johnyj: Imagine a Roulette wheel, sometimes you win, sometime you lose but on average it all even out (well accept for 0 and 00, but lets pretend those aren't their and instead your paying 1% conversion fee at an exchange which has the same net effect). Now would any sensible merchant agree to be payed with bets on a Roulette wheel? No because you ALWAYS lose in the end, you hit a streak of losses and are eventually wiped out, business need their operating capitol if they loose it they can't make another set of products to sell just like you can't make another bet. This is why stability is key.
This game is different, the house advantage is at bitcoin side, e.g. who hold the bitcoin wins long term wise. Because the fiat is inflated all the time (now 85 billion per month) and bitcoin supply is limited, the bitcoin value will increase over time You're making a bold assumption that bitcoin wins in the long run. I'll play devil's advocate here. Imagine a scenario in which someone holds 10,000 or 100,000 bitcoins. Let's say, an early adopter, who mined them all. For the sake of argument, let's say bitcoin somehow magically reaches a value of 1,000USD per bitcoin. You'll never convince the devil that such a person is better off keeping their "wealth" in bitcoin. Playing by the rules of fiat currency is much more advantageous to this imaginary person. To use basketball parlance, fiat currency is winner's outs. When you score, you get the ball back to score again. And when you have a shit load of cash, the rules are such that you AUTOMATICALLY make more money playing by fiat rules. No risk involved. Pretty genius, eh? Go ahead, try to convince the devil it's a better move to keep the bitcoins. Aside from TOTAL collapse of the fiat world (the devil knows this would have happened in 2009 if it ever was going to happen, and it didn't), there's much less risk in cashing out, because some other large stakeholder of BTC can cash out at a moments notice instead of you, screwing you out of millions or hundreds of millions in profit. Truth be told, the devil knows the real issue is scale. An individual needs a lot less than 100,000, or even 10,000, coins to control the market, cash out and drive the market into a downward spiral. Cashing out slowly at first, then dumping the remainder at a particularly advantageous time to induce panic and intentionally tank the market. The perfect time to execute this would be right after the majority of fiat on the exchanges buys in to pump the price (the devil selling on the way up at a rate that keeps resistance low enough for the upward trend to continue), as we saw play out last week. There wouldn't be enough fiat on the exchanges (i.e. liquidity) to stop the downward trend. The bitcoin seller gets a multimillion dollar payday, and can buy their coins back at 1/10 or 1/100th the cost at the same time. And before you say that's not how it works, keep this in mind: we just saw this exact scenario play out, at a much smaller valuation, meaning there was a lot less money at stake than @ 1,000 per BTC. The devil knows volatility rises as bitcoin exchange rate increases. The chance of total collapse of the bitcoin economy increases the higher the per-BTC price goes. There's way too much money at stake for that to not be the case. The real value of bitcoin is determined by the amount of fiat sitting on the exchanges at any given point in time. And moving fiat onto exchanges takes several orders of magnitude longer than selling large quantities of BTC. We saw round two of this great transfer of wealth play out last week. There will be many more, and the devil knows bitcoin is never more than a means to an end; big paydays for the whales. There are too many whales in the ocean for BTC to ever reach a valuation "true believers" on this forum are predicting. The only solution to this problem is making transfer into exchanges easier and faster. And with unregulated exchanges, there's a snowball's chance in hell of enough fiat sitting at the ready to support large per-bitcoin values. TL;DR - The real value of bitcoin is determined by the amount of fiat sitting on the exchanges at any given point in time. And moving fiat onto exchanges takes several orders of magnitude longer than selling large quantities of BTC. People aren't going to put millions or tens of millions of dollars on unregulated exchanges to support high per-bitcoin valuations. Periods of stable and/or rising per-bitcoin prices are just the snake coiling up to strike, nothing more. What you are talking about is "exchange value", not real value of bitcoin Let's back to the starting point: Now a new country has been established and there is a bidding for a new currency. There are two entities announced their proposal: One currency will be created by mathematical calculation and can be generated by everyone; the other currency is generated by a guy called DEF and he could issue as much as he will, based on his judgement of how much is needed by the country. Which solution will be more likely to be accepted? |
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Well, no. A bubble is defined by the fact that most people do not really want the asset (bitcoin, or tulips, or whatever), but rather just hope to sell for a higher price at some point. So it is bound to collapse anyway, whatever the asset is.
