'fundamentals' and 'news' are all priced in gradually and do not cause trends but support or dampen them. the mid-term RSI was bearish until a midline bounce that actually predicted the rally.



ironically, that was about the time lucif started posting

+1 @O

the Detrended Price Oscillator suggests that this move up is an important breakout. bubble or bulltrap?

the last time we re-entered the overbought (red) after crossing the centerline but not reaching blue, there was a significant correction.

i too am suspicious of organic growth alone being the sole motivator of 500% ROI yearly growth.

i was trying to talk about this over in the economics mainforum but i just got shat on. it's partly a deflation event. the google trends data is telling; demand is growing rapidly but supply is limited.

made me lawl

but really

the market looked really bearish back when we were in the massive triangle spanning the pirate crash price range, but then we broke out strongly upside which has turned into a self-fulfilling trend it seems.

i got out a while ago.

we are obviously not communicating well.

im glad we agree that we will break $25 shortly. however, i do not expect a correction until the mid-term. perhaps not until as high as $30 price levels.

you call bull top. i say no

+1

http://www.youtube.com/watch?v=iJ4Fm37xEdg

this is prescient. perhaps we speculators have much less an effect on the market now than two years ago, for instance, because of the influx of new users and new coins?

this is true. but greed is a quantifiable thing. take that the bitcoin market behaves in an extremely volatile manner compared to commodities with massive market caps:

the basic hypothesis is that people are irrational and will overestimate rewards vs risk. this will manifest itself in a game of musical chairs where everyone plays along until we reach a really unstable state where everyone rushes to sell sell sell. last one out loses (net loss) because trading is a zero-sum game. this state is "unstable" as the price exhibits extreme volatility, which sometimes can hide the underlying deflation.

while this occurs in all markets, with bitcoin it is exacerbated by the smallness of the market cap. the mechanism for this is related to the interplay between the relative sizes of the trade volume and the market cap. (if mean volume is large in proportion to the market cap, single buys and sells more drastically affect the market).

in other words, this rally could be a 'fluctuation' much larger than the underlying deflationary nature that gold and silver exhibit. the btcusd rate should increase over time, but that does not necessarily mean that this price event is due to that effect.

it could just as easily be musical chairs...

also


>the situation we are in now is 100000000000x different
>100000000000x different

lucif, i had faith in you as a speculator. but you've made numerous unfulfilled bear calls in this thread. early on, i shorted coins but closed when i saw the trend forming. i have been uneasy about this rally ever since. i too feel that we are extremely overbought but i don't think a correction is coming for awhile. this trend has a lot of momentum.



this recent breakout after three new highs is telling. the market depth is very bullish.

i expect $25 to be broken in the next 24-hour period.

of course putting off a correction should cause a downtrend on the midterm.

thanks for taking me seriously.

bitcoin can, and has, for the majority of its lifetime, been both a store of value and a currency. the recent shift towards the former that i have perceived can be described as follows:

say you wanted to invest in shares of satoshidice. say your expected ROI is something like 50% yearly. if your expected ROI of simply holding bitcoins is 500% yearly, then it would not make economic sense to use bitcoins to purchase shares. it would make a lot more sense to use a currency that is not expected to appreciate in value more than 50%. however, even if bitcoin is expected to appreciate in value by only 45% yearly, it would still make more sense to purchase the shares with another currency, so you can get 50% returns on the shares in addition to the 45% returns on the value you have stored in bitcoins, instead of just the marginal increase of 5% yearly that you'd get from purchasing the shares with bitcoin.

example: (using imaginary currency whose value fluctuates negligibly 'stablecoin' or STC)

100 shares of satoshidice available for sale for 10 stablecoins.
at t=0, 1 stablecoin = 1 btc
satoshidice shares yield 20% ROI yearly
bitcoins appreciate 10% yearly

scenario 1:
seeing the good investment opportunity, you purchase 100 shares for 10 BTC at t=0 (remember that the BTCSTC rate is 1 at t=0)
at t=1 yr, you sell those shares for a net profit of equivalent value to 2 stablecoins (20% of 10 btc at t=0).

however, in scenario 2:
instead of purchasing shares with BTC, you purchase them with STC and keep your 10 BTC.
at t=1 yr, you sell the shares, and you also sell the BTC for a net profit of:
2 stablecoins (from above) + (1 [btc at t=0] = 1 STC) = the equivalent value of 3 STC

in other words, you lose out when you purchase shares with bitcoin because you are no longer holding the bitcoins, but only the shares. whereas in the second scenario you are holding both BTC and shares. and this is for an ROI for btc that's LOWER than that of the shares. the very fact that BTC has a non-negligible ROI creates the better economic strategy of using an alternate currency for investments, limiting its use in this respect.

