Bear post of the Day

[ElectricMucus]

There are a lot of unwarranted claims posted about the Bitcoin economy here every day. In response I will post one thing which I think is misrepresented by BTC investors.
You can then as this thread goes on try to pick the argument apart.


For today:

The Bitcoin market cap is usually quoted as every BTC currently in existence times the current market price. This is not true because the majority of BTC were never traded for currency. Even worse during a rally the supply dries up because people do not want to risk having the price surpass their ask significantly.

[piramida]

Well that's a definition of market cap. Of course you can't sell 10 million bitcoins at $27, it would go a "little bit" lower in such case. the same would happen with any stock or currency though, see Soros/pound story

[Spaceman_Spiff]

The Bitcoin market cap is usually quoted as every BTC currently in existence times the current market price. This is not true because the majority of BTC were never traded for currency. Even worse during a rally the supply dries up because people do not want to risk having the price surpass their ask significantly.

And how is this different than stocks?

[oakpacific]

There are a lot of unwarranted claims posted about the Bitcoin economy here every day. In response I will post one thing which I think is misrepresented by BTC investors.
You can then as this thread goes on try to pick the argument apart.


For today:

The Bitcoin market cap is usually quoted as every BTC currently in existence times the current market price. This is not true because the majority of BTC were never traded for currency. Even worse during a rally the supply dries up because people do not want to risk having the price surpass their ask significantly.

This is of course right, but I look at it another way. It shows how little fiats(for a real investor) is needed to push the price in either direction, which is why I kept on saying if a few manipulators want to push the price to a certain point, they are fully capable of doing that, and I believe they are doing that.

On the other hand, the good news is that if bitcoin price ever falls into the quagmire of $2-$4 again, only about 500k dollars is required to salvage it, and that's definitely not a lot.

[Namworld]

@oakpacific: What do you mean, 500k to salvage it?

@ElectricMucus: Nice to see a few bearish users around.

[oakpacific]

@oakpacific: What do you mean, 500k to salvage it?

@ElectricMucus: Nice to see a few bearish users around.

A simple calculation would show that $500k buy translates to about 150k-250K BTC volume at $2-$4, up volume of this size I think would be enough to pull BTC out of the quagmire. This amount of money should just be a small fraction of what bulls could make off this bull run.

[piramida]

On the other hand, the good news is that if bitcoin price ever falls into the quagmire of $2-$4 again, only about 500k dollars is required to salvage it, and that's definitely not a lot.

And I don't think it is possible any longer. If internet infrastructure stays intact, we will never see $2 again. To prove this, I'll be ready to buy out any amount of coins at $5 per one, and I'm sure I'll have to wait in line.

[oakpacific]

On the other hand, the good news is that if bitcoin price ever falls into the quagmire of $2-$4 again, only about 500k dollars is required to salvage it, and that's definitely not a lot.

And I don't think it is possible any longer. If internet infrastructure stays intact, we will never see $2 again. To prove this, I'll be ready to buy out any amount of coins at $5 per one, and I'm sure I'll have to wait in line.

Let's stay on topic and not turning this thread into a bullish one

[Namworld]

@oakpacific: What do you mean, 500k to salvage it?

@ElectricMucus: Nice to see a few bearish users around.

A simple calculation would show that $500k buy translates to about 150k-250K BTC volume at $2-$4, up volume of this size I think would be enough to pull BTC out of the quagmire. This amount of money should just be a small fraction of what bulls could make off this bull run.

But to make that money on that bull run, those bulls would have to be the first one to turn bearish before others do. And the others might be out of money and all wanting to sell. =/

[SRoulette]

On the other hand, the good news is that if bitcoin price ever falls into the quagmire of $2-$4 again, only about 500k dollars is required to salvage it, and that's definitely not a lot.

And I don't think it is possible any longer. If internet infrastructure stays intact, we will never see $2 again. To prove this, I'll be ready to buy out any amount of coins at $5 per one, and I'm sure I'll have to wait in line.

Agreed, if we see $2 again its a glitch or a market or a buyers opportunity of a life time, one that would have an extremely short shelf life.

It would be interesting to see what happened if say satoshi dumped his supposed 1 million btc on mtgox. In the shot term I believe The price drop significantly but stabilize, because bitcoin is useful. There would of course be a lot of hurt investors but we feel the economy would stabilize and then recover to an even stronger position thanks to a more even distribution of bitcoins per user.

[oakpacific]

@oakpacific: What do you mean, 500k to salvage it?

@ElectricMucus: Nice to see a few bearish users around.

A simple calculation would show that $500k buy translates to about 150k-250K BTC volume at $2-$4, up volume of this size I think would be enough to pull BTC out of the quagmire. This amount of money should just be a small fraction of what bulls could make off this bull run.

