Taking a step back

[Zangelbert Bingledack]

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

Moving the goalposts now? 

Besides, what the hell isn't fringe? You want facebook? When facebook is using Bitcoin the price will wayyy the hell more than 600% higher. I think you may want to think things through a little more before posting.

[Crazy]

Considering all of our posts are opinion, maybe you should, too.

[Zangelbert Bingledack]

Sure, granted, but the point is that these sites are way bigger than anything we had before the big rally started. It's the relative difference. We are still at piddling valuations, even after 600% growth.

[Manticore]

An increase in merchants accepting BTC is not nearly as important as the increase in consumers adopting BTC and using it for every day payments. Merchants have no incentive not to accept something that is becoming du jour. It boosts their cool factor (if the cool kids are doing it, well...we're cutting edge, too.). They would accept dirty gym socks if that was the new craze (and no, I'm not calling BTC a fad) and there was market for exchange.

There will be a diminished return in the BTC price boost that accompanies news of future merchants accepting BTC unless consumer adoption really kicks in. Yes, Wordpress is big because it was one of the first well known (in many circles) entities to accept BTC. The 10th or 20th well known entity will not impact the price very much if at all (unless it's something ridiculous, like Wal-Mart), but may serve to moderately bolster the network effect and brand appeal with which BTC derives its all of its value (otherwise LTC, PPC and every other variation would also be worth something).

No, the key is consumer adoption because this barrage of good news can easily turn sour if merchants start reporting how little BTC is affecting their sales. $2M a month at Bitpay is negligible (and likely unsustainable without a second round of funding in the not-so-distant future). To one who says current BTC price valuations are 'piddling', well so is the current revenue stream generated by accepting BTC (as far as I can tell, but correct me if I've read the tea leaves incorrectly).

I agree with Crazy in that fundamentals are murky at best. I'm a Bitcoinophile and am bullish on the concept and utility, but the more I read the motivations and conclusions drawn on this forum, the more I wonder how many other people are buying in after coming to the same conclusions with, it seems, a very disjointed view of market price vs adoption, and the less bullish I become regarding current price. There is certainly room to run to 3-digits.....markets tend to stay irrational far longer than we predict....and there is the chance that this is not irrational (quite possible). I guess the fact that markets tend to stay irrational longer may be a perfect reason to buy for some investors.

I agree that investors should take into account the potential for success/failure (NPV). IMO, a 25% chance of BTC succeeding is absurdly optimistic, but I realize you were simply offering an example. BTC will either fail completely or succeed completely, and the goals are monumentally high. I hope complete success is higher than $1500 per coin because if it's not, we are definitely in a bubble. If complete success = $100K or $1M (or whatever) per coin at some given time in the future, as many have stated, and there is a 25% chance of that success, this would be a no-brainer....BTC would be the lottery ticket of the century. Poor souls spend hundreds per month on lottery tickets with much much lower odds. I think the odds of success with BTC are much much lower than 25%.

[hgmichna]

Western Union.   A company Bitcoin makes completely obsolete.  Current market cap: $4.2B, or $375 / bitcoin.

That is just 1 minor application for bitcoin.

Last I heard Western Union pays and receives in the respective local currency. With bitcoin you would need two extra exchanges.

Of course, in the far future people can buy their bread and butter directly with bitcoin, but until we get there, Western Union has the advantage.

[smoothie]

This is what I got out of this thread:

Bears: "but you haven't proven that bitcoins are worth $88"

Bulls: "we dont have to prove it, look at the price bitch"

LOL  

[Melbustus]

I agree that investors should take into account the potential for success/failure (NPV). IMO, a 25% chance of BTC succeeding is absurdly optimistic, but I realize you were simply offering an example. BTC will either fail completely or succeed completely, and the goals are monumentally high. I hope complete success is higher than $1500 per coin because if it's not, we are definitely in a bubble. If complete success = $100K or $1M (or whatever) per coin at some given time in the future, as many have stated, and there is a 25% chance of that success, this would be a no-brainer....BTC would be the lottery ticket of the century. Poor souls spend hundreds per month on lottery tickets with much much lower odds. I think the odds of success with BTC are much much lower than 25%.

Glad you're using the NPV and Expected-Value framework approach. Not sure how else one can arrive at a respectable buy/sell decision.

