Big inflation opportunity

[eurekafag]

I heard some guy has 25% of all bitcoins. What happens if he will trade it for dollars on the market? He has LOTS of coins so he may offer low price for them and everybody will buy it from him. Then it will cause inflation and lowering the exchange rate greatly for many months if not years. Will bitcoin cope with such a disease? We don't talk about motives of that dude. He may do it just for lulz or whatever. He might get all those bitcoins when the difficulty was low or he has a large cluster that generates blocks on a large scale. The same goes to all large generating clusters which may ruin the economics instantly.

Any thoughts on it?

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[jgarzik]

I heard some guy has 25% of all bitcoins. What happens if he will trade it for dollars on the market? He has LOTS of coins so he may offer low price for them and everybody will buy it from him. Then it will cause inflation and lowering the exchange rate greatly for many months if not years. Will bitcoin cope with such a disease? We don't talk about motives of that dude. He may do it just for lulz or whatever. He might get all those bitcoins when the difficulty was low or he has a large cluster that generates blocks on a large scale. The same goes to all large generating clusters which may ruin the economics instantly.

Any thoughts on it?

Anyone with lots of coins may disrupt the bitcoin economy.

However, maintaining high level of bitcoin monetary value is an obvious incentive against dumping a huge number of coins on the market all at once.  Selling 1 million bitcoins at once will fetch much less money than selling 1 million bitcoins slowly, over time.

Bitcoin dumping is likely only to occur in (a) panic selling or (b) griefer scenarios.

[TTBit]

not worried. Even if he has 25% now, he won't have 25% in the future unless he's generating 25%.

[nelisky]

not worried. Even if he has 25% now, he won't have 25% in the future unless he's generating 25%.

Which it is rumored he is... that is, until someone gets GPU mining mainstream. I have volunteered  myself to do it, but I lack the hardware and don't want to put both work and money into this. There has been a couple of members of the forum that have agreed to send me coins for GPUs or the actual GPUs, but in the end, it never happens, so either some coder with time and hardware does it, or artfonz and a few others will hold most of the processing power for some time still.

[eurekafag]

He may start selling right now. Also, even if he sells slowly he'll lower the exchange rate as he wants and it'll be very hard to recover because nobody else has such money volume.

[TTBit]

If he owns 25% now, he's giving me more value for my coins right now. His hoarding is letting me buy things with less coins now.

Thank you, whoever you are. I invite everyone to go out and try and buy 1% of all the coins out there!

[Bimmerhead]

I say hopefully he does it, and the sooner the better.  That way we can all pick up lots of bitcoins very, very cheap.

With a maximum of only 21 million in circulation no one will ever be able to do a 'helicopter Ben'.  Either bitcoins are going to catch on and their value is going to skyrocket to the moon, or they will wither on the vine.  Somebody artificially holding, buying or selling bitcoins won't be able to manipulate their value in the long term.

Everyone holding bitcoins has an incentive to spread the word far and wide, or build websites that use bitcoins, or build opensource products like CMS store plugins or social media plugins that use bitcoins because the greater the use of bitcoins, the more your holdings of bitcoins increase in value.

[eurekafag]

If he'll sell it for bucks (for example, 100 coins per buck) then all your wealth will become nothing. No one will sell you goods for tens of coins but for hundreds or thousands of them because it will be easy to get them. Which you don't possess.

[dwdollar]

Maybe.  But keep this in mind...

We'll probably hear "so and so is about to dump X number of Bitcoins onto the market" over and over and over again.  It's a "short and distort" technique for market manipulation.  The opposite of this is a "pump and dump" which will also circulate, but probably not as often.

Since Bitcoin is a thinly traded commodity with no documentation of who owns what, it will be especially vulnerable to this sort of thing.

[TTBit]

If he'll sell it for bucks (for example, 100 coins per buck) then all your wealth will become nothing. No one will sell you goods for tens of coins but for hundreds or thousands of them because it will be easy to get them. Which you don't possess.

