If anyone can come up with a formula to properly show a correlation of those elements, let me know. Well, first you assume a spherical Bitcoin trader... price = demand + speculation + difficulty -------------------------------------------- greed + competition + supply Then you can make up some reasonable figures to plug in... price = steady difficulty = +50% demand = +5% (growth of economy) speculation = X (ie. we don't know) competition = +20% (influx of new miners) supply = +5% (increases at constant rate) greed = +5% (slight increase) And then solving for X gives you... X = -25% A reasonable explanation for steady price in the face of rising difficulty -- 25% less speculation? I have no idea how you could have possibly made such an equation or thought it was actually useful in any way, but if that's all it takes, congrats to get 1 BTC. |
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As long as it's difficult to get hold of enough BTC to buy a house, it's undervalued.
At the moment, you can get a hold of approx. 260k USD worth of BTC on mtgox. Perhaps another 50k on otc.
The monthly volume on mtgox is merely the price of 4 houses in city such as London or New York ($1 M).
If just ten people wanted to pay for a house in bitcoins, this would have a major effect on the exchange rate.
Therefore, undervalued.
Yes, because we know that someone buying the full price of a house with Bitcoins is *just around the corner*. |
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Volume is down because price is higher. Trading 10,000 BTC a day when the price was $.70 is like selling 1,000 a day when it's at $7.
If you look at it in term of bitcoin, yes. Not true for dollars. I think we agree. Looking at the volume in terms of how many dollars are traded is very important. But as the price rises, it takes more and more cash to absorb the 7200 BTC/day mined. That's over $50,000 a day! Either someone is hoarding it or selling it. If they are hoarding it, they value $7 less than a BTC. If they sell, they must find someone else who values 1 BTC more than $7. That's a ton of new demand that must be filled every single day. I'd like to see a volume chart in dollars. We probably are not far off the peak (which probably occurred during the mad rush last week). |
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People don't pay a lot of money for crabs because people risk their lives to fish for them.
Crab fisherman risk their lives because people will pay a lot of money for crabs.
Very good analogy. Too many people hold labor theory of value. If something is hard to do, then it must be valuable! |
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calm before the storm as people's accounts are credited at dwolla/mtgox after this week's press or a trend to hoarding?
Volume is down because price is higher. Trading 10,000 BTC a day when the price was $.70 is like selling 1,000 a day when it's at $7. |
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I've started thinking bitcoins have nothing to do with gold. They are more like diamonds, with people having stashes filled with them but not releasing them too quickly or the price will drop really quickly  One thing is for sure, if old bitcoiners want to fix a maximum price, (eg 10 €) they can sell those at that price for quite a long time... This is a pretty good analogy. Except diamonds are easier to control since they were in the hands of even fewer people. I'm beginning to think that the rally was caused by a very small number of somewhat large investors who were trying to get in. The market was able to absorb some of that through people selling, but that push has somewhat disappeared (at least for now). The selling pressure is still there, so that's making the price go down just a bit. Since the market has so few actually for sale, it takes so little to make it move up, but once that dries up, the slide back down happens. |
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In the last difficulty changes prices went up following ( or even passing ) difficulty, but this time prices are stable over 6.5 - 7, why is that happening?
Why don't you describe why you think it should have? |
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All the more reason to diversify into BitNickels and Britcoins and Martian Botcoins and so on and so on before that time comes.
There are plenty of people who will still find use for bitcoins and their variants even when they are worth less than a fiat-penny each.
In fact dirt cheap ones might be a lot more useful if they aren't zooming up in price as fast as bitcoins have lately been doing, as maybe people might actually spend some instead of just getting into a get rich quick bubble mentality.
-MarkM-
The price will eventually go up high enough the hoarders will start using them. Or it will stagnate long enough they will start using them. It's a self-correcting problem. |
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So, great, they drop to tiny cost to buy, is that simply going to lead to another round of the same due to only a few people buying up millions of coins at dirt cheap prices, or is it possible it could instead lead to many many people each dropping a centime or two on a few hundred or few thousand coins so that on the next upswing there will be many many many more "early adopters" as in people who got their coins dirt cheap the first time it tanked?
-MarkM-
Who wants to catch that falling knife? It would scare a lot of potential people from buying them if they are potentially worthless. A lot of people cannot stomach losing 50% on something. It's easy to throw money down like candy on an investment "that can only go up". But when the reality of losses set in, people will sell sell sell! It just makes things very volatile, which will scare off a lot of people. |
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@forever-d, multiple competing chains could be quite robust without ever getting in the way of e-commerce, but we can cross that bridge when we come to it. for now, we could think of a restart as what happens when we move out of 'beta' toward real production. this is a particularly good moment in time to consider it.
