Bitcoin Forum

Merchant adoption has always been the Holy Grail of Bitcoin enthusiasts. Supposedly it should have lead so soaring Bitcoin price. But recent overlap of really major adoption (Paypal) and price slump shows that things are trickier.

The dynamics seems to be the exact opposite one: new high volume merchant will never hold bitcoin, due to obvious reasons. They will sell it the second they accept it. So basically it leads to Bitcoin sell-off through huge market sell orders, which are not matched by opposite buy orders, since no one is going to buy Bitcoin in order to pay using Paypal. Existing Bitcoin holders spend their coins, this is the main effect of mainstream merchant adoption.

Don't expect Bitcoin price to rise as new merchants jump on board. Only Wall street can push BTC higher now, but probably the time hasn't come yet.  $100-200 BTC price is realistic, Bitcoin economy will still work fine at this price level.

Wanna hear your opinion.

not exactly. Some countries are against BTC. The PPL are difficult to buy and sell bitcoin from the official channels. So many ppl in the world are closed to bitcoin. If the countries are open to it, the demand will be pushed higher.

Major merchant adoption drives the price down because they don't keep their profits in BTC, instead they trade it for fiat. Because of that, the price of the coins slowly deprive and no one would buy bitcoins to use Paypal. The adoption of a big player in the economy really helps bitcoin in terms of support and adoption, but the massive sell-off from these adopters is a problem in terms of bitcoin's price.

But then again, increased adoption helps bitcoin big time. B-)

Why did these bitcoin holders buy coins in the first place?  You are presuming a large demographic of people that considered bitcoins worth having when there was little merchant adoption but not worth having now that bitcoins are more widely accepted.

Besides, there's a far simpler explanation for the 2014 bear market: A correction to the 2013 bubble(s).

Exactly.
In case people didn't notice, we've been through the biggest Bitcoin bubble ever.
What goes up, must go down. The higher you go, the lower you'll fall.

Most retailers use a payment processor like Bitpay or Coinbase. Because of this, the retailer doesn't even see the coin, it goes straight to the processor who then gives the retailer the fiat equivelant. When you buy at Newegg or Overstock, you're actually giving your bitcoin to Coinbase or Bitpay, who I wager are NOT dumping that coin, because they need as much as possible on hand to sell to others. They probably sell enough to keep some baseline ratio for their fiat/btc stores, but it does NOT mean that massive amounts of coin are being dumped because retailers accept bitcoin.

Actually, the recent drop in BTC probably has more to do with the surging dollar than anything...

The problem is countries (specially third world) are not open to it.

At the moment it is true. But when bitcoin goes to mainstream, bitcoin price is stable and anti-inflation. No matter the merchants or the holders tend to keep bitcoin. Many products are priced as bitcoin. More merchants adoption means the price is increasing.

Whether they are "dumping" the coins or not is irrelevant. Either way they must still sell all the coins in order to pay fiat for the merchants, and this selling creates downward pressure on the price.

I can see through my trading activities that user adoption has been very slow this year (maybe 10% - 20% of last year). It is clear to me that the combination of increasing merchant sales and slow user adoption is driving the price down.

I don't believe the rising dollar is a significant factor. The dollar has risen 10% against other currencies since May, but Bitcoin has fallen more than 40%. If the fall is due to the surging dollar, then you would expect the price of Bitcoin to be rising in other currencies, but it isn't.

We're not into 'mainstream' adoption YET. We can only say that we're into this 'mainstream' adoption when almost all things are also priced in bitcoin. Of course, the recent involvement of PayPal into bitcoin seems a good signal for bitcoin users about mainstream adoption, but PayPal is only a payment system/service. If merchants all over the world start to price their goods and services in bitcoin, then it's a good sign of mainstream adoption. Also, not many people in the world use bitcoin as a money, instead, they still treat it as a stock or an investment. Also, the massive sell-off of merchants that get paid in bitcoin is another factor of the decline in price. If almost all the services and goods in the world are also priced in bitcoin, then there's a good reason for the merchants to keep bitcoin as it is, and not trade for any other currencies to fund their businesses. :3

We can't prove that the price decline is triggered by mainstream merchant adoption with the merchants dumping bitcoin for dollars. I do not believe in this theory, because merchant adoption is increasing in general with some of the merchants keeping their bitcoin. Also I do not think that bitcoiners waited for more merchants to cash out (they could have done this earlier if they'd wanted to), instead I consider the majority of early bitcoiners being hardcore holders which rebuy Bitcoin any time they spend them. Why? Because they adopted Bitcoin to escape from the shortcomings of the current monetary system.