I don't understand. I bid 1 cent for 25% of all bitcoins and he sells them to me. Are we not in the same boat? Why would you now need 100,000 coins to buy a cheeseburger?

[FreeMoney]

If he'll sell it for bucks (for example, 100 coins per buck) then all your wealth will become nothing. No one will sell you goods for tens of coins but for hundreds or thousands of them because it will be easy to get them. Which you don't possess.

The cheaper he sells them the quicker he'll run out. What if he sells them for .000001USD/BTC! I'll just snap buy them all, resell some when it gets back near equilibrium.

But flooding would be pretty dumb of him, he'd sacrifice a lot of value. Did you see the MtGox "flash crash"? That guy could sold coins as low as ~.035 when waiting 15 minutes would have got him .06. It was just a gift.

The guy I'm thinking of only had about 10% of coins, who are you talking about?

[TTBit]

I bid $0.02 for 1,000,000 coins. PM me for details. I am serious.

[eurekafag]

He won't sell you all his coins but will sell with 10x lower rate than usual. No one then will sell their bitcoins because he will ALWAYS have the better (cheaper) rate. No one will have a chance to sell a bitcoin for MONTHS. People will start panic and sell at whatever rate and then quit bitcoin forever. That's what I'm talking about.

[S3052]

I think this is a serious risk, as the dollar value of all coins is still very low (250 M$). many folks who have saved something could easily buy 25% of the coins.

But then they are not stupid, they rather sell them slowly, or even smarter wait until the next rally started.

I might buy some more now...

[mpkomara]

I am .023 USD bid for 1,000,000 BTC.

[S3052]

and one more thing (which I said in our threads):

we need to very quickly bring the bitcoin economy to a much higher level (adding trade, games, services, spread it more to get more people to adopt it , etc.).

the longer we wait, the more risky it gets that some crazy dude will destroy it with just small funds (just think about if someone who fears that bitcoins become huge.. this individual / organization can just destroy the entire bitcoin value for 100 - 200 M$)

[TTBit]

I am .023 USD bid for 1,000,000 BTC.

.02300001 bid

[mpkomara]

.03 bid for 1,000,000

[FreeMoney]

and one more thing (which I said in our threads):

we need to very quickly bring the bitcoin economy to a much higher level (adding trade, games, services, spread it more to get more people to adopt it , etc.).

the longer we wait, the more risky it gets that some crazy dude will destroy it with just small funds (just think about if someone who fears that bitcoins become huge.. this individual / organization can just destroy the entire bitcoin value for 100 - 200 M$)

It would obviously suck, but it would just verify the disruptive potential and be great publicity for a new go at it, maybe under a different name, maybe implemented somewhat differently to make whatever attack was used harder to do.

[TTBit]

I think the real risk here is just the opposite:

Some organization or even some wealthy guy will just bid 50 cents for 2 million bitcoins, or $1.0 Million. This is a lot of money to be sure, but not so much if you consider the amount of USD in circulation right now.

[S3052]

Yes, there are risks to both, upside and downside.

To buy all BTC or a huge chunk anyway the price will rise a lot , probably 0.5 $ per BTC is not too far fetched

To avoid this, some trading rules would make sense, i.e. limiting BTC possession to a certain percentage of all BTC available. Otherwise someone can easily corner the market.

I could even do it.

[mpkomara]

I will bet you 10,000 USD that you can't own 60% of the bitcoin market by November 2011

[nelisky]

Yes, there are risks to both, upside and downside.

To buy all BTC or a huge chunk anyway the price will rise a lot , probably 0.5 $ per BTC is not too far fetched

To avoid this, some trading rules would make sense, i.e. limiting BTC possession to a certain percentage of all BTC available. Otherwise someone can easily corner the market.

I could even do it.

Are you talking about market regulation on a site level or globally. The latter, to be possible, would imply changes to the protocol and frankly changes that would remove some of the benefits of bitcoins, like the pseudo-anonymity.

