Bitcoin Forum

Bitcoin is currently a speculation vehicle. If the community really wants a currency, or even a good way to "wire" funds, I believe BTC has to be pegged to something.

Theres several things you can peg it to:

-Peg it to the actual average cost of mining. Data can be gathered from stats to arrive at an actual cost of mining, or a producer cost index (PCI). Take the higher value of the range, that way all the miners make something on the effort. Also this insures there will be miners in the distant future working to get the last of the BTC. The price of BTC will rise with the cost of living.  This will of course make mining in some areas more lucrative than other areas, and this is where the invisible hand will come in and dictate the logistics.

-Pick a commodity, silver for instance and peg it to that (but I would suggest that we create a free market exchange to base the silver price off of because the comex is jobbed by              pigs)

-Pick an existing currency and peg it to that as some ratio, china has successfully done that with the RMB to the USD. Why not peg it to the Brit pound or Canadian dollar. . I would say USD or Euro, but those are having lots of trouble.

as a speculation vehicle BTC is a joke.  Ive traded in about every kind of thing you can name, and trading BTC compares with the very worst of the worst penny stocks, topped off with very bad mechanics of money deposit and withdrawl. The volume is thin, large orders goose the market up or down. No real trading is possible as only 6.6 mill BTC exist and most of those are not traded, meaning that the trading pool  is essentially some small percentage of the actual float, Im guessing 10%.

My conclusion; Peg it to something. And use it as a real thing.

yet it isn't pegged to anything and keeps rising nearly every month.  is it possible you might be wrong?

I agree and even said the exact same thing in a previous post.  How do you get people to see the light though?  That's the difficulty.  Too many people are think BTC's will be worth $100 or more per coin someday despite having no logical explanation as to how that will happen under current conditions. 

Bitches at comex for messing with price of silver and wants to set the price of bitcoin. Nice.

Okay let's do it, tell us how to start.

You can't peg it to anything, there's no authority that can decide this, people will just trade as the market flows.
Bitcoins have their own 'intrinsic' value thru their properties as a currency.

It is very tough to peg something that is also decentralized.   Also, in order for it to be pegged, someone has to be credible offering to guarantee to always buy the btc for the peg price.     Go ahead  and do this if you want to peg it to something. Offer to always buy bitcoin at some pegged rate of something.

Of course it won't happen under current conditions. It will happen if conditions are different in the future.

You don't get people to see the light, you either put up your money or find someone who will.  (though you won't)

This is a ridiculous idea, it would not work.

If you peg the currency you will limit the total size of the bitcoin economy to whatever value you choose. You want to peg 1 BTC to 1 Dollar? Thats a 6 million economy, ridiculous. You want to peg 1 BTC to 1000 Dollars? Allrighty, and who will pay that right now for 1 BTC?

There is no way to peg BTC because you cannot control the quantity of bitcoins to suit the size of the economy. You must understand that.

As long as there is no central entity that can control the supply (amount of coins), there is no chance of pegging it to anything.

Stop feeding it guys

You create of stockpile of what you will peg it to,  document and prove you have those reserves and insure you will do not liquidate it for anything but btc  and and put in a non revokable standing offer to buy all btc for the price you want to peg it at.

People with absolutely no economics or finance experience/education can sometimes make some pretty cute, if misinformed, comments...

BTC does not need to be "pegged" to anything, and that's impossible to do anyway. To be useful as a currency, BTC merely requires a value on which a buyer and seller agree. That currently exists.

That's fine if you want Bitcoin to be some geek currency accepted by .001% of the populace.  However, if you really want BTC to take off, it needs to become mainstream and widely accepted.  This cannot happen under such volatile conditions.  People are screaming at MtGox over $1 and $2 price movements, yet somehow your average joe business owner will somehow act differently? 

