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In Bitcoin, M0 (Monetary base) would be the 21,000,000 BTC, or currently 10,759,850 BTC, right?
Market Capitalilzation is M0*FX Exchange Rate so it's a little different.
If anything, just to change the name to perhaps Net Market Value, or just 'Net Value In (FX)' would be better?
I dunno, Market Cap In (FX) is fine to me too...
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1 BTC = $100 before the end of the year  Here's a snapshot of current market stats: Total BTC currently = 10,759,550 Current Price USD/BTC = $23.50/ BTC1 Current Generation = 1,278,340 BTC/year Inflation rate = 11.88% over the next year Total BTC in one year = 12,037,890 Current Market Cap (price X total BTC) = $255,539,313 Nominal Market cap at $23.50 in one year = $282,890,415 Real Market Cap in one year at same $23.50 = $225,181,243 Required demand by end of year for current Bitcoin value = $30,358,070 at $23.50/BTC Now for the fun part:  Coinbase is currently selling $1,000,000 of Bitcoin per month.At the current rate: $1 Million X 12 = $12 Million/year OR at $23.50: 510,638 BTC/year Needed demand, just for inflation: 1,278,340 BTC/year Thus, Coinbase percentage estimate of needed yearly BTC demand: 40% And that's just from one exchange at their CURRENT demand! What if we could gather demand from every other exchange? What if we could accurately predict an increase for demand in the next year? For fun, let's assume we can!So, let's assume the other 60% demand is already there (Actually, I think this is probably true). Just based on these current estimates, it seems that demand is strong enough to at least keep up with inflation; showing that the demand for the new 1,278,340 BTC/year is MOST LIKELY being met with the supply at $23.50/ BTC1. If we could accurately predict an increase in demand over the rest of the supply in the next year (Again, I think this is probably true as well), then demand will surpass inflation, begin cutting into the older Bitcoin stock, and consequently increase the price. So what will the price be in a year, you ask? http://www.youtube.com/watch?v=l91ISfcuzDwObviously, I'm optimistic and this doesn't prove anything... but it was fun anyway 
Keep in mind, on the other hand, if demand can not keep up with the supply from inflation and sellers, the price WILL go down until it can. But like I said, I think it can -- so $23.50 doesn't seem that expensive to me. In fact, I think demand is strong enough right now and will only grow, pushing the price up even further. Remember, this opinion is only based on one set of demand data, but I think you all get the picture... |
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+1 for that post stochastic! That chart is a great example of why inflation is USELESS for the majority of people (poor and 'working class') when all it does is deplete the value of their savings (in cash), while maintaining the wealth of the rich, who just hoard the new inflationary money into speculative investments for 'further' gains. Thank you for the competition, Bitcoin  |
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which honestly, to me, is a term made popular by Keynesian's to hide the real facts, as price inflation/deflation is simply the market exchange rate, reflective of the money supply into a currency from itself and other currencies
I'm not sure if it's just me but I had a hard time understanding the underlined. Is that redundant? from itself and other currencies? Anyways, with the ASICs coming out soon, what do you think the value of bitcoin will do for the the first couple of months? I feel like it will start to drop rather rapidly as people are trying to get their hands on more USD to compensate for their expenses. Then they would start to keep the BTC and the difficulty would rise so it would go back up? Sorry for the lack of specifics there! My point is: Price inflation is not only derived from the market price of whatever it is you're exchanging a currency for, but it is also derived from the value of the currency 'itself', meaning the rate of monetary inflation along with supply and demand of that currency. In other words, prices of good/services (price inflation/deflation) are reflective of the exchange rate due to FX trading and the Bitcoin generation rate due to mining (monetary inflation). So, 'something' worth BTC1 can 'deflate' in price to BTC0.5 if any or all of these market forces apply to it: 1. The currency exchange rate of whatever that 'something' is usually traded in doubles (BTC/USD increases from $1 to $2 per BTC) 2. That 'something' becomes cheaper to make (greater supply) or needs to stay competitive in price (weaker demand) Keeping in mind that the currency exchange rate or PRICE of Bitcoin (force 1), is determined by the value of the currency, which is the SUPPLY and DEMAND and so on and so forth as explained in the OP... Price inflation would be the opposite. Let me know if that makes more sense lol |
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Finally, back to the original discussion, market cap may be an indicator which we can study to understand supply and demand. However, it is not a primary cause of supply and demand or BTC value. If market cap measured in USD was a primary cause of BTC value, then we should all view BTC as a bank to temporarily deposit USD and maybe collect some interest (making BTC a ponzi scheme).