---

for your other points, there isn't anything 'wrong' with deflation. that statement is rather malformed. further, it is true that there is a small inflation rate associated with btc right now. however, that is dwarfed by the large increase in demand. as the BTCUSD rate rises, the purchasing power of a btc increases compared to the proverbial basket of goods. this is the definition of deflation. there are two halves: supply and demand. the supply is inflated, and will eventually be stable, but the demand will increase until the price discovery phase is over. once this happens, deflation will stop.

in other words, the deflationary spiral i am describing is not a never-ending process that will end in the death of bitcoin, but rather a long phase of its growth that may exhibit a dangerous positive-feedback behavior that will have negative effects on the makeup of the bitcoin economy and commerce and its adoption as a currency.

i'm glad you think this issue doesn't exist so we can discuss our differing opinions. my problem is exactly your tone in this post. you don't mean to be rude but because you are so sure that you are correct you're hampering actual discussion by being dismissive (with comments like </thread>). one gets the same reaction going to a creationist forum and arguing for evolution. i'm trying desperately to explain that i'm not beating the deflationary spiral IN THE GENERAL dead horse, but rather reopening the discussion in light of the present price increase, which seems to me to be a deflation event. i'm not arguing against fundamentals of the free market, i'm not a keynesian, and i'm not stupid. please stop treating me as the above criteria. i mostly spend time in the speculation forum, and as such, the recent price behavior has brought some questions to my mind as it seems fundamentally different than any movement in the past two years. if you think otherwise, please elaborate.

tl;dr

the price increase looks like a deflation event, not a rally or a bubble. if you disagree with me here, please explicate.

how do you think users and markets are going to react to the 5x price increase? we haven't seen such a movement in such a short time frame in quite awhile.

funny... this sounds exactly like a ponzi scheme if you believe that this is going to happen you should put a sign on your head: "BAGHOLDER"

it's funny not because BITCOIN IS A PONZI LAWL

but rather because markets don't allow such things to happen. the 'weak hands to strong hands' point is a very prescient one. long squeezes will occur regularly and force some people 'out of the game' so that fewer and fewer profit in the end. this will have the effect of moving the price around a (probably steadily increasing) price point in a very complex way. good luck predicting that stochastic-ass behavior.

did you copy my thread or something?

"Bitcoin's first major deflation event, and its consequences"
vs
"Recent BTC Surge and its Implications"

it's alright, i just got flamed, too.

although it may have helped if you had done a little more research before posting...

you're stating things with certainty that you really don't have certain knowledge of. at least i'm stating my assumptions. may we discuss?

do you believe that:

a) the current rally is not a deflation event
b) these kinds of five-fold price increases will be commonplace and you'll be VERY VERY rich
or
c) you stopped reading my post three sentences in because it's obviously misguided fud and definitely not worth your time to deconstruct my argument.

if a) i beg to differ
if b) your assumptions are wrong as markets minimize such profits
and if c) why even come here at all? go throw your bits in the air around you and act smug elsewhere.

