Why Are Bitcoins Worth $70?

[rpietila]

...Not a bubble.

Nope, not at all...









..perfectly natural and sustainable growth.     

Many investments are rocks. When you let go, they will fall back to ground. Some are balloons. When you let go, it will rise to the atmosphere. It is not easy for many to distinguish between those two. Also the balloons are susceptible to pricks. Trade wisely.

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[erik777]

I think the above answers on supply and demand, which we call Price Theory, is the best explanation on how the price is determined.

But, you are really asking what is driving increased demand...

1> Until the mainstream is using bitcoins, we are in the early adoption phase.  Unless Bitcoins fail to take hold, which appears unlikely, demand will increase until the mainstream is using them to their full potential.  This is, arguably, a long ways away.  Thus, demand will continue to grow over the long-term. 

2> Think outside the box (US).  In Argentina, pesos inflate about 30% a year.  They block purchasing US dollars to try to increase trading in pesos.  One fundamental problem, then, is how do you save if your savings in pesos keeps losing value.  Two options are buying buying hard assets like gold and buying bitcoins.  There is also an underground market for US dollars that trades much higher than the official exchange rate (8 pesos per $1 instead of 5).  The trick here is who wants to sell bitcoins for pesos?  If you needed pesos to buy something, using bitcoins to purchase the pesos could add to your profit. 

3> Continue to think outside the box (US).  Italy and Spain watched Cyprus savings accounts become hostage to possible "tax" by the government, or theft as some circles choose to call it.  The problem is that Brussels is pushing this tax on Cyprus.  If Italy or Spain end up in the same pickle, the same Brussels will be crafting their bail out plan as well. If you live in these countries, you are now thinking about ways to shield your saving from government confiscation.  Bank accounts are looking pretty vulnerable right now. 

4> The safest savings.  Imagine a world where wealth is measured in gold.  Your biggest challenge, once you have it, is protecting it from theft.  Your home can be broken into.  So, you put it in a bank.  But, banks quickly learn they can make loans on that gold.  Plus, they can be robbed, too.  But, while your deposits become ever safer from robbery, those loans create an increasingly vulnerable banking system.  Along comes 2007, our wake up call, then problem after problem in Europe.  Then Cyprus.  You can buy gold, yes.  But, then you're back to the beginning of all this.  How do you protect your gold.  Ironically, bitcoins can potentially be the easiest to protect asset on this planet.  You can, for instance, break your private keys into 10 pieces, and scatter them across the planet. 

Demand is, an will continue to increase.  There are countless other examples.  The key to remember is they are International.  What happens in China, Argentina, Russia and Cyprus matters. 

[redwraith]

Don't tell anyone, but precious metals are in a bubble too....

So what?  What is the term "bubble" mean other than a word designed to give a negative connotation to a rise in price seen by the perceiver as illegitimate?   So far, in Bitcoin, we've had two large moves:  the first from about $1 to $30 and the second from about $13 to $70 (and who know if it's done?)  Simply put, it's proven it's capable of multiple LARGE moves.  Who's to say there won't be a third move or a fourth?  In fact, the chart you posted could look insignificant in three years time.  Like a blip.  I don't care if it's a "bubble", I'm gonna ride it as far as it'll take me while you're sitting there going WTF!

[Vladimir]

indeed,  redwraith

http://www.youtube.com/watch?v=NG1qooBzE2w

[Mike Christ]

Fucking economics



How does it work?

[Nite69]

I understand that the market reaches this consensus through buyers and sellers placing their bids and asks on the exchanges, but WHY is a Bitcoin worth that price?

Actually, it's quite simple. If there is 10 million people wanting to have bitcoins worth 1$ and there is 10 million bitocoins, the price will be 1$

If they either want to have 10$ each or if there is 100 million of them, the price wil be 10$ etc..

How will it be in the future? Just find out how many want to have bitcoins, how much they want and then you know.

[Vladimir]

Q. Why Are Bitcoins Worth $70?
A. No idea why you think they worth 70$.

Q. Why Are Bitcoins Worth $770+?
A. Because of 5500 new accounts pending verification on MtGox as of now.

[prof7bit]

...Not a bubble.

Nope, not at all...









..perfectly natural and sustainable growth.    

You cannot plot it with a linear scale, on that chart you posted one cannot see anything, its totally distorted because it over-exaggerates movements at higher prices and downplays the equally large movements at lower prices. Why do you bubble advocates always use such distorted scales for the y-axis? You do it because you want it to look like a bubble. Post it with a logarithmic scale like everybody else who is seriously analyzing the price history, then the relative price movements will be represented the same way in all price regions, it won't be distorted and then it won't look like a bubble anymore at all!

