Bitcoin Forum

We've had a large number of threads like this and now it's my turn. Today I ran into an article that responded to the big Krugman blog and that response was pretty good: http://www.bitcoinmoney.com/post/9913036774/paul-krugman-bitcoin-op-ed

Now the article itself was nice but there was a link to a graph that really made me understand that the economic activity in the Bitcoin world is what truly drives the price. Look at this graph:

http://pi.uk.com/bitcoin/charts/n-transactions

Now if we compare that chart to the price chart, the correlation is very strong. The economic activity (number of transactions) has slowed down, taking the price down as well.

Of course there's still no sign of a change in the trend of lowering transaction amounts but I think it's not even a question of debate that we're soon closing in on the point where the transaction count will level off and probably start rising again.

My main point is that with the current amount of transactions, and looking at the price correlations, the price can't possibly be lower than $6, not as a stable price at least. The transactions need to come down way more. And my prediction is that the transactions will level off very soon.

I've also heard some arguments that this bubble has taken "too long" to level off but that's completely understandable because it's the biggest bubble in Bitcoin history. But it's very close to leveling off at this point.

This was the best argument so far, and thanks for the link to that useful site (http://pi.uk.com/bitcoin/). You persuaded me to resume buying and spending. Probably won't buy more than I spend though, just in case. :)

Aaaaaahaha! :D
I hope I don't forget to quote you on that when we level off at $5, $3 and $1!

Well, I hope you know how to read. I said current amount of transactions. If the transaction count continues to go down to levels we had 6 months ago, then the price will go down to the numbers you're describing. But I find that highly unlikely, absolutely nothing from historic trends or current trends suggest such a decline.

What we're seeing is a long level off from the biggest bubble in Bitcoin history, but after that is over the price will stabilize and begin to rise again. Looking at the transaction counts and thinking about it, I feel we truly haven't even started yet. Those are some small numbers in my opinion. Within 6 months we might have a transaction count that is double the summer peak and if the correlation continues, the price will be at an all-time high.

That's speculation though, where the transaction count goes depends on the efforts of Bitcoin-enthusiasts to develop and market the Bitcoin economy.

I oh I know how to read. And I understood that you think that if transactions don't go down, the price won't go down. And I think you are wrong. The price will just keep going down no matter what.

I will remind you when we level out below 6 for the first time, ok?

Well this pretty much proves that you don't have any real arguments behind the doomsday talk which justifies me calling you a troll from this point on.

All these transactions are just people speculating, people buying/selling stuff with bitcoins as medium is probably just a small promile - so the correlation is not that interesting - it does not give you any lead time.

Ah, the infamous "you're a troll argument". Strong argument!

Bitcoin: where correlation DOES = causation...

Next up: P=NP

stay tuned.

He's right, you ARE a troll, so, the argument is pretty strong, even if you weren't trolling in this occasion.

I must admit that this is an interesting argument, and the first one I've seen that actually attempts to use real economic principles to support a high bitcoin price.  I still disagree though, the bitcoin economy is still tiny compared to the USD or the Euro, and should have a lower price as a result.

So if there are 21 Bitcoins (highly divisible of course) in total for us, the nominal exchange rate still should not exceed those of major currencies?

 ???

So [Company A] with a market cap of $1M, say, has 1M total shares, all privately owned. What is the value per share?

[Company B], has a market cap of $1k, has 10 shares, all priveately owned. What is the value per share?

Company A is the USD, Company B is BTC.

-Jix

Not exactly what I was trying to say.  What I was saying is that without a larger economy, and lower inflation, we shouldn't expect that the bitcoin would be extremely high priced.  Currency prices are driven primarily by imports and exports.  The primary import for the bitcoin economy is electricity, and compared to that import, the exports are very small, therefore we should see a decrease in the bitcoin until exports increase to match the import of electricity.

Added:
Or we should see the import of electricity to decline to match the export of goods (which is much more likely to happen).

This is not exactly how macro-economics work, unfortunately.

No, but it is a sufficient explanation for why the value of a single bitcoin is worth more than that of a single dollar.

-Jix

Nice try OP, but it seems the graph everyone is creaming over lags the actual price cahnge by weeks.
So it seems the interest in bitcoin is very much related to the price.
The ammount of transactions is a consequence of the price, not the other way around.
At least, thats what i see.

Just in here to laugh at you some more. $6.0 at the moment.... So it can't POSSIBLY get lower now, right? RIGHT!? :D :D

Come one traders, take a lick of that $5.95 bid wall.  You know you want to.  Tastes delicious.

That's the wall that belongs to the one rich guy called The Manipulator.  When he wakes up Friday morning, he will remove it.

This is what I was thinking! He said, "I 'm done playing for tonight" and left a 6000BTC wall, to hold his place for the night!

nvm

Just waving *hi* to technomage from $5.5 $5.2 ;)

But c'mon.  It will only take someone buying 10 coins to bring the price up to 5.99.  LOL.

I think I've finally learned how to read the bottom part of the bitcoinity.org site.  Instead of saying, "It will take this many coins to make the price X," you should be saying, "X many people are betting the price will eventually get here."  So while it is intuitive to see a shallow line on the buy side and say that is where the price is going because it will take so little to make the price go up, I'm now saying the "buy wall" is a huge indicator that the price will go down to at least that point.