I used to think the success case probability was a lot less than 25%. But, over the last year, there have obviously been a lot of very positive developments in the bitcoin ecosystem. I've also thought a good deal more about the nature of money, why humans used to use gold, why paper money, both backed and unbacked, developed, etc. I've come to appreciate bitcoin even more as a truly pure form of money pretty much perfectly fit for modern times. I outlined much of this the other day in cypher's gold thread: https://bitcointalk.org/index.php?topic=68655.msg1651425#msg1651425

Some of those conclusions actually require me to dramatically up the $1500/btc value in the success case, though the duration for the mega-success case to happen is longer than 10yrs, and, yes, less than 25%. However, for simplicity, I'll stick with my (0.75)($1500) + (0.25)($0) in 10yrs framing for the time being. I think that's valid even if bitcoin remains relatively "niche". The mega-success possibilities are just icing on the cake...

[Entropy-uc]

Western Union.   A company Bitcoin makes completely obsolete.  Current market cap: $4.2B, or $375 / bitcoin.

That is just 1 minor application for bitcoin.

Last I heard Western Union pays and receives in the respective local currency. With bitcoin you would need two extra exchanges.

Of course, in the far future people can buy their bread and butter directly with bitcoin, but until we get there, Western Union has the advantage.

No.  Western union has little independent shops that pay local currency for a tiny taste of their fees.  Western union takes hours to process.

With bitcoin you can walk into the tiny shop, agree on an exchange rate and have the funds at there address in seconds and confirmed in a few minutes.

There is work in teaching the independent shops how to use it, but the advantage is strongly on bitcoin's side.  I was discussing the details of implementing a charity to do this with Mexican laborers today.  It won't be that hard to make it happen.  Big companies are slow and complacent.  By the time they notice the new bitcoin sticker in their retail outlets half their fee volume will be gone.

[Manticore]

Nice post, some great points. I'm somewhat undecided on how sustainable this rally is. Once we get into triple digits, I find it hard to believe there will be enough buyers to counter-act all the thousands of people who bought hundreds of coins for less than $15 and can now sell those coins for a 10-20x return. Basically, anyone who bought before january will be sitting on an avalanche of profit just waiting to be cashed in.

Thanks. Agreed. 100%. It will take a serious wave of adoption and buy-ins to counteract it, and I just don't see that happening. But I also cannot underestimate the exuberance.

[Zangelbert Bingledack]

Comparing piddling transaction usage and user/merchant adoption to a piddling BTC market cap and coming up with a meaningful answer is hard. What is not so hard, though, is comparing relative changes in those values. Did one advance from piddling to tiny while the other one didn't? Then we may have reason to believe the price will move up or down to correct the disparity.

The price stayed around $13 for a long time, indicating that that may be a stable valuation for Bitcoin given the level of awareness and economic development at that time. What has actually happened in the past few months, by my reading of the many fundamental indicators, is that transactions and user/merchant adoption have increased from negligible to piddling and are perhaps broaching tiny, while the market cap has risen from negligible to slightly non-negligible, bordering on piddling.

In other words, the price seems to have moved up less, in relative/percentage terms, than the fundamentals have. YES, aside from the basic concept and system, the economic fundamentals remain piddling. What matters is that they have increased very rapidly even while still being piddling. A number can remain extremely tiny while experiencing tremendous (percentage) growth; conversely, a number may be very large and grow only a tiny amount. The mere fact that the absolute growth of the system is low tells us nothing at all about what the percentage growth of the price should be. What matters is the system's relative growth.

Hence when asking if the recent uptrend is justified, the question is not one of absolute valuation but of the relative change in that valuation. From where I stand, it looks like we have seen tremendous relative change in the fundamentals. Exponential growth, even. Once again, this won't feel anything like tremendous absolute change. It's like watching bacteria divide in a petri dish. Yet the price growth that this underpins will feel tremendous provided the absolute amount you invested isn't tiny.

tl;dr: Don't confuse relative change with absolute change.

[Melbustus]

This should be obvious but when asking if the recent uptrend is justified, the question is not one of absolute valuation but of the relative change in that valuation. From where I stand, it looks like we have seen tremendous relative change in the fundamentals. Exponential growth, even. Once again, this won't feel anything like tremendous absolute change. It's like watching bacteria divide in a petri dish. Yet the price growth that this underpins will feel tremendous provided the absolute amount you invested isn't tiny.

tl;dr: Don't confuse relative change with absolute change.

I think what you're getting at here is that in the success case, looking back at a bitcoin chart from inception, anything that happened under triple-digits will look like a flat line that barely budged a few pixels.

[Zangelbert Bingledack]

Yeah, that's one way to look at it. WordPress, Reddit, etc. may look like unimpressive or even like flatlining in the grand scheme of things, but if Bitcoin is to succeed then all the recent price action will also look like flatlining in the grand scheme of things. The real question for speculation purposes is something like, "Which flatlining is flatter?" To me the latter looks flatter, which means the price can be expected to continue rising until it unflattens more.