Why do people think one Bitcoin will be worth $1000 (or more)

[mobodick]

I am at Olivia Plaza Hotel, Barcelona, Spain at the moment.
I have 12BTC in a wallet on my smartphone.

Why do you even own bitcoin?  Seriously just sell them if you feel they are next to worthless, and stop clogging bitcointalk with your idiotic arguments.  


He brought up the tulips, it pisses me off every time.  

In fact, since bitcoin doesn't have a value he should just give them away...

[nsfsj]

Nothing has a value by it self. Supply and demand controls the value. If enough people believe something is valuable, it is. At the moment, the demand for Bitcoin seems to be mostly speculative and store of value, but the reason for demand does not make it less valuable.

Wise words. They apply for Bitcoins. And for tulips.

At least the tulip madness did not turn into a religion. Reading some of the comments here one might think Bitcoin is already a religion.

You keep refering to bitcoin as another tulip mania.
But you haven't put forwared a single good argument to support that.

Please answer what i asked in my last post: define the word 'value' in this context.

I'm on neither side here, so I will not be arguing. Supply and demand dictates the value, it is that easy. Contextual value is hard to define, however. A drop of water would have an infinite value for someone lost in the desert (demand is extremely high) but no or very little value for someone bathing in a (clean) lake. I do think it is hard to compare Bitcoin to the tulips 'bubble'. Tulips are infinite (for the sake of this discussion at least) and can not store value for an infinite time. It is easier to compare Bitcoin to gold or silver. The question if an hotel accept Bitcoin is wrongly asked; it should rather be if it ever will. There are obviously arguments to be made if that will happen or not though. The current value is what it is. It is not over-valued or under-valued. It is what it is. (:

[bb113]

Nothing has a value by it self. Supply and demand controls the value. If enough people believe something is valuable, it is. At the moment, the demand for Bitcoin seems to be mostly speculative and store of value, but the reason for demand does not make it less valuable.

Wise words. They apply for Bitcoins. And for tulips.

At least the tulip madness did not turn into a religion. Reading some of the comments here one might think Bitcoin is already a religion.

And look how successful and persistent that idea has been. The Catholic Church is the richest organization in the world, backed by religion.

[gradient vector]

The question is too complicated to answer in one post but bitcoin will succeed because fiat currency is inferior and no one entity can control or stop bitcoin.

[mobodick]

The question is too complicated to answer in one post but bitcoin will succeed because fiat currency is inferior and no one entity can control or stop bitcoin.

So what happens if bitcoin becomes too impractical to use?
Will it still succeed? And in what?

[lophie]

As a payment system it will probably be a "relative" success because of the unique characteristics of it.

As a currency it will probably be a "true" success because of the unique characteristics of it that fiat currencies lack (By the nature of them)

Most of the speculators rely on these information with various details and insights when they speculate the success of Bitcoin and the worth of a coin.

Now let's examine your rationale and try to counter argue:

1- The divisibility of Bitcoin will hinder the price to rise at some point:

What they forget is that you can, almost indefinitely, divide a Bitcoin. In milli-Bitcoins (mBTC), micro-Bitcoins (µBTC) - or Satoshis (0.00000001 BTC). So there’s plenty of Bitcoins left for everyone on this planet. Or Satoshis (300,000 Satoshi for every human to be exact).

    - This statement assumes that divisibility will divide current value which ignores fungible of bitcoins. It also describes a situation when the market will decide to "divide" a coin for less price just because it costs too much.

2- Bitcoins have no real value because they are not used in real life

As long as Bitcoins are not used in "real life" (e.g. I can buy stuff from Amazon or pay a pizza with them) they have zero value. OK one could say they have at least the value of the electricity that has been used to create them.

    - In markets (where trade happens) in general. Nothing (I mean NOTHING) worth anything unless there is someone who is wiling to trade your goods for other goods.

Worth in real life as you call it depends on the owner of the good. Sand don't worth anything to you in real life unless you want to create glass for example. If I told you I am very interested in developing statistics on the probability of encountering a collision in SHA256. Does this consider a worth for bitcoin in "real life"? Art (the idea and not the physicality of them) is worthless in real life. The worth of it is an intellectual worth from the intellectual and emotional value you could absorb from it.


3- Bitcoin value is 100% speculation

Bitcoins are accepted almost nowhere – hence their "value" is pure from speculation. It can be 50cent today, 50 USD in a month and 10cent in two month. No one should complain if he has lost money. We have all seen this before. In the 17th century in the Netherlands: The Tulip Mania.

   - Everything in life is 100% speculation in its price. As the production/consumption ratios between various types of goods are getting more predictable the market tend to stabilize the "speculated" prices (in a certain currency where its "Minting/Circulation-back-to-issuer" ratios is predicted fairly as well) hence it gives the illusion of being not "100% speculation".