Waving again from $4.8!

NEVER BELOW $6... :D

Just find the quote of me saying never below $6. Never said anything like that. The only strong statement from me is that I think a stable price below $5 is fairly impossible right now. A spike below $5 is a different story and we already hit it. We'll have to wait a little to see where the price stabilizes if it does at all.

That makes sense. The more the price drops, the less anyone is going to be willing to do business in Bitcoins for fear their coins will lose their value, and the less interesting it is to speculators in for a quick buck.

i'd be more willing to do business for bitcoins right now if i knew this was the bottom.

It's 2 months since my original post and I still think that looking at the transaction count is relevant. In fact 9 months ago we had 10% the transactions we have now and surprisingly the price was almost exactly 10% of what it is now.

Right now we are seeing, at least temporarily, a stabilization in the decline of daily transactions. We actually have a clear uptrend for the last few weeks and multiple recent highs that are higher than anything in the last 1,5 months.

http://blockchain.info/charts/n-transactions

This doesn't mean that Bitcoin won't decline further. The stabilization could be temporary and we might see another decline to a final bottom in both transactions and price. But in the short term at least we have reached a very solid bottom. The price bottom of $2.04 has been solid as well. The transaction bottom was at 4708, right now the weekly average is around 5800 transactions with the lows staying above 5k.

I'm not especially bullish right now but this indicator is looking great, it hasn't been this strong since the peak. If I could get some good news regarding the bank issues exchanges have been experiencing and something promising related to Bitcoin adoption, I just might revert to super bull again.

i think you're right.  i am investing in anticipation of the turn upwards.  the global economy is debatably turning back up (if the stock mkt is any indication) and consumer confidence this AM was decidedly positive.  many economic indicators are actually turning up as well which makes overall asset investment appetite much greater.

If I'm feeling up to it I might go back through your posts, but it seems to me you've said bitcoin will go up if the rest of the market goes down.  Like, you've got it going both ways here.  In reality, it seems, bitcoin, lately, goes down no matter which way the market goes.

I guess what you meant is the exactly opposite what you wrote -  that we have now 10% of the price that was back then.  But actually I know that without looking at the transactions count - maybe what you meant about transactions count is also opposite of what you wrote?  And if not - if you really think that using transactions count you can predict the prices - then you'd need to post a more detailed graph showing what is really the lead time between the transactions count and the price - because from that graph you posted it does not look likely.

yeah, i think you'd better go back thru my posts to prove that.  btw, why has the price gone back up?

What do you mean by back up?  How the retracement is different from all the other partial retracements after big drops this autumn?  This is a sincere question - from a casual look it might be a bit bigger - but for a lay person as myself that does not look significant.

I meant exactly what I wrote. We've had both a 1000% increase in the amount of transactions and a 1000% increase in price from early 2011 to this date. Which translates to them being 10% then compared to what they are now.

But to say price movements follow changes in transaction counts, I have never claimed that. There is a very strong correlation with the two and I think that it might be possible to use similar analysing methods that traders use to analyse price technicals. I'm not an expert on this but it would be interesting if someone tried to analyse the graph and see if the projections are similar to BTC price projections. And how big the correlation is in short term, mid term, long term etc.

Ah - yeah - I've read it as 6 months (because the peak seems to be the most referred to point) - my fault.

I've made this small graph that illustrates the ratio of the exchange rate to the number of transactions happening in bitcoin network. I think it illustrates very clearly when the exchange rate is higher than could be expected.

http://jkaartinen.iki.fi/~jojkaart/ntxbymarket.html (http://jkaartinen.iki.fi/~jojkaart/ntxbymarket.html)

These transaction numbers may be misleading. I think a lot more bitcoins are staying on exchanges and trading hands without going out on the public Bitcoin network for all to see.

A strong indicator is media hype, the pump that came before the dump:
http://www.google.com/trends/viz?q=bitcoin&date=ytd&geo=all&graph=weekly_img&sort=0&sa=N

One thing we can't see is how much money is being invested into Bitcoins. If all the bitcoins were worth $102M and now they are worth $21M, that didn't happen without profit taking, which one could see in currency balances getting bigger and money flowing out of exchanges.

It's very difficult to come up with an indicator that really does accurately measure things. However, if you actually more than glance at this graph I just showed, there is a lot of correlation with the price movement. Mostly when the exchange rate is going up much faster than the number of transactions.

Also, I see the number of transactions happening in the bitcoin network as more important than people who trade strictly through exchanges. It's indicative of the amount of trust people have for bitcoin whether or not they stick to the exchange or not. Those who trust bitcoin, won't leave their coins mainly on the exchanges. So, you could say that this graph gives an idea of how much of the exchange rate is based on the base of support and how much is from curious onlookers who haven't committed.

The number of transactions is trivial to manipulate. That is why the measure of Bitcoindays Destroyed was introduced; at least that one can't be manipulated by an order of magnitude easily.

Yes, you're right. However, Bitcoindays Destroyed seems harder to use for this kind of analysis. It seems reasonably easy to add some filtering that limits the effect a single person can have on the graph to the percentage of bitcoins they own.

Isn't Bitcoindays Destroyed exactly that filter, and also pretty much the only one we have?

Feel free to construct a different one, but the raw graph is useless. People can and do manipulate it for fun for as long as I know Bitcoin.