But to make that money on that bull run, those bulls would have to be the first one to turn bearish before others do. And the others might be out of money and all wanting to sell. =/

That's the very difference between this rally and that one in June 2011, which caught many by surprise. This rally lasted more than a year, which gave a healthy number of people chances to buy at relatively low prices, once the crash comes, they would have enough time to react and take profits and buy back later, the crash would certainly be massive and painful, but I doubt it will penetrate as deep as last time, and since we have lived through $2 winter, it is certainly not going to be insufferable this time.

[Namworld]

That's the very difference between this rally and that one in June 2011, which caught many by surprise. This rally lasted more than a year, which gave a healthy number of people chances to buy at relatively low prices, once the crash comes, they would have enough time to react and recover their losses and buy back later, the crash would certainly be massive and painful, but I doubt it will penetrate as deep as last time, and since we have lived through $2 winter, it is certainly not going to be insufferable this time.

I don't think it will reach 2$ again either but if we keep raising faster and faster like that, we might well crash to 10 USD/BTC before recovering in the 10-20 USD/BTC range. (approximated based on average growth)

[oakpacific]

That's the very difference between this rally and that one in June 2011, which caught many by surprise. This rally lasted more than a year, which gave a healthy number of people chances to buy at relatively low prices, once the crash comes, they would have enough time to react and recover their losses and buy back later, the crash would certainly be massive and painful, but I doubt it will penetrate as deep as last time, and since we have lived through $2 winter, it is certainly not going to be insufferable this time.

I don't think it will reach 2$ again either but if we keep raising faster and faster like that, we might well crash to 10 USD/BTC before recovering in the 10-20 USD/BTC range. (approximated based on average growth)

I mostly agree, I think it's still entirely possible, although not probable that we will fall to $7.22, but, as long as our bottom is higher than last time, overall our long term trend is still bullish, then I am happy.

[3phase]

The Bitcoin market cap is usually quoted as every BTC currently in existence times the current market price. This is not true because the majority of BTC were never traded for currency. Even worse during a rally the supply dries up because people do not want to risk having the price surpass their ask significantly.

And how is this different than stocks?

You can't really compare it with stocks. Owners of a company's stocks or other securities, actually have a claim on the company's assets, some of which are always physical (larger percentage for an airline as an example, smaller percentage for a software firm, and so on). Even if stock goes to zero, there is always some recoverable value. This is why, when companies have substantial physical assets (plants, equipment, inventory, etc.) their stock cannot go to zero. Someone will buy them before that. Debt changes the variables, but even if the company defaults, some debt is recoverable.

"Market capitalization" in that context is a useful metric when compared to the actual asset base of the balance sheet, to gauge whether a stock is richly or poorly priced (and in the case of things like FB as an example, to try and justify it  ).

Owning bitcoins (which is a very vague term anyway, the "owning" part I mean) does not represent a claim on anything of value. If their price ever goes to zero, we probably won't even talk about it with anyone anymore.

So, terms like "market cap" have no meaning when talking about BTC, but for a different reason, IMO, than what the OP suggested. There are many more differences between bitcoins and securities, such as what happens if the grid shuts down for a while...

And BTW, Spiff, nice to see you here :-). KAFA 4 ever ;-).

[ElectricMucus]

Glad that my point was so well understood.  


As for today I'll try to tackle yet another myth:
The claim that bullish market participants can drive the price up infinitely, arguably because they can keep their coins forever without ever selling them back.
In an ideal world where everybody only invests the money they can afford to lose this would be true, but in RL that is not the case...

Because of relatively low interest rates in the fiat money economy there is a substantial amount of people who buy Bitcoin on credit. This tendency increases with greed and bullishness, the more somebody thinks the price will go up shortly and the higher the longing to get rich quick the higher the risk for somebody to fall into this trap.
And because many people either have other loans for more essential assets (like housing) or use these assets as collateral to get the loan in the first place they have no other alternative to sell their BTC down the road, either by taking profit or worse to cut losses.

[Namworld]

Because of relatively low interest rates in the fiat money economy there is a substantial amount of people who buy Bitcoin on credit.

I actually bought bitcoins on credit... after the last crash (2011 one) =P

A decision I have yet to regret. I've been selling some recently. I wouldn't be buying right now.

[notig]

Glad that my point was so well understood.  


As for today I'll try to tackle yet another myth:
The claim that bullish market participants can drive the price up infinitely, arguably because they can keep their coins forever without ever selling them back.
In an ideal world where everybody only invests the money they can afford to lose this would be true, but in RL that is not the case...

Because of relatively low interest rates in the fiat money economy there is a substantial amount of people who buy Bitcoin on credit. This tendency increases with greed and bullishness, the more somebody thinks the price will go up shortly and the higher the longing to get rich quick the higher the risk for somebody to fall into this trap.
And because many people either have other loans for more essential assets (like housing) or use these assets as collateral to get the loan in the first place they have no other alternative to sell their BTC down the road, either by taking profit or worse to cut losses.

