Bitcoin Forum

Why is there a correlation between the two?
Thanks

As more people use it, demand for a bitcoin will be higher. Since it has a finite supply, price per unit will naturally rise.

http://en.wikipedia.org/wiki/Supply_and_demand

production of BTC is knowned.
demand of buy, not.

price change over the month.
bitcoin is a real stock system with no interference of manipulation market.

It's the basics of economics you might have learned if you ever took Economics 101. There are only going to be so many Bitcoin (limited supply), and as more people decide to jump in or at least get their feet wet, the demand is going to go up. When the demand goes up, the price goes up.

Well Merchants who accept bitcoins, may even decrease the value of the currency, when they accept it as payment, but only to convert it to fiat.

But imo more people adopting the currency, is more of a good thing, than a bad thing.

But if the users of bitcoin, only adopt to hoard, it's also a problem. {Less in circulation, drive the price up, when there is high demand} but this could be negative, if it causes volatility.  {Price high, lots of people sell.. price low, people hoard...and if this happens often, it decreases the store of value}

The network effect, and more specifically Metcalfe's law. (http://en.wikipedia.org/wiki/Metcalfe%27s_law)

Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n^2)

Bingo. It's a classic model. The more people that get involved with bitcoin the rarer it becomes, especially with only a fixed amount being created. This is what makes the future of btc very exciting if the demand dwarfs the supply. Who knows where it could go or end up, especially if it takes off in the mainstream.,

As others have said, supply and demand.

The supply will be the same, always will be as that is set in the code.

Demand however, is ever growing but as supply stays the same price goed up.

The immediate conversion is only a factor in the short term. As it becomes more wide spread merchants won't need to convert it to keep cash flows up.

I don't see hoarding as an issue at all. Economic activity is a good thing but so is saving. Speculation drives volatility for sure but speculators are not hoarders.

At the present time merchant acceptance doesn't have much an immediate noticeable impact on the demand for bitcoin because almost all merchants use BitPay or Coinbase which instantly convert the bitcoin to USD. But overall it should have a positive effect on demand in the longer term.

And that's why there are many predictions that say Bitcoin prices will be thousands and thousands dollars...

not surprising since US dollars is printed in 50 milliards per month ...
at the end, the BTC will be marked in the price in supermarket ... with the "indicative" price in fiat money.  ;D


note : 1000 milliards of Euros will be printed in Europe at the september 2014.
http://www.romandie.com/news/Zone-euro-les-banques-pourront-emprunter-1000-mrd-EUR-a-long-terme-a/493954.rom

Get some now and they might be worth more later
the more people are using the more they're woth

Supply and demand.

people need to be sure that someone accepts their btc. but it basically does come down to between how many people all outstanding btc have to be distributed. more people => less btc for everybody => a single btc is worth a lot more

The more merchants that accept bitcoin and the more people that use bitcoin the more people will need to buy bitcoin, thus a higher demand for bitcoin

Deppends.

If people use bitcoin to receive payment then dump the bitcoins for fiat, the price won't change. Its deppends more about the hodlers.

Supply and demand is right.  The more people using the coin will have less coins for sale on the open market which means the price will go up due to the scarcity of the supply for sale.

But people who receive payment will not necessarily sell all the bitcoin they receive for their goods/services, and the people that purchase bitcoin will not necessarily spend all of their bitcoin.

That its the effect of adoption that can be simplified to a supply and demand curve
More users and a limited supply increases price but we can also look at it from a S-Shaped adoption curve etc to determine how it moves.

That and  Metcalfes law
http://en.wikipedia.org/wiki/Metcalfe%27s_law

In the case of bitcoin at this stage, I am going to say Metacalfes law has more to do with the price than supply and demand.

Remember, there are a lot of other alt coin out there that can serve the same purpose but don't have as much exposure.

More people use BTC = BTC price went up
example : when BTC suddenly popular, the price went up
It's just simple logic

en.wikipedia.org/wiki/Supply_and_demand

it increases trust in long term. When people trust they more buy or invest.