[FreeMoney]

Yes, there are risks to both, upside and downside.

To buy all BTC or a huge chunk anyway the price will rise a lot , probably 0.5 $ per BTC is not too far fetched

To avoid this, some trading rules would make sense, i.e. limiting BTC possession to a certain percentage of all BTC available. Otherwise someone can easily corner the market.

I could even do it.

Lol, even if it was a good idea how would you do it? ID everyone? Make them register an account. Oh, don't forget that people might reach the max, send them to their mybitcoin account and then earn more. You are going to have to make everyone report the balance and ownership of accounts on their site, including the anonymous lotto, poker site, biddingpond, etc...

If you think running the price up gives you some advantage please go for it.

[S3052]

I will bet you 10,000 USD that you can't own 60% of the bitcoin market by November 2011

Why November 2011? What is your expectation for in 13 months time?
I could start tomorrow slowly buying BTC.

There is a dude putting every day 20,000 and more BTC bids into the market around 0.06. He probably has accumulates A LOT already.

Therefore, I agree with you, 60% is unrealistic now.

But 10-25% in the next 8 weeks is possible.

[mpkomara]

I will bet you 5,000 USD that you can't own 25% of the Bitcoin market in 8 weeks time

[FreeMoney]

I will bet you 10,000 USD that you can't own 60% of the bitcoin market by November 2011

Why November 2011? What is your expectation for in 13 months time?
I could start tomorrow slowly buying BTC.

There is a dude putting every day 20,000 and more BTC bids into the market around 0.06. He probably has accumulates A LOT already.

He's just moving his order around. There hasn't been a day with volume >20k for a while. Even if his trades were going off you couldn't tell if he was just buying and selling back, either at the same site or different.

[S3052]

well,... if I really wanted to do that I better don't write about it in a forum :-)

so.. I give in..

especially if you happen to buy as well :-)

[FreeMoney]

34k in asks on MtGox. Those are guaranteed and your have 3% of your goal.

[S3052]

not too bad for a start..
at an attractive average price

[grondilu]

Think about chinese government :   it owns about G$ 2,500.

Does it try to sell it ASAP ??

No :  it tries to keep it and support the value of the dollar.  Of course, at some point it will try to get rid of it, but it will do this slowly.

What you say is true, but it's the same for almost all commodities.  After all the Hunt brothers tried to corner silver once.

Nobody could prevent a corner on BTC.

A monetary corner exposes population to possible arbitrary inflation.  But it's a one-time shot.  Once the money is put back in market, it's not easy to get it back.  So imo it's short-term pain, but good for long term, since we'd got rid of the corner.


I'd even add this :  somehow the fact that a corner is "possible" gives some value to the money.  As people try to corner the market, they spend other money and efforts to do so.  By doing so, they give some value to what they are buying.  It's just the same for gold.  Some gold buyers (most of them actually) dream of owning "all the gold in the world", which is an amount that, as a recall, holds in a 20meters sided cube.   As long as people will dream of that, however crazy it is, it will keep value to gold.

[eurekafag]

That's all true for regular currencies but not for bitcoin phenomenon. Bitcoin is a threat to banks because it provides bypass of them. For now it's harmless but think about the future. Banks or govs can generate lots of coins using fast and big clusters and then slowly dump exchange rate as they want for months making panic and serious inflation.

[Timo Y]

To avoid this, some trading rules would make sense, i.e. limiting BTC possession to a certain percentage of all BTC available. Otherwise someone can easily corner the market.

Wouldn't work.

The cornerer would simply generate thousands of new bitcoin addresses and distribute her wealth eavenly among them. How do you prove whether a bitcoin address belongs to a certain person? How do you prove whether physical  person X has access to private key Y? You can't.

A better idea would be a damping of the trading volume built into the bitcoin algorithm.  For example, you could have a rule of thumb that no more than 10% of bitcoins in existence may be traded each hour.