I think BTC is as much an experiment as it is anything else. As such I think it should be left to develop its own dynamics. I think most of us can agree that BTC in 10 years is going to look very different then it does today. As far as we know BTC might have a tomb stone. Im of the oppion the BTC should be left to develop its own unique path.

So far the only "solution" to market volatility that I've seen anyone put forth is to eliminate the "market." This is obviously ridiculous and unworkable. Got a better idea?

Everyones cornflakes were pissed in.   ::)

Talk to china about pegging, I suppose you all know more than china.
Study how the dollar was pegged to silver and gold early on, and you say it cant be done. Where do you think chinas prosperity came from? THE DOLLAR PEG.

pick up a book.

everyone one of you fired off a right hook before you even thought about what was wrote, youre preconcieved.
Basing the value on the mining costs is a real basis of value, but you dont want to hear that,  so tough luck.

My guess is BTCs days are numbered, whos going to keep pushing it up? Where are the greater fools? They were mostly scared away by the boogie man media and all these "my BTCs were stolen threads".  Idiocy I tell you, Idiocy!  You dont even want to consider making a basis of the mining costs! 

curbside, they dont want to get it. They seem to want this thing to stay an experiment, that eventually blows up in their face.  Based on this reaction, general acceptance WILL NOT happen. 

I don't want to consider unicorns either. I prefer reality to fantasy, at least when it comes to money.

Trying to peg bitcoin to something is like trying to peg gold to something.

Good luck.

Exactly.

Guys you are in the wrong forum, you need to start a new currency, cause with bitcoin that cant be done.

We already have a Fort-Knox, its called the Block Chain.

I personally agree the current bitcoin economy seems to be dominated by irrational speculators and this makes it basically useless for transactions.  However I think you'll find that most on this forum disagree with that view, and either way, changing bitcoin as you suggest is not reasonable and won't happen.  A better plan is to take our ball and move to another court.  There are others with similar thoughts trying to come up with a way to simultaneously achieve the fast consensus of bitcoin with the stable value/real backing of a commodity.

The best I can think of so far is something like namecoin but with a better architecture and general storage, not just DNS.  In any case, rather than demand bitcoin change our time is much better spent carefully designing something new.  If it is indeed better, and provides a promise of greater stability, rational people will realize that and switch, leaving the speculators in a circle-jerk.

why do you need to do all that? why not base the price on statistics of mining costs?  Say globally it costs 17.51 to mine 1 BTC .  All the math of the costs were covered in the mining thread many times. As prices of electricity , computers etc increase, so do the mining costs.  If its costs $35 to mine 1 BTC in the future (includes labor costs), then one BTC is $35.00. and this price will change with difficulty or other variables. 

and the costs and the price increase based on actual costs tied to labor, electricity, global economics, etc etc.

a statistician could put together a reliable pricing matrix in a day. 

its just Ideas people, just ideas.....just like BTC was once an idea. 

 

 

very level and true post.  Im with you.

Same way it is handled with other forex risks.   People will profit off buying the risk.

Why do people say things like "Bitcoin needs to be pegged to gold", "Bitcoin can't be pegged to anything". Ultimately what is going to happen is Bitcoin is going to be pegged to its usefulness as a means of transactions. As a decentralized currency, the value directly correlates to the use of Bitcoins to buy and sell and exchange.

The reason why right now Bitcoin seems speculative is because, people invest in what they believe is going to be worth if and when it becomes a legitimate means of exchange.