So it's reasonable to assume that the decline in price stems from an ordinary correction of the epic rise of 2013.

A "correction" is a term that describes a phase of a market cycle. It does not cause the price to decline any more than daytime causes the sun to shine.

You're right. By "correction" I meant to say that the price is declining because those speculators are selling who initially drove the price to the previous highs. Those speculators are not real bitcoiners, because they quickly switch between different assets to generate USD profits. They don't care about the Bitcoin use case.

I think higher merchant adoption is causing somewhat of our current price decline. I also believe it will be short term. The reason some people may have not sold their bitcoin would be they would need to give up privacy in order to do so (or risk getting scammed on places like LBC or the currency exchange section). I would argue that some people with, say 50 BTC might decide they want to "sell" 2 BTC to overstock (who would end up selling 1.8 BTC of this) in exchange for some goods on their website.

I would argue that over longer periods of time that merchants will start to discount prices for people paying in bitcoin which will result in more people buying bitcoin in order to take advantage of these discounts

The benefits start accruing to the merchants immediately. I wonder why they aren't passing on these savings to customers through discounts.  :(

What? It should be helpful to the bitcoin community.

Don't forget 7200 BTC is being produced everyday. If miners as a whole only hold half and sell half, that still need around 1.35M dollars infusion everyday to keep price stable.

3600 are produced daily I think....

And it is only a small fraction of total exchange volume.

It is one thing to trade the same coin back and forward for profit. Quite another to add 3600 coins into the circulation everyday.

According to blockchain.inf/markets, bitstamp has ~$9.5 million in trades in the last 24 hours, with bitcoin trading at ~$400, that works out to ~24k bitcoin in the last 24 hours. The amount mined per day is roughly 15% of that figure. Taking away 15% of the supply of a product would almost always have an impact on the price

According to Bitcoinity (http://bitcoinity.org/markets/list), the total traded in the last 24 hours on all exchanges was 484k. Bitstamp's 25k is a little more than 5% of the total exchange volume. 3600 BTC is only 0.75% of the total exchange volume, and don't forget that 3600 assumes that all mined bitcoins are sold.

Anyway, my point is not that the price is unaffected by newly mined bitcoins. Of course it is. It's basic inflation of the money supply. I just don't think it is the major cause of the steep decline over the last 9 months.

Mining has increased the number of Bitcoins over the last year from about 12 million to about 13.5 million. The increase is about 13%, so from a mathematical standpoint, inflation can account for only a decline in the price by about 11%.

Many might be sold off exchange as just dumping that many coins is dangerous. Still.... Even if a discount is given, it's more than a million dollars a day, somedays two or three.

In someways this might keep the price of Bitcoin from going to high.

I always thought of it as 0.00006 percent difference each day which to me meant basically nothing.  But when you say 1-3 million a day, that sticks pretty hard.

I double checked, the block reward is currently 25 and that means 3600 bitcoins come into play a day.  By the end of next year though that will half to 1800 and I think that might help the system as a whole.  Not sure though. 

The block reward drop is 2 years away.

http://bitcoinclock.com/

Regarding your 11% comment, I don't think that's how it works. Example: If you were to take 11% of the value of bitcoin's market cap today and dump it on all exchanges at once, it would SURELY drive the price to zero. That's because the size of the cumulative exchange orderbooks is just a fraction of what's sitting in cold storage etc. So for every 1% of coins dumped it will have more than 1% effect on the price, unless done over a loooooooooong period of time such that the order books are thoroughly replenished between sales.

The 13% I'm talking about was added over a period of a year, not all at once.

how accurate is that site? just curious..

also thanks for reminding us about the block reward, i totally forgot about that stuff..

He is talking about monitory inflation, not the sale of additional bitcoin in the market.

His calculation comes from the assumption that the market cap of bitcoin will stay fixed while the number of bitcoin will increase. Since there will be more bitcoin overall, the price per bitcoin will go down by 11% if the number of bitcoin goes up 13%