The algorithm could use floating transaction fees that increase as a function of all bitcoins traded the last 60 minutes. As the trading volume approaches 10%, the transaction fees approach 100%.

This would not prevent someone from cornering the market, but it would prevent panic selling.

Someone who owns more than 10% of bitcoins could of course clog the whole system by sending large volumes of coins to himself, but he couldn't do it for long, and he could only do it once. He would leak massive amounts of coins as transaction fees are paid out to those generating blocks.

Rather than permanently crashing the bitcoin price, such an attack would simply make the market unusable for a few hours.

[martin]

That's all true for regular currencies but not for bitcoin phenomenon. Bitcoin is a threat to banks because it provides bypass of them. For now it's harmless but think about the future. Banks or govs can generate lots of coins using fast and big clusters and then slowly dump exchange rate as they want for months making panic and serious inflation.

Banks and governments are unlikely to take serious action against bitcoin until it's already large and successful, at which point destabilising it would be incredibly difficult.

[mpkomara]

I will bet you 5,000 USD that you can't own 25% of the Bitcoin market in 8 weeks time

Asking him to collect over a million bitcoins?

Even 10% at 400,000 would be unlikely. You would push the price up dramatically in the course and it were publicly known, everyone would be raising their prices to get a nice slice of the increased pie.


And all these bids for 1 million coins at 0.02. You guys really have $20,000 cash sitting around to buy bitcoins with? Then what do you do with them for now while the market is still so small?

I'm not asking him to do it, he said he could do it.  he already declined the bet and put the issue to bed.

And yes, i am .03 bid for 1,000,000 bitcoins.

[S3052]

Correct I don't pursue the idea to buy 10% of all BTCs, and the reason why is:

I am not confident enough that the risk is manageable, there may be some uncontrollable factors.

You are also right that the price would move through the roof, probably breaking the 0.1 USD mark and even much higher on any attempt to buy that much.

[eurekafag]

Hey, bidders! You didn't get the idea. No one will sell you all his bitcoins at once. And HE will bid some coins for dollars not asking you and beating the current rate by a little bit. So you will buy from him only and others will be left with bitcoins without even a little possibility to exchange them to some other currency. No one will buy their coins for X dollars if anyone can buy them for Y dollars from that bad guy and Y < X. So people would lower the rate further losing money and eventually stop using bitcoin because they won't exchange it.

I personally don't want it to happen but it MAY happen and everyone should be aware. Just like with any other currency of course but this one is pretty young and weak comparing to countries currency.

[S3052]

Seriously,

it would be beneficial to drive up the value of bitcoins via

1. make them usable more broadly (this factor is slowly increasing, there are daily new websites accepting btc)
2. make them attractive as an alternative investment (this does not appear to happen)
3. reduce the rate of new btc generation (this is currently responsible for too much selling , keeping prices flat). if the difficulty would be increased , this would change.

the longer the btc exchange rate stays flat, the less interesting it is: investors will leave and interested individuals will not be attracted. I contrast, rising prices will quickly make btc broadly recognized.

to be clear, no one is interested in a btc bubble, but if you compare it with some other markets, the longer sth moves sideways, the less interesting it is leading to sluggish demand (see silver prices from 1980's to 2000, technology shares from 2000-2009, etc.)

[S3052]

Hey, bidders! You didn't get the idea. No one will sell you all his bitcoins at once. And HE will bid some coins for dollars not asking you and beating the current rate by a little bit. So you will buy from him only and others will be left with bitcoins without even a little possibility to exchange them to some other currency. No one will buy their coins for X dollars if anyone can buy them for Y dollars from that bad guy and Y < X. So people would lower the rate further losing money and eventually stop using bitcoin because they won't exchange it.

sorry, can you explain a bit better?

Do you mean if someone tries to buy a LOT btcs prices will rise: Clearly: YES
Do you mean if someone will sell a whole LOT btc prices will fall: YES

[FreeMoney]

Seriously,

 
2. make them attractive as an alternative investment (this does not appear to happen)
 

Only bad investors are more interested because something costs more. Is corn a better buy at twice the price? APPL? silver? a heater?