Why it is bound to collapse? Given enough money supply, a bubble can last for decades, everyone can sell at a higher price, as long as they can get new loan to finance their purchase Based on your logic, there are plenty of fiat money available out there, the bitcoin price should not crash Not everyone. For me to sell, there must be someone else to buy at least as much. If everyone sells, the price crashes. If everyone suspects many others are just waiting for the right time to sell, the ideal strategy is wait as long as possible, but sell just a minute before the others. This creates the crash. This is speculator's mindset. Speculator typically don't have fundamental knowledge about the traded instruments, they only care about the price, so when they see the price dropped a bit, they panic sell By the way, a good speculator always sell when price is still on the rise, so that he don't need to worry about the liquidity |
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Nothing fundamentally changed for bitcoin, it is just people's fear keep the price down, since they have never seen such fast price rise for anything and they can't believe it is possible. So they think this is a scam/bubble and they sell when their weak nerve can't take it anymore  |
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You forgot the electricity, you need a room full of GPU rigs to match the performance of a single ASIC rig, and your circuit break won't stand it
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Cheers, Avalon only take payments in bitcoin, thus become the most strong support in bitcoin economy. I hope BFL will follow the same route after they have made their investment back, then we'll have more and more business join!
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And don't think that there will be either inflative currency or deflative currency, they will co-exist and suite different people's needs. You can spend the inflative and save the deflative
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In a capitalist economy (most of the world) however, money is created by central banks and those banks are regulated (well, to some degree) and we put our trust into those banks to control the creation of money to adjust to the economy.
Central bank can inject money and withdraw money to/from fianancial system, but that could not adjust economy. The injected money just goes into commercial bank's pocket, could not magically create job and help the economy, and this process require exponential growth forever, which is not sustainable in the long run |
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yes, facebook, the internet and countless other inventions had an uptake 10% per year
Good to bring this up. Those things you mentioned are still in the stage of market expansion, after reach majority adoption, the growth will slow down, eventually the return will drop. This is very similar to pyramid effect, when the market is stil large, there will be exponential growth and gain But bitcoin is again different. Even bitcoin reached 100% market penetration, people would still want more, since the demand for money is endless |
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Was just wondering how the economy would function around deflation. Note, I am not talking about BTC denominated in fiat money so we can disregard any BTC/USD fluctuations.
Suppose the world only had bitcoins as its currency, wages are paid in BTC, banks would give out BTC loans, etc. Suppose then that an individual takes a BTC10000 mortgage to buy a house. He works and makes BTC1 per day. Because BTC is deflationary, his wages would be adjusted annually (in contrast to increasing wages in an inflationary economy) thus his wages next year would be BTC0.99 and so on and so forth. Suppose he has to consume and save some of his income, it becomes extremely difficult if not impossible to repay that loan. Is that scenario something that might happen if the economy was deflationary?
Also suppose a project required a huge sum of BTC, skyscrappers, infrastructure, etc, there would be no lenders cause they would be better off holding on to their BTC and if they charged an interest on the long, the debtor would be unable to pay it back.
Most of my economics professors believe that a deflationary economy is bad because at the margin (and economics is always about the margins) individuals would prefer to save instead of spend. Suppose a 2013 car cost BTC1000. The 2014 model is expected to be BTC900 and the 2015 model is expected to be BTC800. Any rational individual would postpone their purchase indefinitely and thus the auto industry collapses.
When a recession happens, stimulation of the economy can't happen due to the nature of BTC. Is there a reason why deflation might be good?
Today's auto industry is rely on loan based consumption, if you suddenly change to a saving based consumption, it will collapse for sure But what if it relys on saving based consumption from the beginning? There will be no recession. That's the whole point of having an honest money. Debt based money will always cause recession due to mis-allocation of resource People should not buy cars with the money they might earn from future income, and when their future income suddenly becomes uncertain, the auto industry collapses, that is what happened in reality |
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wow i am amazed how blind investor mentality is! btw, that is not just towards you, there seems to be a lot of that blind mentality around; consumers and suppliers of goods and services are not concerned about the long term value of currency! what matters for that use, $->btc-> goods and services->btc->$, is that for successful trading (of goods and services), the $ at each end has to roughly match! y, sometimes, someone (with the volatility, rarely both) in that transaction will benefit but that is not much security for people whose only interest is $1=$1 within the lifecycle of the transaction. sure, this might not be applicable for all traders (of goods and services) but it represents a downhill direction where less and less people are using btc for exchange of goods and services. my question remains unanswered "how do you hold the exchange value of a currency that you can't buy or sell anything with?!"