Interesting choice of a fiat currency as an example. It only shows how fiat currencies are inferior to Bitcoin. Due to inflation and other events a bank note or a bill loses (and rarely gains!) a portion of its purchasing power. Due to lack to "proper" divisibility of the bill (and other currency diseases Bitcoin is immune of by design) it gives you the illusion of prices still the same. a cup of coffee worth 1$ will still worth 1$ even though the seller want to sell it for 104 cents (4%!) to compensate the rise of beans prices due to rise of another related good..... due to the currency in question loses some of its speculated worth! But The amount of 1 cent coins in (attainable) circulation will make this an even harder problem.

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As an electronic cash system (Which I don't know why people focus on Bitcoin the currency and ignores Bitcoin the electronic cash system). Although of the alluring features Bitcoin have. It needs to improve a considerable amount both in community adoption and technologies used to attain a world wide embrace.

- Lophie, wrote this at 5AM. Hopped up on caffeine and no sleep since yesterday. Dunno if this make any sense at all, If you had a good read throw me some coins so I can sleep with a smile  

[Melbustus]

The essence of my posting was this here:

I think many people (newbies) think the value of Bitcoins can only go up is because they know there will never be more than 21 Millions Bitcoins on this planet. Bitcoins are scarce compared to the 7 billion humans on this planet or the trillions and trillions of USD and EURO in the financial markets.

What they forget is that you can, almost indefinitely, divide a Bitcoin. In milli-Bitcoins (mBTC), micro-Bitcoins (µBTC) - or Satoshis (0.00000001 BTC). So there’s plenty of Bitcoins left for everyone on this planet. Or Satoshis (300,000 Satoshi for every human to be exact). ...

Line of thought: "What? There are only 21 million of them? Quick! I must get one before they are all gone! Price? I don't care!"

Not sure what the issue here is... Let's just say the only "unit" is a Satoshi. There will never be more than 2.1 quadrillion Satoshis, right (100,000,000 * 21,000,000)?

So, let's do some of the math that yields the thousands per btc that you're questioning, but let's just use Satoshis:

Let's say bitcoin snags 1% of the current US monetary base (M1, from: http://www.federalreserve.gov/releases/h6/current/). That's 0.01 * $2,459,600,000,000 = $24,596,000,000

How many $ per Satoshi is that?
$24,596,000,000 / 2,100,000,000,000,000 = $0.0000117124 per Satoshi

1 BTC is simply defined as a collection of 100,000,000 Satoshis, at the protocol level. How much would 100,000,000 Satoshis be worth in the above scenario?
$0.0000117124 * 100,000,000 = $1,171.24

So that's why people think 1 BTC can be worth more than $1000.

Did I misunderstand your question somehow?

[qbits]

The value of bitcoins is completely subjective.

Spot on. However you just made the other guy's argument. Prices are subjective and therefore subject to speculative bubbles. There is no reliable way to know whether BTC price is a bubble other than looking back 100 years from now.

[theta]

Why do people assign value to things? Because of the properties of those things.

What are Bitcoin's properties?

-highly divisible
-finite

Note that just from a technical point of view, in the protocol, Bitcoin amounts are expressed as an integer number of satoshis.

Should there be a need to add extra digits of "precision" in the future this would essentially be the same as multiplying the monetary supply by 10 for each extra digit of precision. One could argue against the "finite" argument in this case.

Not at all, this still maintains the "finite" property (there are still 21m BTCs) and attempts to expand the "highly divisible" property to "even more highly divisible".

[Mytche]

Bitcoin is a commodity.

It derives its value from a demand for liquidity speculators perceive a future increase in demand for liquidity as the number of uses and users increase. 

Whether it will hit $1000 dollars is simply a question of whether you think it brings enough to the table that its substitutes can’t or won’t be able to supply for the same level of liquidity.

It is hard to judge what the “Velocity of Bitcoin” at a price of $1000 would be, but the total value would be $21 billion. $21 billion sounds large, but is certainly not enough for the obvious competitor the US Dollar to consider it a true threat.  However that does not mean that other competing groups will not vie for that market. (I guarantee a bumpy ride)

There are 2 large barriers to entry into the market for a competing group. 

Goodwill – brand recognition, trust, and loyalty. 
Infrastructure – exchanges, mining network, merchants, skilled labor, and community support.

If you can put a value on these, it would provide a very important number in the value of a Bitcoin. 

Investment in both of these is on the raise lately and therefore the value/price of Bitcoin is growing as well. The very large investment in the ASICs is particularly impactful on Bitcoin’s value due to it increase in these barriers for competing vehicles. 

[Melbustus]

Bitcoin is a commodity.