<thread>

in the OP i talk about the effects of hoarding on the price right now, and how it may incentivize people with large holdings to trade bitcoins back for fiat in a realllly long game of hot potato instead of using them to purchase goods. this, again, is not the standard BITCOINZ GUNNA DIE CUZ DEFLATION. i talk about the bloating of the financial sector as opposed to growth in commerce, and how the bloating of the financial sector might hamper growth in commerce. if you're going to say the quoted above, post it in the other million threads debunking the hoarding forever myth.


skyrocketing demand + limited supply = deflation. this is a textbook definition. this deflation is recognizable as a rate of change of price similar to price bubbles in the past, but fundamentally different (selloffs don't cause panics and are almost immediately absorbed by buying pressure, for one).

if you're trying to make a snide point about how you don't believe the present price action is due to deflation at all, then i'd appreciate that more open discussion. i think you know what i mean by price behavior: $5 -- > $25 in about 10 months.


if you didn't care at all about what other bitcoin users are doing you wouldn't be on bitcointalk discussing the economics of the system. i realize i hit a nerve when i mentioned deflationary spiral, but i'm seriously just trying to engage you guys in discussion here...

----------
realizing there are wayyy too many responses id like to make to quote everyone... i hope this is followable.
----------

gmg -- that actually does make sense because currency refers to money velocity. it is a vacuous truth, in a way.

solex -- stores of value and units of account can be conflated but are also very different concepts.

nagato -- gold doesn't have much of a support economy. it's difficult to purchase goods for gold. this is exactly the point, and why it is a good example of a medium that has shifted more towards store-of-value and less towards currency. do we want our bitcoins in vaults or do we want our bitcoins in a marketplace? also, if a single wall street banker is behind this (which unless he has a google search bot he most certainly isn't) then we are in sorry shape indeed. exploding demand + limited supply = significant deflation.

phatsphere -- there is at least one pure strategy nash, that is hoard. there are also many mixed strategies. this is true of many games but that is beyond the scope of this discussion.

lethn -- this is neither faulty mathematics nor economics. you're simplifying my argument to "EVRYONE HOARDZ FOREVER LAWLZ" but massive deflation even in the short term could set us up for a massive 'long squeeze'.

hazek -- this is not sophistry and please discuss this with me in a non-condescending way. the key here is that spending coins and selling them back for fiat produce two very different effects on the market.

asdf -- no systemic catastrophic failure, just perhaps a bunch of long squeezes. but your systems analysis is almost besides the point. how functional will bitcoin be as a currency if its growth is marked with such volatility so long after its widespread adoption? your step in the chain "economy contracts because there is no commerce so price goes down" reads a lot more tame than it would be -- not a gradual contraction but rather an extreme price correction. edited multiple times

---

TL;DR

i'm sorry the words deflationary spiral left a bad taste in your collective mouth. i actually come from an economically and mathematically informed background and would like to continue to hear your thoughts. if you guys don't think that the price behavior in the last 10 months is any cause for alarm, may i ask you why?

if you are holding significant amounts of bitcoins, please keep in mind that the market tends to minimize profits. the mechanism i'm presenting here is an eventual long squeeze.

if you don't care about what others do with their bitcoins, that is okay. but what others do with their bitcoins affects the value of your own and it might be wise to keep that in mind.

if you think that keynesian economics is merely an excuse for the powers that be to abuse the money supply, i am in full agreeance. but that belief in itself shouldn't be an excuse to develop an allergy to critiques of the Austrian school of economics.

i understand that im not the first person to ever connect the dots between bitcoin and deflationary spirals. i also understand that the standard argument OHNOES BITCOIN IS GUNNA DIE CUZ DEFLATION is completely misinformed.

the threads you have linked fully exhaust the discussion regarding this matter in the general. i will edit the title to focus on the points i wanted to discuss:

Watching the first major deflationary event in the bitcoin economy, have your feelings changed about its future? Did everyone fully expect the price to quadruple in half a year?

Will this kind of price behavior change the perception of bitcoin either way regarding the currency vs. store-of-value dichotomy?

and

How do you feel about the fact that most coins have not moved? Did you expect this because of the deflationary nature of Bitcoin? Do any of the previous arguments about why people will NOT hoard make less sense in light of the data?

the point is, there is new data to discuss. i apologize if i did not make that clear in the OP.

of course not. im suggesting that due to the effects of runaway deflation, there will be no support economy to make bitcoins economically wise to spend. as such, the only thing the big fish can do really is to 'cash out' -- to take profit, and to leave all these people who are busy sucking up the "cheap" $20 coins holding the bag.


i apologize if this has been covered already. i've been completely dumbfounded by the behavior of the price as a speculator recently, and decided to reassess the fundamentals. do you at least agree that this is bitcoin's first significant deflation event? i have read the bitcoin wiki's counterargument to why a deflationary spiral is not possible, and i am still not at ease. could you restore my confidence in traders' long-term awareness?