That's what I mean, bitcoin is not suitable for use as a currency due to high appreciation potential. Of course you can invent many derivatives to hedge the exchange risk, but the price will never be stable due to limited supply Modern money are all valueless digits but they hold their exchange value due to 2 things: Consensus and Trust. If bitcoin has gained enough consensus and trust, it will hold the exchange value. And if it has value, you can buy and sell anything with it |
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johnyj: Imagine a Roulette wheel, sometimes you win, sometime you lose but on average it all even out (well accept for 0 and 00, but lets pretend those aren't their and instead your paying 1% conversion fee at an exchange which has the same net effect). Now would any sensible merchant agree to be payed with bets on a Roulette wheel? No because you ALWAYS lose in the end, you hit a streak of losses and are eventually wiped out, business need their operating capitol if they loose it they can't make another set of products to sell just like you can't make another bet. This is why stability is key.
This game is different, the house advantage is at bitcoin side, e.g. who hold the bitcoin wins long term wise. Because the fiat is inflated all the time (now 85 billion per month) and bitcoin supply is limited, the bitcoin value will increase over time |
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They don't have better choice when it comes to long term saving medium: Fiat lose its value constantly, physical goods degrade through time, gold is not easy to carry and use, government bonds interest can not cover the rising living expenses
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When bitcoin loses 85% of its 'value' in a few days, it's a great time to buy. When gold dips 20% after riding high for a few yrs, it's a ponzi scheme. Seems reasonable  Sorry wiseguys, but bitcoin has a loooong way to go before it approaches gold as real money. I have thousands of years to back me up. Bitcoin was invented last week and will likely end up being the netscape or myspace of alternative currencies. Bitcoin has only 4 years history and only limited amount of participants, while gold has several thousand years history and accepted by most of the people on the planet, but it still crashed 20% in one day, it is obvious which one has the potential |
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An imaginary death  |
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Gold is a perfect example of value backed by consensus, although gold don't have a lot of use, but several thousand years of history give it enough consensus as a store of value. And this value does correlate to manufacturing cost somehow
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lol, USD is printed w/ plenty of effort to thwart counterfeiting. let's just bust out the monopoly money, right? the value of the USD decided by people's consensus... sounds like some sort of utopian community. how come central bank could use that nothing to buy something that has real value  This against any trading/bartering principle in the world. luckily we don't live in the stone age anymore.. most of us, anyway. i suppose some people still trade camels for harems and what not By printing I mean that 85 billion dollar that FED added every month to his balance sheet, just number of zeros, no paper money is printed physically You have to use your labour/service to exchange for those numbers, comparing trade camels for harems, which one is more fair? |
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If you are interested in getting more coin, put a buy order of same amount of dollar at the end of each week/month, so you will lower your average cost very quickly if price going down
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“Right now you have a bunch of anarchistic market dilettantes who don’t understand how markets work and don’t understand the perils of markets,” he said. “People who understand markets need to get involved.”
The most important is to understand the recent crash, is it purely based on psychology/market behavior or manipulated by some large players? I think the latter is more likely, since they start the DDOS at the same time as mass sell off
For a small exchange and such low market capital, it is very easy to manipulate
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Catch-22
BTC is too volatiles to use for commerce so it has no exchange value.
BTC's store-of-value is based on its ability to be exchanged, it only has store-of-exchange-value
If it has not exchange value then it has no store or value.
Normally you can't have both. USD can not work as a store of value since it inflates continously, but it works as a medium of exchange. Gold do not work as a medium of exchange but they hold value And, low liquidity does not mean no exchange value, if price greatly swing between 30-300, it's just high volatility, you have to either deleverage or buy some derivatives to hedge the risk, if you don't have the time to care about exchange. I have explained before that majority of people will not pay bitcoin for daily consumption, since fiat money already works enough good A retirement saving medium is where bitcoin will succeed first, if you have started to save in bitcoin each month since last year, now your retirement saving account is worth many times more than a fiat money saving account, even after this crazy rally and crash I'm with Impaler on this; What is happening right now is; buyer purchases some BTC for a transaction, by the time the transaction occurs, his bitcoins drop in value so he can't afford what he was planning to get so buys less goods and services. the seller (of goods and services) gets his BTC but by the time he converts to $, BTC has lost value so he's not getting as much for his product. How long do you think that can continue before people stop buying and selling goods and services with BTC?? And when they do, how do you hold the exchange value of a currency that you can't buy or sell anything with?! Some time price is rising, you win, some time price is dropping, you lose, it evens out long term |
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