Bitcoin Forum

No matter how high the bitcoin value is, the coin supply on market will always be limited

Suppose that a new user who were attracted by bitcoin want to invest some of his money into bitcoin and hold it for some time, because the price is volatile short term wise but much more predictable long term wise

Then naturally after bitcoin value rised more than 5 times, he would like to spend 1/5th of his holding to enjoy the return, but still keep the majority of his coin holding as asset. Even one day, his holding are worth so much that he don't even need to worry about spending half of them, he would still spend little of it because the long term profit potential for the saved coins

If majority of people are doing this, for each new people join the bitcoin community, the amount of coins get saved are much more than the amount of coins get spended, this will continuously reduce the daily amount of coin supply, so that almost guarantee the value appreciation long term wise

What is the problem?

If everyone is going that, some day, the price will be reduced because new people won't want to spend that much money into bitcoin.
Correction will happen, and people will sell more than xx % of their bitcoin in order to get some profit.

The problem is that the coin supply on the market will always be limited (long term perspective), and that will cause short term price volatitlity

And why new people won't want to spend that much money into bitcoin, if they saw this thing appreciated 10 times per year averagely

The volatility is not caused by limited coin supply. When there would be  21.000.000.000 BTC instead of 21.000.000 BTC the Volatility would still stay the same.

With higer value of a Bitcoin, there comes less volatility/more stability. When one BTC is worth 10.000 Dollar some can not move the market so easey with litte money.


Right now, with 500.000 Dollar you can move the market a lot.

Now imagine a single BTC is worth 10.000 Dollar: It is much harder, to move the market, which will provide stability. Even when less BTC get traded on markets than now(which is pretty unlikely), price will stay stable, because price goes up with a even more limited supply.

price + more people who will be using bitcoins and trading them. And the higher the price, the more people attracted.

Because bitcoins is a beta stuff... And it is likely to disappear at any time.
You might want to give it a try, and spend 100 USD in bitcoins, but will you spend 1 000 USD or 10 000 USD for 1 bitcoin considering the fact that it can disappear and lost all his value?!

With an higher price, less people will buy, and the price will never increase linearly.

Sorry but what is the difference if bitcoin price is $100 or $1000000 if you want to spend $100 for something using bitcoins? None.

I don't see the limited supply as contributing to the volatility that much. It's good that it is limited to a finite amount eventually....it's much better than the US dollar where the gov't can print a theoretically infinite supply.

Then don't buy Bitcoins buy microBticoins (mBTC) they are only $0.10 ea.

(For the sarcastic impaired no this isn't a solution but the focus on nominal value isn't a problem either)

How about when he goes to sell them, and mtgox ends up holding onto his money forever, so he can't even use his initial investment to buy anything other than socks or drugs on silk road....

This kind of thinking stems from the fallacy that consumers have no time preference. In fact it is the time preference which ultimately will lead the consumer to spend their bitcoins. They will spend less if they think bitcoin is undervalued - and more if they think it is overvalued. But the time preference is created by their consumption needs. Their spending behavior sends the correct signal to the merchants, which indicates the correct time preferences and lets them adjust the prices for goods and services.

On a similar note, some have argued that the paradigm of nominal price stability is coming to an end, because it can only be achieved by massive interventions in the money supply, which has negative effects on price discovery itself (prices have to fluctuate and change to reflect differences in productivity and time preferences of consumers). The inflation target of the FED is just a guidance for consumers to value consumption over investment (i.e. give the spending NOW a higher preference), but it corrupts the discovery mechanism in the process.

People who claim that bitcoin has a liquidity problem do not understand that the utility of a medium of exchange (money) does not depend on the overall supply, if you allow the pricing of goods and services to adapt.

