Taking a step back

[BitPirate]

I'm expecting some reasonably sound metrics on a fundamental adjustment that is commanding a 500% increase in valuation. What I'm getting is statistics about reddit readership and pointing to fringe services like Wordpress, Namecheap, Reddit and Mega. Does no one have hard statistical data of new user adoption that is said to be causing this move? I haven't seen it, all I see is "look at this useless number that can indicate one of several different things, but I'm going to cherrypick the one that makes me say I can get $100 for my BTC."

As far as I can see, the user base is expanding, and speculation:usage ratio is stable or decreasing.

You say it but you don't show it, what the hell. Can I see some reporting on hard numbers? Did MtGox publish some whitepaper on this? I don't understand.

I actually posted this twice in this forum already -- there's a search function you can use. It's not like "is BTC overvalued?" is a rare topic on this subforum, after all :-)

Anyway; I'll bite. Here you go:



You can see that the overall level of speculation is high, but as a ratio to overall transactions, it has actually been decreasing since late last year.

The previous bubbles are very pronounced if you zoom out, but -- I'll be honest -- it's impossible to establish cause/effect for these ones. Jury's still out IMO:



You can also check blockchain.info "my wallet" adoption as a surrogate measure of overall usage. Find that yourself.

As far as I can see, the user base is expanding and accelerating -- not linearly but not quite exponentially either, with a significant increase in gradient this year. This should be having an exponential impact on the price. That's what I'm seeing.

Here's CNY:BTC over the past year on a log chart. Doesn't look unexpected to me.



I'm interested in discussing both points of view sensibly, but may I ask you to tone down your attitude a bit please? "What the hell" indeed -- and quite why you "expect" anything from the rest of us is beyond me.

[Qoheleth]

Oh, come on, don't let the facts get in the way of a good religion. Bitcoin is useless except to buy drugs and weapons on SR and maybe to do a spot of money laundering. The real value of a BTC is between $1 and $1.5  

Couldn't that be said of Bitcoin speculators? They think BTC is embarking on global acceptance and is going to save the world in less than a month, and for these reasons it should immediately be valued at $10000/coin.

The biggest claims to fame at this point are Wordpress (an open source CMS that most none-techies don't know or care about), and Namecheap (a niche registrar -- would be understandable if GoDaddy took BTC). Plus a handful of fly by night service providers and everyone is equating it to global acceptance.

You both forgot gambling!

[BitPirate]

BTW, I should also add -- I wouldn't deride WordPress, Reddit or Namecheap. The first is an Internet phenomenon with a massive network effect. The latter I would consider the #2 registrar after Godaddy. WordPress is beyond huge.

Yes, they are just Internet names, but we have to start somewhere and the network effects from these big names in the industry will be very positive. If adoption continues in this vein, BTC will have a very high future utilisation.

Furthermore, it is entirely reasonable to speculate on the future trade value of BTC now, not after the fact. Bitcoin market cap is still far below that of PayPal and will be for a long time.

[kenerwin88]

Also--An insurance company is now accepting bitcoins (the one that I work for). https://bitcointalk.org/index.php?topic=155036.0

Not trying to advertise, but it's a real business, and judging by some of the companies that have contacted us, there are quite a bit more businesses beginning to accept bitcoin that are actual brick and mortar businesses, not just things like Wordpress etc.  

I do feel that the extreme increase in bitcoin price in such a short time IS overall hurting some adoption, as even though we accept Bitcoin, right now it looks like it would be a terrible idea to sell or pay for anything in something that is rising so quickly, so in that regard I think it's difficult to get people who WANT to pay with bitcoins.  For us at least, it would be better if the price stabilized so that it could be used without fear of drastic appreciation/depreciation in a short period of time.

Ken

[Crazy]

@BitPirate

Sorry but you're using past performance as evidence of future performance, so I'm disregarding it. And the announcements of Wordpress and Namecheap were months ago, so it would be quite a delayed reaction if that's what's causing this move.

The only thing of value to me that you've mentioned is wallet adoption, so I'll look into that.

I'm content in letting this rest as it is, but I appreciate your help.

[Spaceman_Spiff]

What I'm getting is statistics about reddit readership and pointing to fringe services like Wordpress, Namecheap, Reddit and Mega.

Wordpress is fringe now?