The appeal of having some BTC is not at all the market cap measured in USD. Without speaking for everyone, I believe BTC's appeal and inherent value is secure storage of value coupled with convenient exchange of value. Looking at the market cap is still informative though.
The value of a USD $1 will decrease because USD suffers continuous inflation. The value of 1 BTC will increase for the time being because demand for BTC is increasing faster than supply. And after most of the BTC have been mined, the value of 1 BTC will increase because of the deflationary nature of BTC. But we should definitely have this discussion again at that point, to see what it means for the miners.
As mentioned in the original post, a large part of Bitcoin's positive value (which increases the exchange rate of BTC) is the DEMAND for Bitcoin, via the physical manifestation of that ideological value through trade (in this case, BUYING BTC). However, this is not the end of the story, and you bring up this great philosophical question which I am delighted to dive into! So now we must travel deeper into this rabbit hole, as we ask, what creates this demand!? Why do people find Bitcoin valuable enough to trade anything for it?! Here is my response to this question in a related discussion at What is bitcoin backed by? My favorite answers"What is Bitcoin backed by?" It is backed by value. Value is created by people, it is not intrinsic to anything except ideas (opinions). Certain resources (gold, dollars, real estate, stocks, etc) have great monetary value in our society because we look for, or create, certain properties in them when following a particular - the most popular - economic theory at the time. As an example, if we all started to adopt the theory of resource-based economics, widely promoted by Peter Joseph who created the Zeitgeist movie-series, we would value resources very differently. So what makes Bitcoin valuable to people (adopters) in a capitalistic economy? It can be a multitude of reasons: - Deflation is better than inflation
- It is better to have a decentralized power
- Transactions in Bitcoin are cheaper, easier in a digital world
- The Blockchain: a PUBLIC record of every transaction
- I hate Ben Bernanke or the Federal Reserve System
- The security of Bitcoin's cryptography
- Irreversible transactions
- A new economy to start a bushiness in
- Anonymity (if done properly)
- Dude, I can buy drugs like I buy shit on Amazon... awesome
- I don't know, my friend uses it and I just follow whatever they does cause I think they're cool (majority of people)
- I like code
- I like turtle
- Miner: "Free money man!"
- we can win a major battle in the arms race and gain a new territory of freedom for several years
- Etc...
Therefore, we can certainly add to our list that "Mining increases the value of each BTC because it reinforces 'the way BTC works'" and its "secure storage of value coupled with convenient exchange of value." Personally, I agree with you on both accounts and believe those to be some of the more important and valuable aspects of Bitcoin. As for the comment regarding Market Capitalization: after this post, I think you have a better understanding of where I was coming from when I posted it, so certainly not arguing with you there! I am actually working on creating an inflation-adjusted BTC/USD chart at the moment, just to have a solid visual of that here. Though, honestly, you could just look at a Bitcoin chart priced in gold and you would have another somewhat-similar visual. Like the Market Cap chart, this is just another representation of Bitcoin's value, yes, but I do think they are important when attempting to predict market trends, as you know. A chart of that can be found at a fellow Bitcoin users blog: http://pricedingold.com/ It's a cool blog. He charts pretty much everything in terms of gold. Lots of great data!! |
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When Bitcoin takes over in the future, my children and I will play Monopoly with actual US dollars, so I wont have to worry about them ripping, losing, or slobbering all over the useless paper money that comes with the game... Assuming Milton Bradley stays with the same denominations.. anybody care to predict when the monopoly dollar passes the US dollar in value? I was just thinking of that. A standard Monopoly set originally contained $15,140, but that was increased in 2008 to $20,580. At that time, about 250 million sets had been sold, and since then about 3 million were sold per year. So the Monopoly money supply in 2008 was $3.785 trillion, increasing by about $62 billion per year, for an annual inflation rate of 1.6%. Since a Monopoly set costs about $15, one US dollar currently buys 1,372 Monopoly dollars. Assuming an inflation rate of 9.6% for the US dollar (based on increasing gold prices since Nixon abolished the gold standard because the CPI is useless) and that Hasbro keeps printing money at its current rate, the Monopoly dollar will achieve parity with the US dollar in just under 100 years.  Brilliant |
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I think it will lead to more factual, interesting debates. If someone knows the issue, they should be able to sufficiently argue both sides. It might help with biases as well?