I'm bullish but I agree with this. Infinitely? Doesn't sound realistic anyway. The truth is a lot of people will cash out of bitcoin and that will cause the bubble to pop...... but that is the price bitcoin has to pay to become an elite currency. Over and over people will suck money out of the bitcoin circulation and prices will rise and fall but eventually it will still be worth more than it is now. I only say I'm bullish because I don't think the price will drop that far. There are lines of people waiting to buy at 15........ so that means I doubt it will drop that low if the price does crash.

[ElectricMucus]

Glad that my point was so well understood.  


As for today I'll try to tackle yet another myth:
The claim that bullish market participants can drive the price up infinitely, arguably because they can keep their coins forever without ever selling them back.
In an ideal world where everybody only invests the money they can afford to lose this would be true, but in RL that is not the case...

Because of relatively low interest rates in the fiat money economy there is a substantial amount of people who buy Bitcoin on credit. This tendency increases with greed and bullishness, the more somebody thinks the price will go up shortly and the higher the longing to get rich quick the higher the risk for somebody to fall into this trap.
And because many people either have other loans for more essential assets (like housing) or use these assets as collateral to get the loan in the first place they have no other alternative to sell their BTC down the road, either by taking profit or worse to cut losses.

I'm bullish but I agree with this. Infinitely? Doesn't sound realistic anyway. The truth is a lot of people will cash out of bitcoin and that will cause the bubble to pop...... but that is the price bitcoin has to pay to become an elite currency. Over and over people will suck money out of the bitcoin circulation and prices will rise and fall but eventually it will still be worth more than it is now. I only say I'm bullish because I don't think the price will drop that far. There are lines of people waiting to buy at 15........ so that means I doubt it will drop that low if the price does crash.

Yes, it was cypherdoc one of the most prominent bulls here who brought that to my attention.
What you do must understand is that essentially this behavior can lead to a debt trap for speculators who weren't careful enough and depending on the entrance price of the people who did this it can lead to a very deep drop potentially. In a way the positive feedback we have seen in the past weeks would reverse and work against them.
I think if it gets that far we would drop very deep, potentially close to the 2011 crash.

[ElectricMucus]

As for now...


The topic of Wordpress and Reddit "accepting" bitcoin.
They do not. They accept USD from third parties, which in turn sell the bitcoins to obtain the currency or take the equivalent loan for the payment (which has been confirmed at least for bitpay). That this has become the common settlement for accepting bitcoin is irrelevant. Only a complete economic cycle constitutes real economic growth.
In this state Bitcoin acts not as a currency and is essentially a trading game with the possibility to cash out into certain goods and services. The missing essential part are cases where business are paying their expenses to other business as well as re-investing their profits for expansion using bitcoin. Payment processors negate this effect to the extent that it could already be happening, so in a economic sense they hindering development.

The effect this has is that investors get even more entrenched in the idea that all Bitcoin needs is more publicity, think that sites dealing with payment processors will supply it and enlarge their position.


Addendum to yesterdays post: Worse as I mentioned above there is a strong possibility that the payment processors do not sell a large portion of their Bitcoin in order to not impact the market which requires them to get in debt in the fiat economy. Essentially it means that core infrastructure might be affected by the same kind of debt trap some of the private speculators are in. Of course the extent of this happening is all speculative but I am fairly confident that this happens.

[notme]

As for now...


The topic of Wordpress and Reddit "accepting" bitcoin.
They do not. They accept USD from third parties, which in turn sell the bitcoins to obtain the currency or take the equivalent loan for the payment (which has been confirmed at least for bitpay). That this has become the common settlement for accepting bitcoin is irrelevant. Only a complete economic cycle constitutes real economic growth.
In this state Bitcoin acts not as a currency and is essentially a trading game with the possibility to cash out into certain goods and services. The missing essential part are cases where business are paying their expenses to other business as well as re-investing their profits for expansion using bitcoin. Payment processors negate this effect to the extent that it could already be happening, so in a economic sense they hindering development.

The effect this has is that investors get even more entrenched in the idea that all Bitcoin needs is more publicity, think that sites dealing with payment processors will supply it and enlarge their position.


Addendum to yesterdays post: Worse as I mentioned above there is a strong possibility that the payment processors do not sell a large portion of their Bitcoin in order to not impact the market which requires them to get in debt in the fiat economy. Essentially it means that core infrastructure might be affected by the same kind of debt trap some of the private speculators are in. Of course the extent of this happening is all speculative but I am fairly confident that this happens.

We can't jump from here to there.  Payment processors will make bitcoin usable to those who aren't willing to take on unnecessary risk.  This will lead to more comfort with the idea of bitcoin and eventually to holding part of the income in bitcoin.  The processors allow you to set what percentage you want to keep in bitcoin, so merchants can start with 100% USD and adjust is as they wish.