(another way to say it: you can't prevent other people from starting new block chains. what's hard is getting new chains to benefit from the network effects of a community. better gavin, now, than paypal, citibank or facebook in six months.)
many bloggers and journalists are specifically recommending against adoption because of the history of the current block chain. they don't say it that way, but it's what their arguments boil down to. that block chain comes with a get-rich-quick mentality and has been overpromoted in speculative terms. and what's the reason to keep it, really, except to reward people like us in ways the public won't particularly want and at best will be neutral to?
with a new chain, gavin's promises in interviews that 'everyone can be an early adopter' would be more nearly true. and bitcoin would more clearly stand or fall as a payments system, not as a quirky speculative store of value subject to manipulation that's scaring people away. restarting the chain, at this particular moment in time, emphasizes payments and deemphasizes speculative bubbles. the more people use it to make transfers, and the fewer who use it as a retirement-planning vehicle that appeared one day from heaven, the more likely the technology will be important and help people.
You are saying people will be reluctant to join Bitcoin because early adopters return on high risk investments makes the outsiders so jealous they'd rather give up on the economical advancement of Bitcoin altogether, and your proposed solution is to smite those early adopters that got Bitcoin where it is now to allow newcomers to get that profit for themselves instead? People ARE jealous. Human nature and all. Except he'd raise a fit if the next generation wants to wipe out his coins. |
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I'm always relieved to see how realistic Gavin is about the project.
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Price should rise a little due to decreased supply. Debatable- the newly generated coins aren't where all the trading is coming from. To me the price seems more dependent on the perceived growth of the project, which may in fact be adversely affected by the lack of furious mining Perfectly reasonable- it's hard to tell how much of the mining market is selling right away. I'd figure at least some significant portion is (>10%). That could be miniscule compared to early hoarders diversifying holdings at the current price. Number of new users is probably a much bigger factor. |
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The biggest risk from hoarders is a severe panic that would wipe out the value of Bitcoins.
You mean, the biggest risk from hoarders is if they all stop hoarding at the same time? Pretty much. It can lead to a positive feedback loop. If a few big hoarders decide to unload coins, then the value drops. Then the other hoarders get scared and dump as well, causing a bigger drop, which causes more people to get scared until no one is willing to buy bitcoins (or only for super cheap). It's just supply and demand. The supply of Bitcoins is those that are actively participating in the economy. That's far less than 6 million. Say half the coins are being hoarded, and half are actively trading hands for goods and services (including USD). If twice as many show up, the purchasing power of a Bitcoin gets cut in half. |
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The biggest risk from hoarders is a severe panic that would wipe out the value of Bitcoins.
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While not intended to be an investment, BitCoin certainly can be treated as one. In particular, it is a speculative investment. This means if Bitcoin becomes more useful, it's value may increase. If it turns out that the usefulness is overestimated by the investors, then the value may go down. Speculative investments are not Ponzi schemes, though. A speculative investment IS very risky and you could lose a great portion of your investment (even all of it). This does not make it a scam, though.
There are some similarities between speculative investments and Ponzi schemes that make some people have trouble telling them apart. In a speculative investment, you are betting that people in the future will want to invest (or use) what you are buying. There is no guarantee that happens. In a Ponzi scheme and Pyramid scheme, you are betting that other people will come after you (if you are aware of what you are in). The difference is there is no actual possible value in a Ponzi or Pyramid scheme. You are either fooled into thinking what you are buying is valuable, or you think that there will be greater fools that come after you. A speculative investment is different in that you actually know what you are betting on. You still can be wrong (it might not be very valuable, or you overestimated its value), so that's why people can get confused. Speculative investments should not be done with money you mind losing. A speculative investment actually has a chance of paying off for everyone down the line by actually creating value. A Ponzi scheme and Pyramid scheme collapses eventually because no value is created.
You shouldn't sink all of your retirement accounts into Bitcoin (unless you don't mind losing most of it!), but it may make a decent investment. Do not base your decision only on what it's done in the last few months. The past rate of growth is unsustainable for a long period of time (otherwise owning a Bitcoin would be worth all the wealth on Earth after enough time, and I don't think anyone thinks that will happen). It might go up. It might be overpriced now. It might be fairly priced. Do your homework, try to figure out what would actually make it valuable and how valuable it would be in those cases. Figure out how likely each of those scenarios are to play out. Figure out your risk tolerance (most people would not risk $100,000 for a .1% chance at becoming a billionaire, even though mathematics say it's a good deal). Then invest. Or start using them for something useful. Buy goods where it is cheaper to buy them. Take advantage of the semi-anonymous nature of it. Buy something you can't otherwise purchase. Build a business model that takes advantage of Bitcoins.