Yes - the inelasticity causes the demand for money (capital) to translate directly into price fluctuations of goods and services. Albeit a feature, it can create strong oscillations and pricing confusion. Especially when preceded by strong misallocations of money. Debt based or fractional based instruments like bitcoin ETFs can act as a buffer for short term volatility and help stabilizing the price in the short term. It is important that those instruments are regulated properly, otherwise it is an invitation to do accounting fraud.

This happens only because each year newcomers pay 10 times more to buy bitcoins from those, who bought them 10 times cheaper last year. This will not happen forever. When inflow of newcomers into the system will stop, the game will be over. This happens with all financial pyramids sooner or later.

Believe it or not, there are idiots who invest all their savings into bitcoins.

Why would the inflow of newcomers stop, in any foreseeable future? Bitcoin has obvious advantages over fiat, its march can easily continue for as long as there is fiat currency left in the world.

There are even smart people who invest all their savings into Bitcoin ;)

You know, the number of people on the Earth is finite. And the number of anarcho-libertarians is even more finite.

Right now, capitalization of bitcoins is $1B. If it continues to appreciate 10 times per year, its capitalization would reach $1T in 3 years. To reach this number, every single person in developed world would need to invest $1K into bitcoins. An this is not going to happen, because 99.9% of people do not even know about bitcoins. And there are altcoins popping up every week.

Bitcoin market is going to reach saturation in couple of years maximum. And after that, depreciation in value is unavoidable, since millions of hoarders will want to sell their btc at same rate as they do now, because they need to pay their bills in fiat, but no newcomers will want to buy this btc at this rate anymore.

In what world do you live in, where any markets capital is based upon every person evenly contibuting...

We just need a few warren buffets of the bitcoin community, and then billions of people never will have to touch a bitcoin.

Of course, everybody contributes different amount. This does not change the fact that bitcoins can not continue to appreciate 10 times every year longer than couple of years more. 

This i agree with, its unsustainable.

That's a bit like, a guy from 1970 arguing that there can be no Internet, because 99% of the people do not even know what a computer is.
Why the hell does that 99.9% number have to remain static?

I did not said that it have to remain static. I said that today, newcomers are still entering the pyramid, that's why bitcoin value increases. But this will be over very soon.

And for all we know bitcoin could just be the beginning of crypto-currencies. The model T was a great car, but i wouldn't want to commute with one these days.

This is written million times on bitcoin wiki and around this forum. Nevertheless, there are still plenty of dreamers who think that hoarding bitcoins will make them rich, because it will continue to raise in value forever.

Do you mean to tell me the potential upside is no more than 10,000% (10X for 2 years)?  Bummer.  Here I was thinking I could make some money.

false.

No investment is needed at all. Only the time preference for saving vs. dissaving has to change for the price to move. To give you an extreme example - if everybody stops selling bitcoin, the price is infinite. If nobody buys bitcoin, the price is zero. No funding needed. Please study price discovery mechanisms before you make conclusions like that.

Its probably not going to reach 1T market cap in 3 years. However do you really think that every single person in the developed world invests aprx. $414 into XOM? Of course not. Don't even get me started on gold. Let me explain to you how things work. Rather than every single person investing $1k, a few rich guys invest 1000 times what the 'average' person would have to. Then, if you're lucky, they'll use use that 1000 times investment they just made as collateral to borrow money to invest another 1000 times more than what the 'average' person would have to. Then there's the whole idea that the market cap is partially 'missing' because it is being held by either wallets with either an unknown private key, or people that aren't spending/selling bitcoins at any given time.

What? Bitcoin no is pyramid. We great investment are!

Same point i was trying to make but much better job of explaining it.

Repeating the same thing a million times does not add significance to it. An alt-currency might, or might not, become more significant than Bitcoin. As soon as I notice this happening, I would start diversifying.


It might continue rising in value for my entire life, which is good enough for me. It might drop to 0 as well, but I do not see how this is more likely than a permanent 100x increase in value.

Oh yes, money appear out from thin air. Don't you understand that if some miners or hoarders make X USD profit from selling bitcoins, this is just because other hoarders lose exactly the same amount?