Hopefully, eventually bitcoin adoption will be large enough so that companies will participate in B2B transactions in bitcoin, making it so companies will not need to sell the bitcoin they earn from sales into fiat.

Bitcoin is inherently anti-government and anti-central authority.

Given enough time, all governments will eventually ban it.

This sums it up perfectly in the first reply

True but it's not entirely correct, I think it should be:

More people BUY BTC = up
Less people SELL BTC = up

I think that OP is just pure and simple troll. No way someone would get to this forum to this section and ask question like that....just no freaking way.

is matter of demand and supply

Because there is a high demand for bitcoin and many bitcoins are available the more demand there is for the coin the more it will rise. As stated it is a matter of demand and supply, the more people want it the more it will get supplied and the price will rise.

Scarce supply and the amount people put into the coin is what will determine price.  If People believe Bitcoin is the best form of currency that could make the price go up, then considering supply/demand all need to be taken into account.   

This is exactly the right answer. The small incremental increases in adoption will have a small effect on the price of BTC however once enough people use bitcoin that businesses can pay their suppliers and vendors in bitcoin the price will be much higher as there will be much more demand for bitcoin.

if we use bitcoin bitcoin has a price of course, is not possible if we use while bitcoin bitcoin has no value, we use bitcoin to perform all electronic transactions, such as buying goods using bitcoin, or buy tickets and buy the other, when the price of bitcoin bitcoin has unacceptable in all societies, especially the people who use the internet as a medium of transaction ...  ::)

Enough manipulation going on.
The only thing really differs is that Bitcoin is finite and cannot be counterfeited,... well,.. only if you don't count goxing.

true acceptance and not only speculation will make the price go up

Because price depends on demand. Why do you think Bitcoin is much more valuable (taking into account supply differences) than say Doge Coin?

Here you are implicitly referring to the Bitcoin turnover rate (money velocity). And yes, money velocity does affect prices (according to Fisher's Law). The higher the velocity (i.e. the speed with which bitcoins are changing hands), the higher the prices of Bitcoin nominated goods will be (i.e. the price of Bitcoin will be lower) since acceleration of the turnover has the same effect as increasing the money supply...

At this point mass acceptance is leading to lower btc price because merchants are immediately converting the btc to fiat

That makes no sense. BTC are just changing hands. To lower the price you need to increase supply more than demand.

The speed with which bitcoins are changing hands also matters a lot. This might be a driving force behind the recent BTC price decline when new sellers (like Dell) are beginning to accept Bitcoin (though this seems a bit counterintuitive, I agree)...

It is frequently said that the value of money depends not merely on its quantity but on the "velocity of circulation." Increased "velocity of circulation," however, is not a cause of a further fall in the value of the dollar; it is itself one of the consequences of the fear that the value of the dollar is going to fall (or, to put it the other way round, of the belief that the price of goods is going to rise). It is this belief that makes people more eager to exchange dollars for goods. The emphasis by some writers on "velocity of circulation" is just another example of the error of substituting dubious mechanical for real psychological reasons.[1]

http://austrianeconomics.wikia.com/wiki/Inflation

This is all theory (which may not be applicable in this case), but the reality may be that bitcoin hoarders are willing now to spend their previously stashed away coins since there are many more things now that they can spend their money on. So we have both effective supply and velocity increased, which could potentially explain the decline of Bitcoin price at the moment...

If there are more things that can be bought with bitcoins, that makes them more useful and therefore more valuable. That increases demand, and therefore price. Velocity has nothing to do with it.

only if the people who spend bitcoins are stupid enough to spend them without topping up again...

either way, it will only bring a short-term decrease in value, if any. Because more shops accepting bitcoin will mean more people will use bitcoin, which will drive up demand and therefore price in the medium to long term.

Yes.

The money velocity is a neo keynesian thing. It tries to track the money as it changes hands in the productive economy, thus pure financial transactions are excluded. It has to be, because a trader buying coins one day and selling it the next day, does not touch the productive economy. Thus measurement of money velocity presents much of the same problems as the economic gross product at different levels. Some of those problems are: should we include things like insurance payments which is a result of some destructive accident, and should we include production at loss, and production where the profit or loss is unknown, as in a market with government regulation where real prices are undiscoverable.