[Vladimir]

indeed. This chart looks pretty reasonable to me

[VeeMiner]

my opinion is bitcoin is worth a whole lot more that any recent prices we have seen. If you look at all the advantages of bitcoin such as freedom of money transfer, ease of use, low to no fee's, privacy, anonymity, security ect... Plus you add the finite amount of bitcoin available to the world 21 million you can do the maths. when there is 21 million users of bitcoin what will 1 bitcoin be worth?
when there is a world full of bitcoin users then what will bitcoin be worth?
Not that it is a good thing but bitcoin would be very useful and appealing to criminals. They estimate that crime turns over 200 billion dollars a year and growing.  with 11 million bitcoin's currently mined and half of the crime turnover goes into bitcoin that leaves bitcoin at about $9000 each without considering that this big demand will push the price though the roof.
this is only one type of bitcoin user group.
Bitcoin is still a baby and needs time to grow, as new programs and services become available making bitcoin easy for everyone to use without needing to understand it people with use bitcoin without even thinking and it will be massive.
I used the crime stats not because I condone it in anyway but just as an example of a user group witch will use it regardless of law's and to show it's real value in a real world situation.
Bitcoin will be much bigger than crime, It is freedom returning to a slave monetary system. Everyone will be happy with this.             

I concur

[lebing]

https://bitcointalk.org/index.php?topic=143973.0

[bubblesort]

[Tonko]

indeed. This chart looks pretty reasonable to me

And if you put even higher logarithm on the Y axis then it practically changed only a tiny bit in last few years.

[flyhouse]

The price will get a correction down to ~35USD/BTC. But in the long-term, if BTC were to stick as a widely-used international currency, I think we'll long for the days when it only cost 70USD.
Think about offshore banking and crime- I think that pretty soon they'll adopt BTC as a means of transferring large amounts of money and that will eventually lead to a much higher and stable exchange rate.

[yordan]

I understand that the market reaches this consensus through buyers and sellers placing their bids and asks on the exchanges, but WHY is a Bitcoin worth that price?

If Bitcoins were at $50 right now we would all probably think that was completely reasonable.  If they were trading at $1000 a Bitcoin we would accept that too.  Do buyers just pick arbitrary sell prices in their head, and then sellers pick arbitrary buy prices, and then the market reaches a consensus?  Does anyone actually have a good understand of this or is there no "good answer".  Thanks.

Looking at a recent chart it looks to me like Cyprus is responsible for the move from ~$47.50 - $70+

[caveden]

A. Because of 5500 new accounts pending verification on MtGox as of now.

How do you know this? Do they publish these numbers somewhere?

[Vladimir]

yes. https://bitcointalk.org/index.php?topic=157361

[Sword Smith]

I understand that the market reaches this consensus through buyers and sellers placing their bids and asks on the exchanges, but WHY is a Bitcoin worth that price?

If Bitcoins were at $50 right now we would all probably think that was completely reasonable.  If they were trading at $1000 a Bitcoin we would accept that too.  Do buyers just pick arbitrary sell prices in their head, and then sellers pick arbitrary buy prices, and then the market reaches a consensus?  Does anyone actually have a good understand of this or is there no "good answer".  Thanks.

The way to determine to determine the price is by using the money velocity equation:
V*M=nT (1)

where V is average velocity (how fast money changes hands in actual transactions), M is the number of money units, i.e., bitcoin - currently about 11m. nT is the nominal value of all transactions measured in BTC.

nT=P*Y where Y is the real value of all transactions and P is the price level (antiderivative of inflation level) which is inversely proportional to the value of the money, so nT=Y/val.

Whence

(1)=> V*M=Y/val => val=Y/(V*M) (2)

Lets put some values into this equation (2), note that I am just making qualified guesses now. Some people may very well improve upon this answer below:

Y is the real value of actual Bitcoin transactions, I say actual because many transactions in the Blockchain are just transfers between different accounts which have the same owner. Satoshidice transactions are real transactions, though, since they fulfill a market demand. I choose to measure Y in dollars. Let's just assume the Y is currently 20 times the value of the revenue of bitcoinsstore.com, so Y=20*400,000$/month=8,000,000$/month=96,000,000$/year ~100,000,000$/year.

I assume V=1/year which is close to that of state fiat currencies. Plugging this into (2) yields:

val=100,000,000$/(1*11,000,000)~9 dollar/BTC

This is a fairly low value since I have not accounted for speculation (buying because some expect BTC to rise in value comp. to $) and since I may have underestimated Y. Speculation can be accounted for in a higher Y and a lower V which both raise the value of "val".

I hope this gives you an idea of how to evaluate BTC's potential, though. It all depends on Y in the long run, i.e., how large the market for actual Bitcoin transactions will become in the future.

Regards,
Sword Smith

Edit: I want to point out that I see my estimate on Y as an estimate of the current value of transactions and by no means an estimate of the value of future transactions. The value of M is also highly debatable.

[MinerHQ]

The price will get a correction down to ~35USD/BTC. But in the long-term, if BTC were to stick as a widely-used international currency, I think we'll long for the days when it only cost 70USD.
Think about offshore banking and crime- I think that pretty soon they'll adopt BTC as a means of transferring large amounts of money and that will eventually lead to a much higher and stable exchange rate.

I think it will not go to 70 level but it reach that level. That will happen only if very bad news comes out on bitcoins.

[BlindMayorBitcorn]

The price will get a correction down to ~35USD/BTC. But in the long-term, if BTC were to stick as a widely-used international currency, I think we'll long for the days when it only cost 70USD.
Think about offshore banking and crime- I think that pretty soon they'll adopt BTC as a means of transferring large amounts of money and that will eventually lead to a much higher and stable exchange rate.

I think it will not go to 70 level but it reach that level. That will happen only if very bad news comes out on bitcoins.

Dude. Flashback Friday was yesterday. Get it!