Bitcoin is as good an investment as it'll ever be right now imo. It looks like site developers and coders are serious and able, but coins are still very cheap compared to say, the size of the whole economy.

[S3052]

I agree that investing is not about rising prices. it is relative value that counts.

But if an investment does not appreciate in value vs. a reasonable benchmark, it is a stupid investment.

Examples

1. You live in the US and the dollar value falls faster vs. other currencies than the BTC/USD rate = good investment vs. USD.
2. If we have a deflation, BTC prices are flat, then you can buy more with the same amount of BTC = good investment.

[S3052]

Difficulty has just increased. All other things being equal, the BTC / USD rate should rise.

[Babylon]

He won't sell you all his coins but will sell with 10x lower rate than usual. No one then will sell their bitcoins because he will ALWAYS have the better (cheaper) rate. No one will have a chance to sell a bitcoin for MONTHS. People will start panic and sell at whatever rate and then quit bitcoin forever. That's what I'm talking about.

This would lower the rate for bitcoins dramatically.  It wouldn't ruin anything.  Bitcoins used to be that low, and they weren't ruined.

Whoever this person is with the huge quantities of bitcoins would be taking a loss on the electricity he had invested to generate the bitcoins, unless he played it smart and only sold them for slightly less than the market, in which case it would not be the dramatic crash you are concerned with.  Even if he did dramatically crash bitcoins this would allow other people to buy a lot of coins very cheap and he would then have run out (depending on how cheap he makes them) At which point the coins would have a chance to rally and start back up again.

[eurekafag]

Do you mean if someone tries to buy a LOT btcs prices will rise: Clearly: YES
Do you mean if someone will sell a whole LOT btc prices will fall: YES

That's obvious. But I mean that someone can beat all bids with lower value and completely prevent everybody from exchanging BTC to USD or any other currency. He can drive the rate as he wants and others are left with two possibilities: either they sell with even less price (losing LOTS of money because they either generated that BTC spending time and power or they bought them) or leaving them as is and hoping for the rate rising. Both variants are bad. And he can press the market very long just watching how many bitcoins asked and bidding them with 10x lower price so everybody will play by his rules.

[FreeMoney]

Do you mean if someone tries to buy a LOT btcs prices will rise: Clearly: YES
Do you mean if someone will sell a whole LOT btc prices will fall: YES

That's obvious. But I mean that someone can beat all bids with lower value and completely prevent everybody from exchanging BTC to USD or any other currency. He can drive the rate as he wants and others are left with two possibilities: either they sell with even less price (losing LOTS of money because they either generated that BTC spending time and power or they bought them) or leaving them as is and hoping for the rate rising. Both variants are bad. And he can press the market very long just watching how many bitcoins asked and bidding them with 10x lower price so everybody will play by his rules.

This is strange language to use. No one will have to "play by his rules" if they want to pay the old price for BTC they are welcome to. If they want to get a better deal they can buy from him. If they have BTC and want to sell them and assumed they could always sell them above the price where they bought or generated them, they simply made a mistake.

If someone tries to sell BTC at .01 and you want to pay .06, just gimme a PM.

[Timo Y]

taking a loss on the electricity he had invested to generate the bitcoins,

His marginal cost of generating bitcoins is probably close to zero. Maybe he owns a windmill and just pumps the electricity peaks, which would have gone to waste otherwise, into generating bitcoins. Same for the unused CPU cycles of his server farm.

This doesn't change the fact that selling bitcoins way below the market price would create opportunity costs for him. No rational person would sell a thing for less than people are people are prepared to pay it, even if they found that thing on the street.

Of course he might not be a rational person, but the majority of buyers will be.
 