If you're thinking of it like that, then simply acknowledge that bitcoin has the properties that gold does, but taken to their intellectual extreme. PLUS excellent transactability. There aren't many things in this world with gold's properties (eg, only a few other precious metals, really). Let's ignore bitcoin's transactional properties for the moment... Do you think there's value in something that does gold better than gold itself?

To be clear, by "does gold", I mean properties such as limited supply, divisibility, fungability, durability, etc... That is, all the acknowledged properties of what makes a good money.

The issue with gold is that it's actually no longer a good money because in modern society, we need excellent electronic transactability.

The issue with bitcoin with respect to gold is that it requires a functioning electronic society. Gold bugs will argue that it's therefore no good to protect against a full-on disaster scenario, which is true. I'd argue, however, that if you're putting significant wealth into gold to hedge that specific kind of tail risk, you ought to be putting the money into durable hard-assets that can be directly utilized in such a scenario (tools, materials, etc). Thus, bitcoin is my preferred hard-money.

[Mytche]

Bitcoin is a commodity.

If you're thinking of it like that, then simply acknowledge that bitcoin has the properties that gold does, but taken to their intellectual extreme. PLUS excellent transactability. There aren't many things in this world with gold's properties (eg, only a few other precious metals, really). Let's ignore bitcoin's transactional properties for the moment... Do you think there's value in something that does gold better than gold itself?

Bitcoin does share many of the characteristics of gold as a commodity, but it also shares some of the characteristics of Electricity as a commodity.  Perhaps you could say Bitcoin is to gold what electricity is to coal.  The value of Electricity is in its ability to transport energy and the value of Bitcoin is in its ability to provide liquidity (transport value).  However, Bitcoin unlike Electricity can be stored without losing its value.  This makes it durable like gold.

To be clear, by "does gold", I mean properties such as limited supply, divisibility, fungability, durability, etc... That is, all the acknowledged properties of what makes a good money.

Bitcoin is superior to gold in its divisibility and fungibility.

Durability is somewhat debatable

• Some precautions such as backups need to be taken.  I am sure many of us have this handled fine, but the market as a whole perhaps not.
• Also more importantly the price of a commodity good is determined as a function of its market as a whole, thus with Bitcoin you must consider the infrastructure. I do realize it is near impossible to destroy, but even damaging it will affect its value.

Supply is also a bit debatable

• You can probably discount Bitcoin denominated credit since it is asset backed and the number of Bitcoins is not increased unless a secondary market of Bitcoin IOUs is created.  In that case it would have to trade at a discount.
• Also at some point commodity substitutes can and will challenge Bitcoin, right now Bitcoin has an edge in its form of liquidity (security, portability, low overhead transactions), however given enough incentive the market will create competition. I am not saying they lose to competition or that the demand for liquidity will not outpace the supply just that it challenges this notion.

 
The issue with gold is that it's actually no longer a good money because in modern society, we need excellent electronic transactability.

agreed

The issue with bitcoin with respect to gold is that it requires a functioning electronic society. Gold bugs will argue that it's therefore no good to protect against a full-on disaster scenario, which is true. I'd argue, however, that if you're putting significant wealth into gold to hedge that specific kind of tail risk, you ought to be putting the money into durable hard-assets that can be directly utilized in such a scenario (tools, materials, etc). Thus, bitcoin is my preferred hard-money.

Agreed the gold bug argument falls a bit short.  Also most gold bugs just think of inflation as the supply of money and don't even consider the velocity of money. Gold's physical nature is a poor hedge on the velocity of money in todays world.  Clearly Bitcoin does not have this issue. 

[mobodick]

The issue with bitcoin with respect to gold is that it requires a functioning electronic society. Gold bugs will argue that it's therefore no good to protect against a full-on disaster scenario, which is true. I'd argue, however, that if you're putting significant wealth into gold to hedge that specific kind of tail risk, you ought to be putting the money into durable hard-assets that can be directly utilized in such a scenario (tools, materials, etc). Thus, bitcoin is my preferred hard-money.

I would argue that neither gold nor bitcoin is suitable for such a situation.
Gold is unsuitable because it is not available everywhere and in enough quantities. Gold will only be usefull in certain locations but can slowly grow from that.
Bitcoin is unsuitable because it depends on many processes that are unique to a fully functioning society. Bitcoin is pretty power hungry, hardware hungry and communication hungry. I don't think there is a good reason for sustaining it in an early post-societal-fail situation where all resources are super scarce.

[Melbustus]

The issue with bitcoin with respect to gold is that it requires a functioning electronic society. Gold bugs will argue that it's therefore no good to protect against a full-on disaster scenario, which is true. I'd argue, however, that if you're putting significant wealth into gold to hedge that specific kind of tail risk, you ought to be putting the money into durable hard-assets that can be directly utilized in such a scenario (tools, materials, etc). Thus, bitcoin is my preferred hard-money.

