Exactly! You have nailed the reason why the 2007/8 Credit Crisis has morphed into a sovereign debt crisis, which is morphing into a currency crisis, which will morph into a systemic collapse.

In a true capitalist model, loans are made and interest is due. The interest rate is the price of money which should be set by the market. Successful businesses/individuals pay back their loans and interest from profits, unsuccessful ones default on their loans and interest which means a loss for lenders/banks. Debt write-off is the mechanism that money is transferred from banks back into the economy preventing all the money piling up in banks - because of interest. If the losses are too great then whole banks go bust, freeing up a lot of money back into the economy. The market will set higher interest rates to reflect higher default risk. This is a true capitalist model which is the environment for a successful world-beating economy.

The problem is that the whole system is FUBAR by government intervention!

The rot started after the 1907 recession in the US at a time when economic booms and busts were seen like a force of nature, uncontrolled. When government decided that it had to control the economy, by backstopping banks with printed money, the Federal Reserve was created. It was inspired by the Bank of England which had progressively taken control of the UK money supply. In 1920 this process was complete in the UK too.

Throughout the 20th century government intervention has grown and grown, the cradle to grave nanny-state which has created a massive entitlement dependency in all western economies. In hand with this bank failures are banned. So all banks get bailed out one way or another. This means that money has to be printed to maintain flows of interest. Interest rates, the vitally important price of money, being set by central banks is like having a crystal-meth addict at the wheel of your car. Capitalism has been broken by government intervention. Money supply has come increasingly from credit which monetizes future production giving the illusion of prosperity (because banks can't go bust they can lend irresponsibly to fog-a-mirror borrowers).

Excessive government debt leads to a sovereign debt crisis. Money printing leads to a currency crisis. It is all can-kicking which can go on for a long time. Think of someone falling from the top of the Empire State Building, As they pass the 3rd floor they can still report "All OK so far..."

Bitcoin can change all that. It can't be printed so bank lending in a bitcoin economy will have to follow true capitalist principles. Governments would be massively reined in, savers and producers will be rewarded for their hard work and frugality. Bad banks will go truly bust. Deflation will make everyone richer as prices keep falling. I suspect that income taxes will have to go in the trash-heap and that only sales taxes could be used for government income. The whole western economic system would hum along nicely.

Hmm. How about "Tyler Durden" and crew at zerohedge. If/when  we see lots of bullish write-ups appear on that site - then it might signify their initial holding is complete...

Indeed, the M0 (Monetary base) in BTC is the 10,759,850

To be more precise. It is the monetary base equivalent in USD which is mis-named. So "BTC Monetary Base (M0) in USD" makes most sense for describing the $250 million value.  Market cap is for stocks and shares.

As Bitcoin grows its image is important and the terminology used should reflect traditional conventions.

I suggest that "Monetary Base (M0)" should be used instead of the erroneous "market capitalization" which only makes sense in equities markets. This has been pointed out elsewhere in previous forum topics.

http://en.wikipedia.org/wiki/Money_supply#Example

The amount of fractional reserve lending which takes place in Bitcoin is probably nil, so the higher derivative forms of money M1, M2 etc don't yet apply. Some never will as this is a hard currency.

OK. I can tell you exactly how much money is flowing into bitcoin. It is $75,000 per day.

This is the number of new coins mined each day * the average price each day.

Sideline money is a myth. All the buying and selling of existing coins means that for every dollar in there is another out.
What makes the value go up is sentiment. For a disruptive technology which has the capability of displacing fiat currency $75k per day is absolutely peanuts. Wait until people with really deep pockets get involved. $10 million per day could easily flood into this market - absorbing the number being mined.

And North Korea shows the tragic end-point of this paradigm.

Correct. And as the market gets bigger and bitcoin usage matures then the spikes and crashes will diminish in amplitude.
There was a 90+% crash in 2011. The next crash may be "just" 50%, then after that perhaps 30% etc.

Even the yen and euro can easily rise or fall 1% in a day, and these are 10,000 times bigger than bitcoin.

Your main point about the ASIC price steadily being forced downward is undeniable, especially when the known batches are considered.