So it seems that the bitcoin userbase has made a decision about the currency vs. store-of-value dichotomy and has overwhelmingly chose the latter.

A recent thread in the speculation forum seems to suggest that the common practice for most is to buy and hold (read: hoard).

while this is fine and dandy, and everyone can do with their bits as they please, it might have some unexpected consequences for bitcoin as a whole. one of these is a decreasing appeal as a currency. let's talk about the idea of a deflationary spiral:

the bitcoin wiki has a nice page describing how bitcoin is 'immune' to such a disaster, the reasoning being "Bitcoins only deflate in value when the Bitcoin Economy is growing."

there is no question that bitcoin has undergone (or is continuing to undergo) a massive deflationary period. this comes as no surprise because demand is rising and the total number of bitcoins, as everyone knows, is fixed.

let's talk about what isn't happening:

-it isn't about the block reward halving. everyone thought that that was already priced in, before it happened, in the rise from $5 to $10 in the early summer. i have reservations about whether or not that is really the case (the inflation rate decreasing by half doesn't mean that the value should double), but that aspect of the protocol must have been priced in already.

-it isn't about any major news either. the best candidate is the wordpress announcement, but the rally, again, started before and continued thereafter.

-it isn't about any new market opening up for bitcoin, either... the main drivers are still online gambling and the silk road.

-it also is not a bubble, as many have been saying. at the very least, we are not in bubble territory yet. there have been two large sell-offs that have let off a little steam while maintaining the upward momentum.

so what's going on? the bitcoin wiki swears that the bitcoin economy MUST BE GROWING in order for this massive deflation to occur. and the economy is growing, indeed, but which sector?

you see, just like the world economy, the 'financial' sector is about an order of magnitude larger than any real commerce. as evidence for this, i can point to that fact that more than 3/4 of the bitcoins that exist haven't moved much at all. this is troubling. if there are so many coins, where are the asks on mtgox? the answer: people are pulling them, skewing the supply, with the idea that hoarding will be very profitable as the slow and steady deflation pushes the price up, up, up.

this brings us back to a very important, and possibly dangerous, idea: the deflationary spiral. users are reluctant to sell their coins because of the idea of larger future worth (standard deflation), which causes them to hoard their coins which creates a feedback loop which increases the perceived value of the coins.

why is this dangerous? everyone knew deflation was built-in to bitcoin, anyway, right?

the problem is that if you are discouraged from spending your coins because you know they will be worth more in the future, the nash equilibrium is for everyone to hoard. this means no investments and subdued commerce. in other words, bitcoin turns into gold as we know it today. not a currency at all, but a store of value.

we are already seeing the effects of this. why invest in satoshidice shares when you'd be multiple times better off just holding onto the coins? even if you mean to purchase things with them and never convert to fiat, unless a large support economy exists the suppliers of the goods will have to convert to fiat to pay off their own costs. but the deflationary spiral disincentivizes the formation of this necessary support economy!

in other words, the bitcoin economy is growing. the "financial" sector is swelling like nothing we've seen before. and if it doesn't stop, we may never see bitcoin payment systems because they will simply not make sense.

even worse, the price as it stands today is much higher than it would be if 100% of the coins were in common trade. as it stands, less than 1/4 are. and now everyone is rushing to buy because they see the profits and protection of a deflationary store of value. so the game is to suck up as many coins as you can, and hold them forever? then what is the point? we've all been relying on the relative altruism of the early adopters and miners who are undoubtedly the owners of those large, quiet addresses. i'm rather afraid that some of them may be less altruistic than we believe.

i know that FUD is common when prices rise to unprecedented levels, but this is not speculation. this is a challenge to the economic fundamentals and goals of the project. i'm not saying that one of these big fish are going to cash out tomorrow, but as the price rises, the incentive for them to will only increase. is this a good direction for bitcoin?

edited for formatting