It was not mean to be, but it actually is right now.

By that logic any appreciating asset is a pyramid scheme.

Your statement is only true on the day bitcoin hits a value of 0.

a) As of 2008, there were 10 million people around the globe who are classified as U.S.-dollar millionaires.

b) market capitalization
- Apple Inc.  $401.83B
- Microsoft   $302.06B
- IBM           $215.11B
- Facebook   $63.54B

c) Bitcoin will not inflate, so even 1 BTC = $100,000 USD (after reach saturation) it will better to hold BTC (keeps value) than USD (loses value over time).

Meaning you gold pyramid scheme is too? No worth is if invest nobody more any? Apple is no pyramid, Apple is apple yummy grateful sunbaked

You guys sure like tech companies don't you.

Bitcoin is in early stage, only tech guys can understand what is Bitcoin. :-) But this will change in next few years.

It does not matter if few rich guys invest a lot or many poor guys invest little. It is true that many bitcoins were not in circulation since they were mined. But this does not change anything. If you bought btc last year and sold today at 10x price, this is just because guys who lost their opportunity last year give you their money. They do this because they think that next year some fools will give them 10x more. And this is not going to continue for long. The amount of fools who are ready to bring money into system saturates quickly.

Bitcoin has uses besides trading ::)

No. It depends on how it is appreciating.

Yes, I know. But this is more in theory than in practise.

Good news! We don't need fools right now, we need intelligent people.

So you admit your theory doesn't apply here in reality?

My theory?? Bitcoin business on every corner in the world is not my theory. I do not see any businesses around me. But I see a lot of dreamers who think that they can live just selling forever rising in price bitcoins.

I misunderstood you, so you misunderstood me.  I now see you are saying the uses are more theoretical than practical.  Now that you have made yourself clear all I can say is this: Maybe you spend too much time on the speculation subforum.

Does not the same happen if just more and more hoarders are attracted by the rising price?

+1  ... smarter guy will buy Bitcoin and upgrade some service (endless oportunities .. better exchange, better security .. but keep compatibility with Bitcoin 0.1)

You will definitely be able to buy bread in a grocery store using smartphone in nearest future, no questions. I doubt a lot that it will a bitcoin, though. Better technology will come up.

Buy the way, you gave me not bad life expectancy.

You're mixing two things. Bitcoin valuation and mining profits.

If price moves up the opportunity cost for holding purchasing power increases, putting a downward pressure on prices (negative feedback). However, as prices move up and bitcoin hoarders fill their immediate consumption needs by spending, their time preference gets lowered, ie they can tolerate a higher opportunity cost. This leads to a situation in which their purchasing power increases faster then they are spending it (enrichment). This enrichment does not have to match the incoming purchasing power. (Not zero sum)

The influx of new bitcoins from miners puts an additional downward pressure on price because they can arbitrage from the cost of production.

I also see this as a likely future, and it fits with my statement that Bitcoin has other uses besides exchanging for fiat.  Still, there is a lot going on in the bitcoin economy besides fiat exchange, and if someone is bothered by the dreamers maybe they should quit hanging out in the forum dedicated to dreaming about the future.

Most of the people are not used to several times profit per year, but some people do. FED is printing 2.8 billion USD per day, that profit is almost infinite, and they don't really feel uncomfortable about it

Of course there is always a concern about sustainability when bitcoin reaches full market saturation, but as more and more saving can be put into it, I don't see why people are going to panic sell. Miner's productivity is much higher than those central bankers who print money out of nothing, if their work worth 2.7 billion USD per day, miner's work will worth at least 27 billion per day, which put a bitcoin price at 7.5 million USD

By the way, all the bubble comes to an end because of two things: Increased supply of the asset and decreased fiat money supply. For bitcoin the first is not going to happen, so it only depends on the second. I'm afraid FED is not going to tighten a lot any time soon, they have much bigger problem right now. And even FED tightens, bitcoin could still gain in value, since reduced amount of fiat money will create requirement for other transaction medium

Are you kidding? There is plenty of information on this forum about development of very interesting technologies. We are now in speculation subforum, that is why all  talking is about silly dreams. :)

That's my point.  Speculation is dedicated to dreaming, so why come here and complain about dreamers?