+1 In fact, this is common practice in debate classes and is a good idea all around. Livestream is an option for sure I was using tokbox
I really like this idea (that's why I came in!) but I have the feeling that it will fail so long as video is a requirement. Bitcoiners are still, as a majority, horribly afraid of revealing their personalities and likenesses for fear of trolls and other things. Most of the people on this forum won't even give their real names. I think removing the video and allowing just "live arguments" by chat would suffice. It's less sexy, but bitcoiners (the ones who hold bitcoins) will be more likely to participate. Just my two cents. I'll be happy to support it just the same as I love debate! Wear a mask and change your voice! |
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When Bitcoin takes over in the future, my children and I will play Monopoly with actual US dollars, so I wont have to worry about them ripping, losing, or slobbering all over the useless paper money that comes with the game... |
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I lolled a second time coming back to this thread... so now I must admit to it |
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I think this is a great idea and would gladly be one of your first speakers in a debate regarding the Economics/Finance of Bitcoin! Also, an easy solution may be to setup a Livestream account ($45/month)and have that stream embedded into your site, but acting as the server, while mixing two Skype calls (or 3 for the moderator) to the Livestream feed. DONE! Also, all the Bitcoin address stuff you guys were talking about. If you need help on this, let me know! I've got a Tricaster, a Livestream account, and I like the idea! Can make it happen in no time! |
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An area dedicated to discussing the differences of these two terms and the theories supporting them. I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the forum, and thought it may be reasonable to dedicate a thread on the matter. Pulled from a discussion in Wall Observer
Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease, because the value of Bitcoin goes up. Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down. So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin. Example: As the Bitcoin price goes from $10 to $20, the prices of goods/services goes down from 20 BTC to 10 BTC. As the Bitcoin price goes from $20 to $10, the prices of goods/services goes from 10 BTC to 20 BTC! Why does the price of Bitcoin go up and down? The price of BTC goes up and down based on the exchange rate, or market price, which is set by buyers and sellers, or traders. They directly trade the Bitcoin currency with all sorts of other currency, and even some with gold; the most popular being the USD (US dollar). They set the price when executing orders to buy or sell. I will get into the actual reason of why the price fluctuates in the last section.
Now that we've gone over PRICE Inflation and Deflation (which honestly, to me, is a term made popular by Keynesian's to hide the real facts, as price inflation/deflation is simply the market exchange rate, reflective of the money supply into a currency from itself and other currencies), let's go over the REAL inflation/deflation of a currency (otherwise known by many as Monetary Inflation). MoneySupply-Inflation is when the value of Bitcoin decreases when the total supply of Bitcoin increases. In our current state, this is at a generation rate of 25 BTC every 10 minutes. MoneySupply-Deflation will essentially never occur. It is when the value of Bitcoin increases when the total supply of Bitcoin decreases. This may happen, say, when someone loses their private key and all the BTC associated with it are lost. This effectively "makes the rest of us richer". That being said, there is a SET DECREASE in the generation rate of BTC, so you have sort of a "deflationary effect" in the value, as long as more exchange occurs for BTC at a rate which is faster than that set generation rate. When all 21 million coins are produced, the MoneySupply will be neutral, and the value will continue to increase (prices will decrease, consequently), as long as people continue to exchange in BTC. This leads me to the last section.
What determines the PRICE of Bitcoin? The VALUE of Bitcoin at a particular moment. What determines the VALUE of Bitcoin? The SUPPLY and DEMAND of Bitcoin in the economy. What determines the SUPPLY of Bitcoin? Currently, the MoneySupply-Inflation rate of 25 BTC every 10 minutes, and traders willing to SELL Bitcoin to BUYERS in exchange for other supplies of money (currencies).What determines the DEMAND of Bitcoin? Traders willing to BUY Bitcoin from SELLERS in exchange for other currencies. Therefore: BUYERS, SELLERS, and MONEYSUPPLY-INFLATION (miners) determine the VALUE of Bitcoin, which determines the PRICE of BTC as BUYERS and SELLERS trade based on that VALUE (or supply and demand) of Bitcoin. We don't exactly know the totality of the supply and demand. Sure, we could try and aggregate data from all the exchanges, but we will never be accurate as there are exchanges which can not be accounted for (OTC). The cool thing is that we DO know the MoneySupply rate, and we DO know the exchange rate. From this, we can determine a real value of Bitcoin when simply multiplying the two factors; a sort of inflation-adjusted view of the currency. Effectively, the quantitative analysis of supply and demand is really what the currency exchange traders attempt to accurately determine which is conveyed through buying and selling of Bitcoin, setting a VALUE via the PRICED exchange rate of the currency. On a side note, most of the big Market Makers (FX Traders) use this price movement as a way to make a profitable living, as well. Especially when price fluctuations are a consequence of hype or fear (bubbles, cliffs), not factual supply/demand data, and are wildly out of the real price range. Thus, if you analyze the proper macroeconomic data in an attempt to forecast future DEMAND for more Bitcoin (price increase), you will realize some very interesting things, and have a more accurate picture of where the price is going... Happy trading! |
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Thanks thefiniteidea for the clarification between the two. it is useful to be able to differentiate with clear terminology of what is meant rather than my more vague notions. Also your presentation of price, value, supply, demand and the relationship between them in relation to market analysis is educational. Appreciated  Thanks man, absolutely agree. You were spot on earlier, just been feeling a need for some time to go in-depth on this one may even re-post as a topic to bring the whole community even further down this rabbit-hole... |
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thefiniteidea: Am sending some spare coins for coolness  haha f*ck yeah man! That was generous as sh*t! If those are your spare coins, I wanna be the hobo outside your home!!! |
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Whan speaking of bitcoin, is deflation a more appropriate term ? IMO, Bitcoin are in deflation, not inflation ! I'm I wrong ? if yes,, why ?