The only way that Bitcoin can become an established method of payment is by people and merchants adopting Bitcoin. If Bitcoin does manage to establish itself as a method of payment, the eventual price of Bitcoin is likely to be something along the line of: size of the economy divided by amount of Btc available to facilitate the trade + the markets combined growth potential forecast + the cost of mining.

i.e. On a yearly basis services and goods of a value of $12M are traded through Btc. At that point of time, maybe 8M Btc exist, and maybe 500.000 Btc users exist. However, around 5M Btc are likely to be held by early adapters who do not use the Btc to trade goods and services with. So 3M Btc must facilitate trade. In this scenario, each Bitcoin must be transferred 4 times per year, however, Btc are likely to be transferred more than 4 times per year. However, suppose each Btc is only transferred 4 times per year. A reasonable price for Btc would perhaps be between $5-10. Based solely on the trade volume versus trade circulating Btc, price would be $3. If each Btc was tranferred more times, the price of Btc would be lower. However, if the Btc economy had grown in 1 year to become a $12M economy with 500.000 Btc users/owners, potential for further growth would obviously exist, which could account for $2-7 of Btc price. If some early adopters were to cash out and their Btc were bought by traders rather than "hoarders", the price of Btc would fall in a rough proportion to the amount "released" into the economy. Speculation in Btc would reflect all the inherent price dependents, and speculators would keep track of the amount of Btc released into the economy, so although the average trader would not possess relevant market information, the price of Btc would more or less equal the value of Btc due to competitive speculation.

However, if the Btc economy were to have a value of $120 m per year and only 8M or maybe 8.5M Btc are in existence, of which perhaps 6M Btc facilitate trade (if the economy was that large and stable, I suspect many early adopters would in due course of time cash out on a fair amount of their holdings, which would not sink the price and which could be invested more profitable,) the price of Btc, without taking speculation into account, would be less than $20, depending on the amount of trasfers of each Btc per year.

All of above numbers are just hapzard guesses, however, the above calculation could be used to forecast the price of Btc in the future, and also determine whether today's price reflects reality or not; or so I believe.

Disclaimer: I withdrew my USD from Mtgox without having made any trades, and am not looking to put any money into the market before an actual marketplace exists, or is at least far more developed than today.

EDIT: I FORGOT TO ACCOUNT FOR THE COST OF MINING IN THE CALCULATION

Because otherwise all you are setting is a suggested retail price.  If you do not have some entity willing to always buy at the pegged price it is worthless and meaningless.

This is all starting to sound like Soviet style central economic planning. Good luck with that.

Great post.  

I guess for me the concept of Bitcoin is very intriguing, downright ingenious in some respects.  So there's a part of me hoping it succeeds.  Unfortunately there's a more rational part of me that sees gaping holes in the model as to why it will fail.  But you're right, Bitcoin is what it is and certain aspects just cannot be changed.  Perhaps Bitcoin will be the jumping off point for a truly workable currency and in that respect, has value or at least a place in the history books for what may someday be the next currency.

I'll continue to watch this experiment closely but will stop harping on others as to its shortfalls.  We all have our opinions but you've made me realize that mine cannot change Bitcoin for the better.  

This post, written by bitcoinbull, is so good, I'm just gonna keep quoting it whenever I see the word "speculation"

Suggest you follow your own suggestion.
The wa China is able to peg the Dollar to their own Yuan, despite a MASSIVE trade imbalance, if by constantly buying more and more dollars with yuan. That is a COMPLETELY unsustainable system, since they are basically amassing a huge amount of dollars and are forcing the value of their own currency down artificially. VERY soon (it's starting to happen already) China will not be able to continue doing this any more, and as a result, their propping up USD and pushing down Yuan will "snap," which will result in a rapid rise in the value of their own currency, and a huge inflation of USD (though that may be mitigated by our own banks). In the end, pretty soon China's products will become very expensive, US products will become very cheap, and China will crash HARD due to no longer being able to export anything.
Read history. Pegging ALWAYS caused massive problems.

I entirely agree with this, and which is why I suggest that the actual price of Btc will in relation to the size of the market.

No slave, pick a book and learn how did the pegging end in Argentina. Literally overnight, the savings of all its citizens were devalued to 1/3. Thats the power of (suppresing) the free market.

How is "the savings of all its citizens were devalued to 1/3" not part of "ALWAYS caused massive problems?"

this is going nowhere, thread locked