Sorry to necro this, but it's repeated over & over on this forum, though the reasoning's junk.

If nobody is selling bitcoins, the price is not infinity -- it's simply *undefined.*  If you wish to avoid reductio ad absurdum, remember that infinite value is not simply a mathematical fallacy, it flops IRL, too.  There are other currencies around, so if no one is selling bitcoins -- people simply stop using bitcoins, and return to using something exotic, like the dollar.

If nobody buys bitcoins, the price is not zero, it is again *undefined*.  It's the old "divide by zero" goof.  Please learn to math, folks.

Here is a more detailed scenario:

Suppose that 2 years are enough long to wait until users start to spend part of their coins, then today we will see some part of the coins from 2011 flowing out. It was 7200 coins per day, so if every bitcoin investor spend 10% of their investment after 2 years, there will be about 720 coins per day flow into the market, for either re-invesment or consumption, this supply is steady and definite

New investors will only spend coins after they have saved for 2 years, so there is almost no coin outflow from current coin generation, they all get saved

And for each year passed, more and more people will reach the maturity of their investment. But, due to the rise of bitcoin price, they might need to spend less and less amount of coins to get their fiat investment back, so the result might still be less than 720 coins net outflow per day

With such small amount of coin supply in the market, if there is a speculator holding hundreds of thousands of coins, he will surely cause wild price fluctuation

I don't come to speculation subforum. I watch the "recent posts" page, and see a lot of speculation threads there, which seem funny to me. Sorry for making you read my complains. I'll try to ignore such topics next time.

Yes - a more precise terminology is price extinction, because these extreme cases describe a collapse of the sales market. Every pricing mechanism needs a solid ongoing trade volume, to be considered relevant. The infinities just indicate the workings of the underlying pricing scheme.

Thank you.

Instead if price is really high, you can go for 0.1 BTC for try instead of whole 1 BTC....I do not see that price is really a problem for people use it.

Does anyone else visualize a future where bitcoin may be strong but there is no BTC/Fiat supply/demand, because people are actually USING bitcoin for purchasing and selling goods/services, and the fiat/btc exchanges dies because of regulation or the fact that fiat dies?

It's out there, but we can't discount the fact that bitcoin does not necessarily need (Especialyl in the future) a fiat/btc valuation to be healthy.

Fiats are dead , it may be happened 100 years later, so what we doing now is generating wealth for our next generations.

Amen, the clock is ticking for the current system. Change is coming in every sense of the world, from technological, to social, to environmental. Nothing can stop it.

No currencies are the most traded good.

Say I will sell you 1 ounce of gold for 20 Bitcoins.  Is that a good deal?  Lets pretend no USD/BTC exchange rate is available.  Well the only way to know would be to compare all the others goods and services you can get for 20 BTC and try to come to some rationalization of value.  Now here is the funny part.  Likely in your mind what you will do is something like this.

So I can get a 10 steam games for 1 BTC.  Steam games (discounted) tend to run $5 to $10 ea so lets say $7 so 10 steam games is $70.  Therefore 20 BTC is 200 steam games or $1400.  Yeah I guess that is a good deal.

The problem with that is that it is horribly inefficient.  With little price visibility commerce will still occur but it will be less frequent and smaller valued trades.  This creates a cycle effect.  Less historical trade data means less visibility which means less commerce which means less historical trade data which means less visibi.... sorry I got stuck in a loop.