...BTC market cap, in USD = BTC value adjusted for BTC rate of inflation, in USD
Whan speaking of bitcoin, is deflation a more appropriate term ? IMO, Bitcoin are in deflation, not inflation ! I'm I wrong ? if yes,, why ? It's not that it's a more or less 'appropriate term'. Correct me if I'm wrong but I think you're thinking of 'inflation' in the way it's used by politicians and the papers rather than as an economic technical term. There are two distinct meanings. The more common usage is measured relatively to what can be purchased with a currency. e.g. a how much a set 'typical grocery basket' costs to buy a year apart. In that sense of course Bitcoin is deflationary. But the technical use is to do with supply money supply. Bitcoin is only deflationary from a technical perspective if more coin is being lost than is being introduced which is very unlikely to be the case. In terms of 'market cap' measured in USD it can only be higher with Bitcoin at $20 than it was at $30 if there are > 50% more Bitcoin in existence i.e. its supply has inflated by 50%, which is how thefiniteidea is using it above. For fun I posited in another thread that relative to total supply even the rate at which Bernanke's extreme USD inflationary policy is being implemented, as a monthly rate he's only introducing approximately half as much new currency as Bitcoin is. Of course this doesn't tell the whole story because for BTC we know from Day 1 how the monetary supply will pan out but despite the popular notion otherwise, for the next few years the rate at which new coin is introduced makes Bitcoin a heavily inflationary currency thoughtfan has hit the nail on the head, doomdumas.
Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease, because the value of Bitcoin goes up. Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down. So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin. Example: As the Bitcoin price goes from $10 to $20, the prices of goods/services goes down from 20 BTC to 10 BTC. As the Bitcoin price goes from $20 to $10, the prices of goods/services goes from 10 BTC to 20 BTC! Why does the price of Bitcoin go up and down? The price of BTC goes up and down based on the exchange rate, or market price, which is set by buyers and sellers, or traders. They directly trade the Bitcoin currency with all sorts of other currency, and even some with gold; the most popular being the USD (US dollar). They set the price when executing orders to buy or sell. I will get into the actual reason of why the price fluctuates in the last section.
Now that we've gone over PRICE Inflation and Deflation (which honestly, to me, is a term made by Keynesian's to hide the real facts, as price inflation/deflation is simply the market exchange rate, reflective of the money supply into Bitcoin from itself and other currencies), let's go over the real inflation/deflation of a currency. MoneySupply-Inflation is when the value of Bitcoin decreases when the total supply of Bitcoin increases. In our current state, this is at a generation rate of 25 BTC every 10 minutes. MoneySupply-Deflation will essentially never occur. It is when the value of Bitcoin increases when the total supply of Bitcoin decreases. This may happen, say, when someone loses their private key and all the BTC associated with it are lost. This effectively "makes the rest of us richer". That being said, there is a SET DECREASE in the generation rate of BTC, so you have sort of a "deflationary effect" in the value, as long as more exchange occurs for BTC at a rate which is faster than that set generation rate. When all 21 million coins are produced, the MoneySupply will be neutral, and the value will continue to increase (prices will decrease, consequently), as long as people continue to exchange in BTC. This leads me to the last section.