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Also, regarding fractional reserves... there is nothing wrong with them SO LONG AS bank losses are not insured by a government agency AND so long as the bank makes this fractional policy known to its depositors. A fractional bank can offer higher interest rates than a 100%-deposit bank, and individuals can choose their risk/reward accordingly.
I get how it's possible to create a fractional fiat bank, because you can just make $ out of thin air to lend out, but how do you create a fractional reserve bitcoin bank? You tell someone they have 100BTC in their account, and give a loan out for 90BTC, keepign 10 BTC in reserve. Repeat this times a lot of customers, say you have 100,000 BTC in account credits, loan out 90,000 BTC, and keep 10,000 BTC. If someone who deposited wants their money, you take out of the 10,000 BTC. If enough customers try to take out the money, they are SOL. |
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Good lord, this graph is scary:
Based off of that, hashing growth isn't going to taper off any time soon. I only hope that USD valuation can keep up to some extent... else by three difficulty increases from now (assuming difficulty in the ~900k range), mining won't even pay for my electricity!
Eventually, it will barely cover electricity costs. That's kind of the point. But by that point, if you are one of the most power efficient miners, you will remain (the less efficient will stop mining). That is assuming they pay for their electricity and act rationally. I'll take the under for 900k difficulty in 3 increases. Eventually difficulty will be limited by how much is actually being produced that can mine, and that doesn't increase exponentially. |
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Difficulty does not drive price, only the reverse is true. However, an increase in press exposure and interest may cause a rise to $10 next week.
The miners that sell their bitcoins on mt. gox are about to have 60% less to sell. Unless there's suddenly a random 60% drop in demand then of course the price will go up. Press exposure is the biggest determiner of price but supply has an effect as well. Err... the amount of "new" bitcoins to sell will always try to be the same (difficulty aims for 6 blocks an hour), they will just be spread among more miners. Not true. Right after the difficulty is adjusted, 1 block will be generated approximately every 10 minutes. As miners join the network, more power is thrown at the problem. With more power, block generation time goes down. Thus, while difficulty is increasing, block generation time is lowest right before a difficulty increase. Right now the network is doing 12.63 blocks per hour. Compare that the the 6 that it should be doing. After the difficulty increase, we'll be much closer to 6. Well that's why I said "try" to be once every 10 minutes. We are just talking about lag. There is no try. Do or do not. Fact is, the number of coins coming on the market from miners will decrease in all likelihood. How much of the market that represents is anyone's best guess. Perhaps miners are mostly hoarding and old investors are selling, so it might not affect anything. Maybe almost all are selling quickly and it will affect a lot. |
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The point about it being a scam for the early adopters to profit at the expense of later adopters is like saying that IPO is a scam, because people who bought shares at the time of the IPO are profiteering of those who bought their shares later in the game.
Early adopters take most risk and therefore reap most benefits.
But there was not really much risk early on. Worst case you burn up a bit of CPU. The question is how much of a benefit should they get just by being an early adopter (rather than a developer or early investor)? The developers put a lot of time into it so they had a decent amount of risk (wasted time). Early users really didn't risk much by using it (what is the yearly electricity cost of using the software). If 90% of the coins were held by the first 10 people to ever use Bitcoins, that seems like a system that is not terribly useful. Perhaps what we have now is ideal. Perhaps it was too generous to early adopters. Having too much in the hands of a few people makes it unstable since they have a huge influence on the market and their whims control a huge amount of supply. But in no reason does it make it a scam. |
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Difficulty does not drive price, only the reverse is true. However, an increase in press exposure and interest may cause a rise to $10 next week.
The miners that sell their bitcoins on mt. gox are about to have 60% less to sell. Unless there's suddenly a random 60% drop in demand then of course the price will go up. Press exposure is the biggest determiner of price but supply has an effect as well. The coins sold on mtgox are not just mined coins. There has been around 30-40k orders per day on mtgox. At most, 12,000 of those were from coins mined per day. The other 28,000 come from somewhere. Some might be the same ones recycled (someone trading in and out for profit). But if we drop from 12,000 per day down to 7,200 per day, It's a 12% drop in the coins available for selling (assuming all 12,000 were sold quickly). It's going to be much less dramatic than you might think. My guess is those with large holdings are selling off small amounts to get some money now, rather than new miners, who may be selling but aren't a huge factor. The difficulty increase should be priced in, since it's not going to be a surprise. People expect there to be fewer available in the future so they'll buy now, driving the price back up. If the market is priced well, we shouldn't see any change. Obviously it's not, but it's too hard to say which way it's incorrectly priced. rezin- although the amount aims to be the same, it isn't always the case. The last few days have been mining 10 blocks/hour instead of 6. That will change when difficulty increases. |
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