I would argue that neither gold nor bitcoin is suitable for such a situation.
Gold is unsuitable because it is not available everywhere and in enough quantities. Gold will only be usefull in certain locations but can slowly grow from that.
Bitcoin is unsuitable because it depends on many processes that are unique to a fully functioning society. Bitcoin is pretty power hungry, hardware hungry and communication hungry. I don't think there is a good reason for sustaining it in an early post-societal-fail situation where all resources are super scarce.

Right, that's what I said (though maybe not clearly enough).

Buy tools and supplies to hedge against the disaster scenario. Bitcoin and gold are both not very useful in such a scenario.

Buy bitcoin for long-term monetary protection. Hold gold too for that, if you want, though I see a slow downside there long-term.

[yucca]

One thing about the whole tulip story that just doesn't make sense:

To create tulip bulbs you just plant bulbs in favourable soil and environment and 1 year later you dig it up to find many more new bulblets, replant in larger trays and so on. why the fuck would people enter a speculation frenzy on such an easily duplicated item?

BTC is completely different it has proof of work, getting increasingly harder. Ecenomically it is the same as gold. But unlike gold you dont have to stripmine the earth to get it.

BTC doubters can bite my shiny metal ASS!

[theta]

You can probably discount Bitcoin denominated credit since it is asset backed and the number of Bitcoins is not increased unless a secondary market of Bitcoin IOUs is created.  In that case it would have to trade at a discount

This is a very interesting point. The day bitcoin IOUs are created and bitcoin M3 (including those IOUs) surpasses actual bitcoins in circulation, it will be a great day to buy and hold bitcoins. This is because:
1) it will mean that bitcoin will be a fully established currency system, with a fully functioning economy behind it.
2) if and when an asset bubble develops based on cheap bitcoin credit (these IOUs), and this bubble bursts, there will be no way of creating new bitcoins to reinflate the bubble (as has been the case with all asset bubbles created by fiat currencies credit expansion). In that case the value of bitcoins will rise significantly.
I don't think we are anywhere near such a credit system based on BTC IOUs, but if we were I would see it as positive, not negative, for bitcoins.

[Spaceman_Spiff]

One thing about the whole tulip story that just doesn't make sense:

To create tulip bulbs you just plant bulbs in favourable soil and environment and 1 year later you dig it up to find many more new bulblets, replant in larger trays and so on. why the fuck would people enter a speculation frenzy on such an easily duplicated item?

BTC is completely different it has proof of work, getting increasingly harder. Ecenomically it is the same as gold. But unlike gold you dont have to stripmine the earth to get it.

BTC doubters can bite my shiny metal ASS!

+1

[mobodick]

One thing about the whole tulip story that just doesn't make sense:

To create tulip bulbs you just plant bulbs in favourable soil and environment and 1 year later you dig it up to find many more new bulblets, replant in larger trays and so on. why the fuck would people enter a speculation frenzy on such an easily duplicated item?

BTC is completely different it has proof of work, getting increasingly harder. Ecenomically it is the same as gold. But unlike gold you dont have to stripmine the earth to get it.

BTC doubters can bite my shiny metal ASS!

I think the actual story with the tulips was that the beautifull new color combinations were caused by some virus. And of course it was these new patterns that people went gaga over.
You never knew what pattern would grow out of any particular bulb so cultivation was impossible.
So there was a risk involved in buying a bulb and so speculation began.

[Ekaros]

To create tulip bulbs you just plant bulbs in favourable soil and environment and 1 year later you dig it up to find many more new bulblets, replant in larger trays and so on. why the fuck would people enter a speculation frenzy on such an easily duplicated item?

BTC is completely different  ...

People not familiar with Bitcoin don't see a difference.  They say that anyone can start a new type of coin tomorrow.  When you try to explain how it is difficult to gain traction for a new type of coin they just look at you funny.

I'm more worried about if the community can keep that traction. It's really hard to say where will bitcoin go, in my mind the current situation of development isn't acceptable for wide scale use. On other hand it does have downfalls, possibility of getting multiple soft-forks if the communications detoriate and some areas get isolated.

I think gold is over-valued, but it does have some practical uses.

[yucca]

I think the actual story with the tulips was that the beautifull new color combinations were caused by some virus. And of course it was these new patterns that people went gaga over.
You never knew what pattern would grow out of any particular bulb so cultivation was impossible.
So there was a risk involved in buying a bulb and so speculation began.

Interesting, thanks, just did some reading on the whole debacle on wiki. didn't last long and saw spot increasing to only ~20* normal:



the virus as well as producing nice color variation also degraded bulbs viability and so duplication was difficult. one thing that gets me is that tulips only flower for 1 week per year!?

p.s. nice avatar, i saw it after i uploaded mine, honest!