What determines the PRICE of Bitcoin? The VALUE of Bitcoin at a particular moment. What determines the VALUE of Bitcoin? The SUPPLY and DEMAND of Bitcoin in the economy. What determines the SUPPLY of Bitcoin? Currently, the MoneySupply-Inflation rate of 25 BTC every 10 minutes, and traders willing to SELL Bitcoin to BUYERS in exchange for other supplies of money (currencies).What determines the DEMAND of Bitcoin? Traders willing to BUY Bitcoin from SELLERS in exchange for other currencies. Therefore: BUYERS, SELLERS, and MONEYSUPPLY-INFLATION (miners) determine the VALUE of Bitcoin, which determines the PRICE of BTC as BUYERS and SELLERS trade based on that VALUE (or supply and demand) of Bitcoin. We don't exactly know the totality of the supply and demand. Sure, we could try and aggregate data from all the exchanges, but we will never be accurate as there are exchanges which can not be accounted for (OTC). The cool thing is that we DO know the MoneySupply rate, and we DO know the exchange rate. From this, we can determine a real value of bitcoin when simply multiplying the two factors. This is the "Market Capitalization". Effectively, the quantitative analysis of supply and demand is really what the currency exchange traders attempt to accurately determine which is conveyed through buying and selling of Bitcoin, setting a VALUE via the PRICED exchange rate of the currency. On a side note, most of the big Market Makers (FX Traders) use this price movement as a way to make a profitable living, as well. Especially when price fluctuations are a consequence of hype or fear (bubbles, cliffs), not factual supply/demand data, and are wildly out of the real price range. Thus, if you analyze the proper macroeconomic data in an attempt to forecast future DEMAND for more Bitcoin (price increase), you will realize some very interesting things, and have a more accurate picture of where the price is going... Happy trading! |
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Anyone in the jersey area know of any meetups? Or are they all in NY? I'd be interested in a good excuse for a drink Rutgers area! |
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Think of it as looking at a BTC price chart adjusted for inflation against USD.
So essentially, what you're looking at is the real value of Bitcoin hitting the all-time high of 2011, relative to USD.
Remember, Bitcoin does inflate.
This gives you a better indication of the actual, real, inflation-adjusted value of BTC at the moment, as opposed to the nominal price of about $20.00 USD currently.
Basically, Bitcoin is as at least as valuable as it was at the high in 2011, and looks like it is even beginning to surpass it.
I think that's kind of a big deal... like breaking through the all time high of $31.00/BTC here...
I get your point, but why don't you create a inflation adjusted Bitcoin market cap graph? "Basically, Bitcoin is as at least as valuable as it was at the high in 2011, and looks like it is even beginning to surpass it." So check your inflation statement against it. Nethertheless do you even understand blockchain.info's market cap graph? Its for the lulz. And you try to get serious on it. inflation adjusted bitcoin market cap = btc price, no? I think the market cap is a good thing to look at. Probably the best way to judge bitcoin is something between btc price and market cap. BTC market cap, in USD = BTC value adjusted for BTC rate of inflation, in USD It's not the exchange rate, or the "price", in USD. But it does display value more accurately, rather than the exchange rate. In my opinion, value is way more important than price when it comes to trading. Which is why I focused on it here. To answer your question, spaceman, yes lol and I agree that price is relevant as well. Especially even numbers 10, 20, 100... |
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I get your point, but why don't you create a inflation adjusted Bitcoin market cap graph?
"Basically, Bitcoin is as at least as valuable as it was at the high in 2011, and looks like it is even beginning to surpass it." So check your inflation statement against it. Nethertheless do you even understand blockchain.info's market cap graph? Its for the lulz. And you try to get serious on it.
Bitcoin price in USD X amount of Bitcoins in circulation. Pretty simple. What's not to understand? Calculating Bitcoin inflation is easy. We have the data right in front of us. Calculating USD inflation is much harder, sure, but thats not what we're talking about. Also, don't really understand why you're suggesting that I need to create a chart when Blockchain.info already has... like I said, it's pretty simple... |
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Think of it as looking at a BTC price chart adjusted for inflation against USD. So essentially, what you're looking at is the real value of Bitcoin hitting the all-time high of 2011, relative to USD. Remember, Bitcoin does inflate. This gives you a better indication of the actual, real, inflation-adjusted value of BTC at the moment, as opposed to the nominal price of about $20.00 USD currently. Basically, Bitcoin is as at least as valuable as it was at the high in 2011, and looks like it is even beginning to surpass it. I think that's kind of a big deal... like breaking through the all time high of $31.00/BTC here... market cap new high
i dont think new buyers would think of that how is that resistance? that'll be an interesting explanation Oh, and its a big deal for you guys mostly, at least it should be... not so much the average buyer. They could care less about technical indicators like this. But you know what else is real interesting? The DJIA index has been making new highs lately. Right now, it's at around 14,000. But is it really making new highs? Pulled from http://home.earthlink.net/~intelligentbear/com-dj-infl.htm  Not even god damned close... the sham of inflation |
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