since people will lose bitcoins even when the price would normally be totally stable. But that's not really the point: the point is that value won't decrease unpredictably.

I hope not, but I'm more sceptical.  I feel that we will lose value dramatically if we have too many people investing because of the value and strength of bitcoin.

Veltas Vandegere the awesome.

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Hal
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February 10, 2011, 05:10:30 AM
 #6

IMO one way to get a handle on a reasonable value for 1 bitcoin is via this formula:

probability Bitcoin ultimately succeeds * value of 1 bitcoin if it succeeds

Bitcoin has the potential to become the dominant currency for large-scale electronic transactions worldwide. If this happens, bitcoins could be worth millions of dollars each.

So what is the probability of such a grandiose outcome? One in a million? Maybe so.

I see the recent increase in value as a rise in the consensus probability that Bitcoin will succeed.

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February 10, 2011, 05:23:53 AM
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I hope not, but I'm more sceptical.  I feel that we will lose value dramatically if we have too many people investing because of the value and strength of bitcoin.

The investment could be followed by new business entries, or not.

Veltas
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February 10, 2011, 11:08:04 AM
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Also, I am a freelancer. Been busy looking for work in this small economy.

Then you're wasting your time... Bitcoin is only effective for people who want anonymous and free transfer of money.  If you're out to gain wealth for the sake of it... so be it.  If you're out to make some money off of the rising price of the Bitcoin, then you're a pox on this economy.

IMO one way to get a handle on a reasonable value for 1 bitcoin is via this formula:

probability Bitcoin ultimately succeeds * value of 1 bitcoin if it succeeds

This is dependant on a macro nature of the economy, which is impossible since it is only one economy you're looking at.  Unless you're investing in millions of these economies (of which there are not that many) then it's highly improbable to pay off, although your estimates are completely off; I'd say that the chance of the bitcoin catching on is very high, just how much will it catch on?  That's the real question.

Bitcoin has the potential to become the dominant currency for large-scale electronic transactions worldwide. If this happens, bitcoins could be worth millions of dollars each.

Perhaps, although the value of the Bitcoin means absolutely nothing; it's the stability and overall rate of increase of value that makes the difference.

I see the recent increase in value as a rise in the consensus probability that Bitcoin will succeed.

I don't, I see it as the result of an increasing population of Bitcoin users, increasing demand for buying Bitcoins and the nature of the supply of Bitcoin relative to this.  However, I see the increasing population of Bitcoin and its support to be directly related to popular belief that it will work among its users.

I hope not, but I'm more sceptical.  I feel that we will lose value dramatically if we have too many people investing because of the value and strength of bitcoin.

The investment could be followed by new business entries, or not.

Not sure I understand what you're getting at here.  Are you saying that more business relying on Bitcoin would counter the effect that many long-term investors selling their Bitcoin would have to the Bitcoin's value.

Veltas Vandegere the awesome.

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February 10, 2011, 01:58:58 PM
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Also, I am a freelancer. Been busy looking for work in this small economy.

Then you're wasting your time... Bitcoin is only effective for people who want anonymous and free transfer of money.

I don't personally care about anonymity and Bitcoin is still an effective means of exchange for me.  Bitcoin has many advantages over traditional currencies/commodities. Depending on individual preferences, it will be effective for many people for different reasons.  This broad appeal probably influences Bitcoin's long-term value.
kiba
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February 10, 2011, 02:27:29 PM
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Then you're wasting your time... Bitcoin is only effective for people who want anonymous and free transfer of money.  If you're out to gain wealth for the sake of it... so be it.  If you're out to make some money off of the rising price of the Bitcoin, then you're a pox on this economy.

That make no sense. I just look for work to do. What does that have anything to do with anonymous and free transfer of money? It's not like I am gaining at the expense of my employers.

I am more concerned about establishing a viable economy than I am worried about making money at the moment.

Veltas
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February 10, 2011, 03:28:42 PM
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I don't personally care about anonymity and Bitcoin is still an effective means of exchange for me.  Bitcoin has many advantages over traditional currencies/commodities. Depending on individual preferences, it will be effective for many people for different reasons.  This broad appeal probably influences Bitcoin's long-term value.

Even so, the point remains that it is an effective way of making payments.

Then you're wasting your time... Bitcoin is only effective for people who want anonymous and free transfer of money.  If you're out to gain wealth for the sake of it... so be it.  If you're out to make some money off of the rising price of the Bitcoin, then you're a pox on this economy.

That make no sense. I just look for work to do. What does that have anything to do with anonymous and free transfer of money? It's not like I am gaining at the expense of my employers.

I am more concerned about establishing a viable economy than I am worried about making money at the moment.

Maybe I misunderstood what you meant, sorry.

Veltas Vandegere the awesome.

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February 12, 2011, 03:23:53 PM
 #12

I've no idea about the timing...but if you divide 21m into the current M2 money supply you arrive at a figure north of $400k/BTC...if BTC is really secure, with low inflation and can survive the inevitable attacks by govt and the monied interests, I see nothing stopping it from moving higher...much higher.

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