[eurekafag]

That's all right for some material goods like food or electronics. If I see that something is sold for 10x less price than usual I'll doubt buying it. There should be a catch somewhere. But the money is always money, it's impossible to falsify bitcoins and if you bought them you own the real coins without any catches. I also doubt anybody will buy BTC for $0.06 if you can buy the same (I mean valid) coin on the same market for $0.006. There is NO reason to pay more if you get the good real bitcoin.

Again: we're not talking about the profit of that owner. Maybe he have no plans of using BTC at all, he just generated a bunch of them because he has lots of energy and processing power and wants to crush the market. He can do it and everybody will help him buying coins for that little. From him, not from others who want to sell for regular price. It's just psychology. How long will YOU hold bitcoins if their rate would go close to zero? Won't you sell it for any price just to get at least some money back? You may own 1000 BTC now and intend to buy some goods or services for them. But tomorrow they will cost like 10 BTC now and suddenly you can't buy anything. Will you wait for the rate grow? That guy have lots of BTC and can sell them many months.

[julia6roberts]

I totally agree with this fact mentioned by you.

[FreeMoney]

That's all right for some material goods like food or electronics. If I see that something is sold for 10x less price than usual I'll doubt buying it. There should be a catch somewhere. But the money is always money, it's impossible to falsify bitcoins and if you bought them you own the real coins without any catches. I also doubt anybody will buy BTC for $0.06 if you can buy the same (I mean valid) coin on the same market for $0.006. There is NO reason to pay more if you get the good real bitcoin.

Again: we're not talking about the profit of that owner. Maybe he have no plans of using BTC at all, he just generated a bunch of them because he has lots of energy and processing power and wants to crush the market. He can do it and everybody will help him buying coins for that little. From him, not from others who want to sell for regular price. It's just psychology. How long will YOU hold bitcoins if their rate would go close to zero? Won't you sell it for any price just to get at least some money back? You may own 1000 BTC now and intend to buy some goods or services for them. But tomorrow they will cost like 10 BTC now and suddenly you can't buy anything. Will you wait for the rate grow? That guy have lots of BTC and can sell them many months.

Do you often think about whether some idiot you don't know will buy a lot of something and sell it for less? Or make it for one a high price and sell it low?

Sure someone could do it, but it would help people who want bitcoins and hurt himself. It's just charity, to me, and others.

[eurekafag]

The fact is he didn't buy it. He generated it. And maybe that was in early stage when difficulty was low so it was easy to generate. His money isn't backed so he may sell it for whatever he wants. What if government pay him for market dumping? There were many concerns about governments attitude to bitcoin if (when) it become relatively widely used. So they can just pay one man to break the entire system. I mean it's bad that anybody with enough resources may pretend to be the central authority and affect the market greatly. Of course, he can't generate as much as he wants because of system restraints but he can generate much enough to have the control stock (not 51% I hope but close to it).

[Anonymous]

The fact is he didn't buy it. He generated it. And maybe that was in early stage when difficulty was low so it was easy to generate. His money isn't backed so he may sell it for whatever he wants. What if government pay him for market dumping? There were many concerns about governments attitude to bitcoin if (when) it become relatively widely used. So they can just pay one man to break the entire system. I mean it's bad that anybody with enough resources may pretend to be the central authority and affect the market greatly. Of course, he can't generate as much as he wants because of system restraints but he can generate much enough to have the control stock (not 51% I hope but close to it).

At what stage will you stop being scared of something that may not happen?

Ive got some notes in my wallet that aren't backed by anything...

[eurekafag]

I've just asked for opinions and possibilities. I myself bought 250 BTC today and don't plan to stop. But we must not be up in the clouds regarding bitcoin. It has its own threats and dangers which we should be aware of. All in all it's a question of trust.

[Anonymous]

My wallet is backed up on a server...so essentially bitcoin is in the cloud for me. 

I think everyone is well aware of the threats and dangers. I just dont intend to give myself an ulcer thinking about them constantly. It probably helps that I cycle coins constantly back through the system rather than store them like a squirrel for winter