Bubble Time??

[jumpingmary]

Today I got an email from a friend with the following link and the quote "Dont get burned son"

Interesting read, lots of problems: http://bullmarketthinking.com/bitcoin-bubble-2-0-from-a-monetary-standpoint-they-are-on-par-with-the-stuff-you-find-at-chuck-e-cheese/

Bitcoins amounting to nothing more than Chunk-E-Cheese money?  Bubble imminent?  Summary from the article:

Summary:
» Bitcoins can be hyperinflated in substance
» Bitcoins can never be the most saleable good
» Bitcoins cannot account for the regression theorem
» Bitcoins are the equivalent of token money
» Bitcoins are the opposite of anonymous
» The USD price of a bitcoin has been rising in an unsustainable fashion, the only thing missing being a blow-off top


I am curious to see what some forum members think.  I believe this article and others like it coming out are severely flawed, especially as the author is attempting to put the contours of the bitcoin market in sharper relief by using the gold standard as a comparison.  Even the summary points show the author to have a pretty limited understanding of what is actually going on.

Does this mean a bubble is coming?  Who knows - but this author predicted it to happen between $49-$69/BTC and even said "the best thing for bitcoin nay-sayers is for the price to skyrocket to $100/BTC in a week" implying that a crash would soon follow.  At the time of this writing, the Bitfloor market just peeked its little head over the $98/BTC mark.  I think the reasoning in the article is pretty weak overall and I will be very curious to see what happens in the next few days/weeks.

JM

[wormbog]

From the end of the article:

The manias in railways, the radio, the internet, you name it, most of them involved something new or something perceived to be new.

All of these were world-changing inventions. Bitcoin is is good company. Mania is only bad when it's unjustified.

[DannyHamilton]

» Bitcoins can be hyperinflated in substance

Perhaps I'm misunderstanding what you are saying.  In what way can bitcoin be "hyperinflated in substance"?

» Bitcoins can never be the most saleable good

Perhaps I'm misunderstanding what you are saying.  In what way can bitcoin "never be the most saleable good"?

» Bitcoins cannot account for the regression theorem

Regression Theorem? Perhaps I'm misunderstanding.  It seems to account for it, doesn't it?

» Bitcoins are the equivalent of token money

Isn't all money the equivalent of token money?

» Bitcoins are the opposite of anonymous

This is somewhat true.  Bitcoin is not anonymous by default.  It takes a significant effort to use bitcoin and maintain true anonymity.  Of course, many forms of electronic payment succeed just fine without true anonymity (banking, paypal, credit cards, etc.)

» The USD price of a bitcoin has been rising in an unsustainable fashion, the only thing missing being a blow-off top

Certainly it has been rising, but how do we know if it is unsustainable?  Maybe it isn't, maybe it is, only time will tell.

[txoomy]

I'd say the current trend is unsustainable. I see a correct down to $65-$70 in a couple weeks. We'll see...

[jumpingmary]

DannyHamilton - I am agreeing with you.  Apologies for making it not clear, those summary points are in the article, I just copied and pasted them out so readers could get a gist on the article more quickly.

-Hyperinflated in substance would mean that the crowd (all of us) is attributing more value through the free market mechanisms - to each bitcoin than each bitcoin is "actually worth."  The author uses gold as the ultimate standard: it has a roughly definable value because of its intrinsic qualities  (malleability, rarity etc...)  I think the author is misunderstanding the intrinsic qualities of bitcoins though which leads to the question "what is a bitcoin actually worth?"  If I figure that one out I will let you know ;-)

-I agree with you and disagree with the author - I think bitcoins have a huge potential of being a very saleable good.  Perhaps the most saleable good in a modern world where phone and internet technology precede other types of major infrastructural developments in many countries around the world.

-I dont fully understand the regression theorem part myself, something to keep working to understand.

-Yes in a way, all money is token money.  But the specific term "token money" denotes a lack of structure or solid base of the institution backing said currency.  I think the comparison is a bad one because the entire point of bitcoins is to get away from the notion that a single entity or institution has to back a useful currency.

- I have heard multiple arguments about anonymity from both sides.  Yes, every transaction is "public" but identities are not necessarily attached to each.  One of the really encouraging trends happening over the last few weeks is a massive growth which cannot be explained by a rise in just Silk Road use or use for other illegal purposes.

-Couldn't agree more - saying that the bubble will pop and the price will fall just because it is rising in a "unsustainable way" does't make a lot of sense to me.  We have no idea what is sustainable and what is not.

[BigJohn]

Overall I think the article is making a solid point on the essence of Bitcoin and what it is. But then it reaches the completely wrong conclusion.

First off, on the question of what is money, literally anything can be money. One of the earliest examples is a fish-shaped token made out of stone. Fishermen used to make those, and trade each one for a fish. That way you didn't have to carry fish around. It's true that fish inherently has value, but the token sure doesn't. And we know gold and silver can be money, although they have inherent value for their actual use. So the question then becomes if can nothing be money too? And the fiat system definitively answers a resounding Yes to that. Modern fiat is not backed by anything. Say what you will about fiat, if there's one thing we've learned from it is that the money itself does not need to have any value in and of itself for a society to use it and accept it as money. If it wasn't for it's inflationary and centralized nature, we probably wouldn't even be having that conversation.

And that inflationary and centralized nature is what Bitcoin here solves. So yeah, I'd say it's incredibly valid.

On the point of hyper-inflation by substance. It's 100% true. And I, and many others, believe that the "final" currency that will hold will probably not be Bitcoin or Litecoin, or whatever X-Coin, but something new that we have not yet seen. Eventually the market will pick one and run with it. And that one may or may not be Bitcoin, and most likely something that has not yet been invented. But that's no reason to fear Bitcoin in the here and now until that something new comes along.

[jumpingmary]

Also agreed - part of the reason I am getting into this now is because of Bitcoin 2.0 or whatever its going to be (presumably a more evolved version of Bitcoin) may have some huge potential.