Currency Exchange exists.  It is exists for a reason.  The reality is that for most fiat currency users it is hidden.  If you buy an xbox for EUR (produced by a US company which pays profits/salaries/expenses in USD and built in China with costs in CNY) it is IMPOSSIBLE for currency exchange rates to not affect the sale price of your unit.  Now you don't see it because Microsoft does some rounding to make the price nice and "neat" (like 299.99 EUR) but those factors are going on behind the scene all the time.  If the exchange rates deviate too much they will have to reprice (or more likely not have a price drop because the exchange rate fluctuation ate into the price drop margin).

Long story short there will never be a scenario where an entire economy is in BTC.  The entire US economy (used by 300M people and backed by the power of legal tender) isn't isolated from international exchange rates.

Oh and stop complaining about "too much speculation" (this is in general and not to the post I am responding to).  The speculative market is what creates liquidity. Sellers must sell, buyers must buy it is speculators who can do both and leave standing orders.  Case in point the US GDP is ~$15T annually.  Guess what the USD Forex trade volume is ....  ~$5T.  Sounds like a lot huh er wait that is PER DAY.  US "real economy" $15T annually, USD currency exchange $5T a day or $1.825 quadrillion dollars annually.

Now some people say what happens when fiats fail.  Well it is unlikely they will all fail at the same time.  80% of all fiat currencies have already failed.  The history of fiat currencies is a never ending fail train.  Say the USD fails, then the CNY may rise as a reserve currency, 30 years later China implodes and the EUR2 becomes the most traded currency, 30 years later the reformed United States issues a new gold backed currency which is considered a safe haven.   Still in the hypothetical scenario where no fiat currencies exist (an unlikely scenario and most likely will be after your grand children are dead) something else will be the metric for value.  Maybe it is gold. BTC:GLD ratio or electricity BTC:XEC. I made that symbol up BTW.


 

Hopefully , one world one currency, that can result in less war, all people will definitely benefit from it. Can it become possible ? Nobody got the answer.
However, I can't see any possibility of this ,if there are still existing of countries.

Yes, you are right of course in reality. Sometimes I have to post a little un-reality though to maintain sanity :)

I don't think BTC will ever be the only currency. However, some other forum of currency is on the horizon at some point though. Perhaps bitcoin, or something like it, or a new concept. I don't know. As the world globalizes, 100-500-1000 years from now, I imagine whatever medium exchange is used for humanity to transfer and quantify resources will be global. At that time, perhaps there will be some type of purchasing power index to describe it's value in relation to goods/services, as we have now with the dolloar and other fiats.

I guess that is basically what you just said.

They also allow people with different political ideals to migrate to the area that best suits their life style desires. I am actually very afraid of what a world without nations would be like... if I don't agree with the "World Government" where can I go? At least now, there are many different countries in which to choose, none are perfect but we at least have choices.

That said, we as humans, need to come together to some degree... I don't know what the solution is.

An universal currency 100% is too optimistic, hopefully to see it when we get relationships with aliens.....

In some countries , if they do not agree with their government they might also get endanger of their life.

I mean that even when we eliminating the countries we still can get party to instead who to presenting our desires...So just mean one world with many many party, electing each 5 years ...how about this ideal ? haha

My point exactly. This is not good on a local level, much less a world wide level.

Update to your update:
Yes, but at least with my current perspective, the world is highly divided on their desires. Some people love socialism, some love capitalism, some people are pot smoking hippies and want to live in the forest and enjoy free love. My point is, if that one world government is a democracy, 50.01% of the population would get what they want (Kind o f) while the remainder will be unhappy. Actually, I know it's much more complex than this, but it makes my point.

Double Update:
Maybe planet colonization will be possible so myself and other libertarians can go there and mind our own business :)

Needless to say , if with democracy and world government , election will possibly based on race, I can say that Chinese has superior advantage, because their population base.

I never feel that Bitcoin can instead of Fiats ,but one currency also will be benefited most of people in earth.