In fact, money velocity is never measured, it is always only the GDP / money supply. In case of USD, this is quite nonsensical, as the money are used outside the scope of the GDP.

I suspect that the money velocity when mentioned, is just an excuse to cover up the mediocre economic production, where the real reason is the intervention in the interest market, which hides the real time preferences and makes the economic actors take decisions blindly, like don quijote de la lora la mancha fighting the windmills.

Here is a paper from London School of Economics, maybe it is not the truth, but interesting. I mentioned it also in the gold collapsing... thread:

http://www.lse.ac.uk/economicHistory/pdf/FACTSPDF/1306Morgan.pdf (http://www.lse.ac.uk/economicHistory/pdf/FACTSPDF/1306Morgan.pdf)

There is only one basic reason for the value of money, and that is the demand, or the preference to hold (where supply is some actors preference to hold less) (assuming sound money). Indirectly of course, is the number of users, their savings, their view on what is the best saving, including the prospect of appreciation. The ease with which a saver can spend, is a part of that consideration, therefore new shops can influence the value negatively, hopefully only in the interim.

You seem to be lost in theories and don't see the reality behind them. If at first people were hoarding bitcoins (scarce money), and now they begin spending (abundant money), this would effectively increase the total amount of money in circulation. On the outside it will look like more people buying more things. And, in fact, they are, but the price of Bitcoin will nevertheless go down...

That's right, supply would increase in that case, and therefore, ceteris paribus, bitcoin's purchasing power would decrease (its price compared to USD would go down). But that doesn't have anything to do with "velocity".

Doubt anyone know for certain how price correlated with acceptance.


The latest announcement from Dell and Expedia gives unexpected flat line response to the market.

In fact, it has everything to do with money velocity. But if you don't see why it does, then so be it. Just one last note, if hoarders begin forking out, the bitcoins which they part with are evidently changing hands and not necessarily changing hands with would-be hoarders (otherwise they wouldn't shell out in the first place), so I leave it for you (those who are curious) to decide if it has anything to do with bitcoin circulation velocity or doesn't. In short, it is impossible to increase money supply this way without a corresponding increase in velocity...

By the way, you quote parts from the Austrian school of economics, but fail to employ their method in practice

it's simple, more people using it, mean more people buy it, which mean better price

It is not that simple. More people using more bitcoins means that more people spend more bitcoins (which were previously stashed away). The net effect on the Bitcoin price remains to be seen... 8)

This logic is twisted.  Why would I buy money to spend it?

If I wanted to buy something in USD and the merchant accepts USD.  Does it make sense for me to convert USD to BTC then back to USD to give the merchant?

The only reason to do that was for online drugs buying cause there's no way to send cash online.  

Why would they have to spend bitcoin that would otherwise be held onto and not sold? If someone is going to sell bitcoin the price is going to be the main deciding factor, not where they can spend the bitcoin.

It was explained before. They would begin spending if they could buy things directly without the hassle of going to an exchange. This is not a question of where they are selling bitcoins. In fact, it is not even a question of selling them at all (that is exchanging them for some other coins or fiat), it is a question of spending them (that is about final consumption)...

the point is that more people using it mean more volume mean a better value

As I said before, it is not given. And the dynamics of the Bitcoin exchange rate as of recent confirms that. So all expectations that the wider acceptance would unconditionally bring about the higher value may ultimately turn out a bit exaggerated (let alone hopes for a million dollars per coin)...

People that are saying bitcoin is going to reach a million dollars are not realistic and do not understand economics. Over the long term, the net effect of higher adoption will increase the value of bitcoin as people will buy more bitcoin then they spend causing a net spending effect on the market. Over the short term, more merchants accepting bitcoin for payment will likely have a negative effect on prices because it will likely entice people to sell bitcoin (via buying products) that would not have otherwise sold bitcoin.

The more merchants =  more btc flowing = stronger economy.

Wider acceptance would not have an immediate effect, but is expected to result in a price increase in the long term. Of course, no rational person would expect it to go to a million dollars.

