Bitcoin Forum

Last year I bought a few BTC (nowhere near enough  :() at $5 mainly for it's brilliant utility as a currency in enabling me to buy certain stuff  ;). As a currency it had great utility when its price was fairly stable during the time it took to transfer money to an exchange, buy the bitcoins and move those to my marketplace account. I knew how much cash I needed to send where as now the price could be wildly different by the time I come to buy the merchandise.

After researching and thinking about it I realised bitcoin was still in the discovery stage for most people and I too was a bit paranoid about things with all the talk of encryption, site hacks and securing your wallet. Rational logic told me that it is way more secure than my bank account though and that made it a definite buy (buy when others are fearful).

Since then greed has taken over and bitcoins have become mostly a speculative vehicle, which because of their volatility possibly reduces their utility value as currency. I'm a bit more wary about spending them because I don't know how much it's actually going to cost me. Irrational I know, but human.

To me we are in a mini bubble which I define as the majority of people buying them doing so not for their utility value but purely in the hope of selling at a higher price. I agree they are going higher ultimately but bubbles occur with only a small number of participants until word spreads to a greater number of people. Given the economy and the fact we are dealing with money means that after the greed phase there is the fear of missing out stage when things really go ballistic.

My first question is to people who have been buying since January. What is the primary emotion that lead you to buy?

My second question is whether the price volatility has affected trade on site that accept bitcoin now that prices can be wildly different by the time.

Bitcoin is a system which can be useful in a wide range of financial applications. It can be part Paypal, part Western Union, part digital gold, part a swiss bank account and so on.

For it to be useful as a currency it not only needs to be stable, it needs to have a market cap of hundreds of billions of dollars with huge market depth so that large transfers can be done with minimal slippage.

To get to this point the price needs to go up. A 'stable' currency with a market cap of $100m is still not that useful on a global scale.

Basically you are right, though. The price volatility as people get excited about one of its other use cases does make Bitcoin less useful as a currency for simple buying and selling now. But if it is to become really useful as a currency in the future, then these speculative antics are a necessary step along the way.

You're right we need relative price stability for it to be used safely for transactions. What we do need now, however, is a rising price for big retailers to start noticing it and accepting it as a form of payment. At some point (and this may take a while), we will see mass adoption, some steady state equillibrium and then we will enter the era of bitcoin as a transactional medium as opposed to an investment/wealth protection mechanism

Agree it needs to gain value/market capital but it needs to do so gradually so the number of people with faith in it grows. Wild volatility like this isn't going to help.

In fact this could easily be an attempt by TPTB to scare people out of bitcoin again for a while by pumping it up and crashing it again (buying time seems to be their only plan). It might even it cost them a few $million in losses but that is chump change to them. What would happen if after accumulating over the last few months they suddenly put in a load of offers at $0.1?

What is your proposed solution?  I keep seeing posts like this pop up, but the bottom line is, no one can do anything about it.  The value of a Bitcoin will be what the value of a Bitcoin will be.  If people demand it, price will go up.  If people fear, price will go down.

IMO, we just need to adopt to a mindset of a fluctuating price.  The fluctuation will lessen as Bitcoin becomes larger (look at the current rally vs 2011 rally, or penny stocks vs mature stocks), but there will always be more fluctuation in Bitcoin than there will be in national currency.  Look at gold vs the dollar.  The dollar goes down over time, but it is much more predictable and consistent than the value of gold.  Bitcoin will be similar to gold when it is mainstream adopted.

I don't have a solution other than not getting caught up in the mania and trying and make money by selling into the strength. I was more interested in knowing if I am right about it affecting trade on sites that accept bitcoin as payment. People with bitcoin will hold onto them and people without them aren't going to use them if they can pay a stable price with paypal.

We won't have stability until we have a very large market cap.  Bubbles and busts are the natural way to get there.

We have to wait for the self-reinforcing feedback loop of bigger market cap, higher stability and more businesses able to work with bitcoins to play out.

A trader driven by emotions will never be successfull.