Further, in the long-term electricity can be sourced almost for free, after the cost of solar panels are paid down. There has been a glut on the market in the last couple of years reducing the price per watt...

http://www.ecodirect.com/Suntech-STP250S-20-Wdb-250W-30V-PV-Panel-p/suntech-stp250s-20wdb.htm

An inverter would be needed too, and a feed-in tariff available by your powerco. So power is sold to the grid during the day offsetting the mining rig's overall power consumption.

Sigg - if you think ASIC mining is unprofitable medium/long term then consider the situation where everyone agrees with you.

The difficulty will stay lower and people will stick with existing graphics cards to make money. But then someone decides to get an ASIC going and makes a lot of money because no-one else is doing it.

Any market (as well as a mining market) is made of hundreds or thousands of people with graduations of opinion, the market finds a balance. Some will mine, some will invest.

I hear you but I still do not think this is a typical bubble. The spike in 2011 was, especially as the market was immature, with much smaller bitcoin issuance, therefore it was harder for the market to establish a stable consensus valuation.

I am looking at the current fundamentals as well as technicals and see strong fundamentals underpinning the recent enthusiasm driving price.

Check out the 1 year daily price chart, and yes it seems there could well be a very short dip back to $17 from the current level. Note also it is on a doubling trend from $5.50 a year ago, to $11 six months ago, to $22 today...

http://bitcoincharts.com/charts/mtgoxUSD#rg360zigDailyztgSzm1g10zm2g25zv

But then check out the actual bitcoin usage (logarithmic 7-day SMA of USD equivalent volume) over the same year...

https://blockchain.info/charts/estimated-transaction-volume-usd?showDataPoints=false&timespan=&show_header=true&daysAverageString=7&scale=1&address=

This is very similar to the price chart! Even the peak in late Aug 2012 is represented. The price spike in the last month mirrors the major uptick in bitcoin usage across the internet.

A downtrend may only materialize when the usage of bitcoin takes a hit (perhaps because of some as yet unforeseen external factor) which could be months away.

IMHO we are much more likely to see triple digits this year than single digits. However, if 100+ is reached then a 50% retrace is more than likely too, in which case people will be gagging at the chance to get in at $50.

Exactly²

+1

That is exactly my thinking too. Compared to the % increase seen in 2011, if this is a 2nd spike, then we are just in the foothills of it.

http://bitcoincharts.com/charts/mtgoxUSD#rg30zigHourlyztgSzm1g10zm2g25zv

There is absolutely a bullish wedge on the hourly chart.
Also, look how fast the retrace is out of the dips. Like a cat on a hot tin roof.
Bitcoin is already putting a floor in at $21...

Agreed 100%

If Bitcoin cripples itself at such an early stage then the central bankers will be laughing as they quaff bourbon in their gentlemen's clubs. Bitcoin is a very disruptive technology which has a huge first-mover advantage, potentially returning a lot of power from governments and TBTF banks to the people. If this is thrown away then expect the next major cryptocurrency to be FedCoin or ECBcoin or even IMFcoin which will be designed to integrate somehow with the existing fiat systems. (Oh. And expect attempts to ban community-based alternatives when "official" ones are up and running.)

For the rest of us who are catching up, are you proposing what seems far more radical than eliminating the 1Mb limit? Can you please clarify. Are you proposing reducing the 10 min average block creation time? If so, what happens to the 25 BTC reward which would be excessive, and need a pro-rata reduction for increased block frequency?

1.0 or 1.10? 

Kirchner slaps a price freeze on supermarkets to curb inflation when she has the central bank running presses 24/7 churning out money, like the new 100 peso note.
What planet do politicians come from??

Bitcoin needs a killer smart-phone app for it, so it can more easily step into the breach when a country is being devastated by hyperinflation.

Thanks for sharing ATC

Beware that the fundamentals for bitcoin are unusual.

The block reward halved at the end of Nov-2012 so some of the recent price increase could be a delayed effect of halved supply.
The number of users is exponentially increasing...
https://blockchain.info/charts/my-wallet-n-users
doesn't this look like the price chart?

Buying bitcoin in 2013 could be compared to buying Microsoft shares in 1988. Sensible at any 1988 price...

Quite right. I meant to imply the management and institutional culture of these organizations...