Alexa Traffic Rank    
Global Rank  22


I fully respect your position </sarc>

[Crazy]

I fully respect your position </sarc>

I'm thoroughly devastated.

[BitPirate]

@BitPirate

Sorry but you're using past performance as evidence of future performance, so I'm disregarding it. And the announcements of Wordpress and Namecheap were months ago, so it would be quite a delayed reaction if that's what's causing this move.

The only thing of value to me that you've mentioned is wallet adoption, so I'll look into that.

I'm content in letting this rest as it is, but I appreciate your help.

I'm not at all predicting future performance. You may want to re-read. I was providing a case for Bitcoin's value not being overblown. Actually you didn't ask me to predict future performance. Which is good, because I can't.

What I can tell you is that the risk of failure is fairly constant over time. I also _consider_ that the risk of a steep decline is offset by buying pressure at lower prices. There was strong evidence for this during the block chain fork.

Hope this helps.

[nwbitcoin]

Its one of those, prove what I'm thinking type discussions!

Only a fool would argue that the price today is not speculative driven.  However, whether it actually grows to 000000s is anyone's guess, hence speculation!

The real value of bitcoins is whatever someone is willing to pay for it - its that easy.  At the moment, everyone is buying it as a shortcut to a happy retirement, and while it might happen, in most cases, I don't think it will.

However, being early adopters as long as you know when to sell, what have you got to lose?

[Mageant]

IMHO the current value of Bitcoin is mostly due to speculation and its usefulness as a safe store of value.

It is not reflected anymore by the current Bitcoin economy.

That doesn't mean it can't go up a lot more.

Just where the top will be nobody knows because we're in uncharted territory, also with the Euro crisis.

I don't expect much of a fallback though, maybe down the 50s at most.

Another possibility is that we get several months of stability at a certain price while the Bitcoin economy catches up, like in the first half of 2012.

[Melbustus]

Of course the market is driven by speculation! You all know that's how markets work, right? If people think that the net-present-value of something is higher than it's currently trading at, they're going to buy it, even if that NPV is dependent on *future* flow.

So, about that...

On the store of value side, we can run some quick calcs to discover that if about 2% of the world's private-investment demand for gold (which is about 16% of total gold) shifted to bitcoin, it would demand a price of about $1500/btc.

On the transactions side, if 10% of total global black market transactions get done in bitcoin, with a btc money velocity of 5, that also commands a price of $1500/btc.

Now, let's say that price is the success case, and if it happens at all, it won't get there for 10yrs. Let's also say that there's a 75% chance that bitcoin completely fails in that timeframe.

So we have a 75% of $0/btc in 2023, and a 25% chance of $1500.

Using an 8% discount rate, that puts fair *current* value at $173.

Just a quick example, but you get the idea... The analysis people really need to make is what they consider the success/fail cases to be, what the probability and timeframes on them are, and whether they have sufficient risk tolerance.

[Spaceman_Spiff]

I fully respect your position </sarc>

I'm thoroughly devastated.

 

[Spaceman_Spiff]

On the store of value side, we can run some quick calcs to discover that if about 2% of the world's private-investment demand for gold (which is about 16% of total gold) shifted to bitcoin, it would demand a price of about $1500/btc.

On the transactions side, if 10% of total global black market transactions get done in bitcoin, with a btc money velocity of 5, that also commands a price of $1500/btc.

Now, let's say that price is the success case, and if it happens at all, it won't get there for 10yrs. Let's also say that there's a 75% chance that bitcoin completely fails in that timeframe.

So we have a 75% of $0/btc in 2023, and a 25% chance of $1500.

Using an 8% discount rate, that puts fair *current* value at $173.

Just a quick example, but you get the idea... The analysis people really need to make is what they consider the success/fail cases to be, what the probability and timeframes on them are, and whether they have sufficient risk tolerance.

interesting numbers

[hgmichna]

Certainly below $32. There is no basis for a genuine price rise to $32. Bitcoin is not used much, except for speculation.

http://bitcoinmagazine.com/bitpay-exceeds-2-million-in-transactions-month-to-date/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BitcoinMagazine+(Bitcoin+Magazine)

 

The bitcoin market has a total valuation of $1 billion. How come, if BitPay only moves $2 or $3 million? Who is moving the other 99.7%?