We need to fix these god damn pesky ATM machines first. BTC should be cooler to use, none of that ID scan bullshit man.

Now I'm very doubtful about this (I mean Bitcoin universal acceptance). Actually, I couldn't say that it is significantly more widely acceptedtoday than it was a year ago. I think one year is enough to come to a (preliminary) conclusion. Also, I think that after the Cyprus financial disaster (first half of 2013) everyone who is connected to finances in some way is aware of the technology, so you won't get away by the argument that it needs more publicity...

There's definitely a lot of off-market transactions occurring. Obviously brokers know that buying/selling big blocks would offset the market and create too much volatility. Barry Silbert's Bitcoin Investment Trust and the hedge fund Binary Financial have acknowledged publicly that they do it. I wouldn't be surprised if Pantera Capital and GABI have been making off market trades on behalf of their high end clients like family practices, private equity firms and fund managers. This is the business. The trading on the exchanges are for the kids. Once the money cap is large enough those transactions will occur more regularly on the exchanges.

I believe the price of bitcoin is far behind the product & infrastructure development (e.g. Circle, Bitpay, XAPO, Coinbase, Bitgo, Moneero). Though there is no direct correlation, the increasing hash rate indicates a great of activity. The increasing difficulty level should also play a critical factor too - more prominently when bitcoin approaches halving. The VCs and entrepreneurs are in it for the long haul regardless of the day-to-day price. Personally, I would love to see a rally just to remind people how explosive bitcoin is. The price is a nice feature to increase greater adoption among speculators.

Bottom line: like everyone else, we have to wait and see and allow the market to play itself out. Long term, the bitcoin bulls know this is a once in a generation technology therefore a once in a lifetime investment opportunity. To each his own.

The fact that you need to scan your ID at a BTC ATM is due to the fact that there are AML rules in place that need to be followed by ATM operators, as they are likely a MSB. I think that how "cool" something is will have little to do with overall acceptance but rather the ease of use and the economics of using bitcoin will influence people much more.

Price will increase if demand increases more than supply. To make that happen, people has to be interested to buy bitcoin for whatever reason. It may be for privacy, it may be to save in a non inflationary currency, it may be because there are merchants willing to sell their products for a discount with bitcoins... So yes, it's essential that more merchant accept them, but that's just one of the reasons to want to have bitcoins.

More the people use the bitcoin in their daily life more the value of it increases.That's doesn't need a explanation does it??Literally they are directly proportional to each other.

Yes, it does need an explanation. In fact, in real life there are a multitude of factors that can not only render this declared dependence not so direct but could even make it inverse as we probably see right now. The possible reasons for this have been explained before...

The main reason why investors and speculators are buying bitcoin is because they are hoping that a lot of consumers will eventually buy it for the purpose of spending it on goods and services. This is ultimately what will be the demand for bitcoin in the long run (if it is to be successful). Bitcoin is not an income generating asset so investors will buy it for no reason other then hoping for price appreciation, however if the only reason anyone buys an asset is because they hope the price will increase then it is nothing more then a bubble.

We need bitcoin banks, to get interest on our bitcoins.  ;D

Demand can also come from people that want to save in bitcoins, not only from people that want to spend them. Gold isn't valuable because people spend it on goods and services, but because it's considered as a store of value by enough people.



For the moment you can directly invest in some places, like Bitfinex or Dicebitcoin. But we'll have bitcoin banks for sure in the future, and also stock exchanges to facilitate direct investing (well, we already have the Nxt asset exchange).

Correct, but you have to make sure the bank is good, there will be no bailouts.

While accepting bitcoin people have to convert it to fiats to accept.Say you bought a burger at a food truck for $5 then you are paying the bitcoin equivalent to $5 not really paying bitcoin

In order for a bank to potentially offer interest on deposits they would need to also lend out depositors' money and run on a fractional reserve system. If I knew how people on this forum feel about sites running on a fractional reserve (and I do), then I would say that this idea would not be taken very well.

It can have full reserves.

Maybe because, the higher the demand/acceptance, the higher the price.  ;D