To me it is obvious---the speculators. The bad ones, actually, the newbies who buy because the price is rising. The trend followers. They are on their way to wreck bitcoin's remaining reputation.

[Equilux]

Certainly below $32. There is no basis for a genuine price rise to $32. Bitcoin is not used much, except for speculation.

http://bitcoinmagazine.com/bitpay-exceeds-2-million-in-transactions-month-to-date/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BitcoinMagazine+(Bitcoin+Magazine)

 

The bitcoin market has a total valuation of $1 billion. How come, if BitPay only moves $2 or $3 million? Who is moving the other 99.7%?

To me it is obvious---the speculators. The bad ones, actually, the newbies who buy because the price is rising. The trend followers. They are on their way to wreck bitcoin's remaining reputation.

Perhaps the other 99.7% is not moving at all ... 

[phelix]

Most definitely current super-growth will also peak out at some yet unknown value (triple digits, in my opinion), then gradually fallback to a lower level (above 32, but lower than 100), recuperate for a year or two, then a third huge wave would start, with a bottom of this year's high, whatever it will be.

Certainly below $32. There is no basis for a genuine price rise to $32. Bitcoin is not used much, except for speculation.

[...]

The price will continue to rise as long as enough new "speculators" stream into the market and part with their money. As soon as they are all in, the price will drop like a stone, too fast for practically all of them to sell at a gain. Mt.Gox will drop dead for the most part, as usual in extreme market movements.

The thing is, there are lots of speculators out there. It's also a question of how long it will take the media to become bored.

[...]
Stocks tend to oscillate around the "fair value". There is no such thing for bitcoin, though, it all depends on how many people want to hold what amount of value in bitcoin.

estimate:
PayPal has ~110 million users. Wild guess: each of them will want to hold on average $200 of value in bitcoin for various reasons like purchasing stuff, hedging against inflation, speculation.

110 * 200 / 21 = 1047 usd/btc

 

Of course we will oscillate downwards, too, before we get there.

Also, everybody should look at the logarithmic charts. Things are put into perspective then.

https://bitcointalk.org/index.php?topic=156049 "Logarithmic Scale - tl;dr!: USE IT!"

[Zangelbert Bingledack]

The biggest claims to fame at this point are Wordpress (an open source CMS that most none-techies don't know or care about)

22nd largest website on the Internet by Alexa rankings. Biggest blog platform.

and Namecheap (a niche registrar -- would be understandable if GoDaddy took BTC).

http://en.wikipedia.org/wiki/Namecheap

http://www.reddit.com/r/technology/comments/nmsiu/godaddy_supports_sopa_transfer_your_domains_today/
http://www.reddit.com/r/technology/comments/nokde/it_sounds_obvious_but_godaddys_sopa_flipflop_is_a/
http://www.reddit.com/r/technology/comments/nuimq/tell_reddit_its_dec29_transfer_your_godaddy/

Namecheap has 3 million domains and iconic status on Reddit.

Plus a handful of fly by night service providers and everyone is equating it to global acceptance.

Name me one person who says Bitcoin has "global acceptance."

[Zangelbert Bingledack]

What I'm getting is statistics about reddit readership and pointing to fringe services like Wordpress, Namecheap, Reddit and Mega.

"Fringe"?

http://www.alexa.com/siteinfo/wordpress.com
http://www.alexa.com/siteinfo/reddit.com

[Crazy]

Yes, socially they are fringe. Get some perspective, please.

[Zangelbert Bingledack]

But there is a more basic error in the core argument here. It goes, "The price has increased 600% or so, but X, Y, and Z site adoption still doesn't add up to much." The underlying assumption being that a 600% increase would only be justified by something like broad mainstream adoption. No, mainstream adoption of Bitcoin justifies something more like a 1,000,000% increase in price, conservatively, and I don't think that's even controversial.

The error is to look at absolute value as a indicator of relative appreciation. Last year the big (legal) things in Bitcoin were homemade coffee beans and alpaca socks - pretty much the same as in 2011, as far as I know. Then, suddenly, BOOM - 22nd most trafficked website on the Internet, followed by a steady stream of relatively very positive news.

Mainstream transactions going from alpaca socks and coffee to WordPress, Reddit, Mega, and Namecheap justifies way more than a 600% increase in value.