Something's Got to Give

[solomon]

If you are concerned about holding bitcoin, don't hold bitcoin. Let Bitpay convert for you and relax

[DeathAndTaxes]

The Bitcoin economy would need approximately $1 billion in monthly commerce to justify an exchange rate of $140 with no speculative premium.

Based on what.  That would be a velocity of 8.5 which is simply unheard of in any economy.

[justusranvier]

Based on prior estimates which put the upper limit of the exchange rate as $1 million equivalent if it saw universal adoption, and a simple ratio of world monthly economic output.

[dg2010]

Apparently the value of bitcoin has NOTHING to do with goods/services.

That is if you subscribe to many of the wackos on this forum.

If you live in the real world you understand that the value of Bitcoin must be grounded in reality. Thus it is currently overvalued as the trade does not support such a price.

[RodeoX]

To my fellow peers who posted above, I have to disagree. I use bitcoin as money all the time. It is money. Here is how to do it.

Today I have to pay my VPN service bill. What I will do is buy about $6USD worth of bitcoin. I will then send about that in BTC much to my provider. Because I put $12 in the first month I started this service I am a month ahead. So, really I am spending the money from last month.
Last month I bought that bitcoin for about say $2.10. That means I receive my service for a third of the cost, AND I get to keep the balance of the coins.

BTCTry doing that with any other kind of money.

Thank you for proving my point.    You can't price stuff in bitcoins...  hence why it's not a currency..  it's more like gold.

Hugh? I am saying that I use it as money all the time. The price is what it is. If you mean that it is pegged to something else, like Euros for example, then I guess I understand what your saying.

[justusranvier]

Thus it is currently overvalued as the trade does not support such a price.

The current price factors in the probability that this will continue:

BitPay grows *faster* than BTC price. Bitcoin: 300% in last month, BitPay transactions: 750%.

Buying Bitcoins at this price is a bet that trade will eventually catch up with and overtake speculation.

[Razick]

To the OP BTC-E isn't used by the experienced traders.  It lacks sufficiently good methods to move large amounts of fiat (our company has needs to clear $200K+ per week off exchanges and I am sure a company like bitpay needs double that or more).

Also not sure where you got $99 from (maybe looking at EUR price).  BTC-E shows $130 now.  It hit a peak of $149 and has been trading downward since MtGox closed.  I am not saying Bitcoin hasn't come too far too fast (it may have) but your BTC-E angle is just a red herring.  A correction won't kill Bitcoin it has momentum way beyond the current exchange rate.  In time more sophisticated methods will be developed that allow merchants to hedge themselves (partially or fully) in real time while remaining completely in the crypto world.

Still a higher exchange rate is important.  It means the value of the money supply is worth more, it means the market is deeper, it means larger players can enter without splashing all the water out of the pool.  For any significant commerce to happen (i.e. > $1B in goods & services exchanged for BTC daily) the price would need to be much higher (say >$1000 per BTC).  Slower is probably better but nobody can control the market and between any two points it is essentially a random walk.

You may be right about me reading euros but I think it has just climbed since this morning.

By the way, I never suggested this would kill the currency; my hopes for Bitcoin are high.

[the founder]

Apparently the value of bitcoin has NOTHING to do with goods/services.

That is if you subscribe to many of the wackos on this forum.

If you live in the real world you understand that the value of Bitcoin must be grounded in reality. Thus it is currently overvalued as the trade does not support such a price.

I don't think so..  I think there is large international transactions taking place in bitcoin more than you know...  how else is Iran going to sell their sanctioned oil ?

[DeathAndTaxes]

Based on prior estimates which put the upper limit of the exchange rate as $1 million equivalent if it saw universal adoption, and a simple ratio of world monthly economic output.

Like I said a velocity of 8.5 is unheard of in any economy anywhere on the planet ... ever.  So either you forgot to carry a one or your something is wrong with your analysis.

For example the US money supply (M2) is roughly $10T and US annual GDP is ~$15T.  That is a velocity of 1.5.   If the Bitcoin economy had a similar velocity of money to support current price (~$135 * 11M BTC * 1.5 = $2.3B) $2.3B in commerce annually.  Of course Bitcoin also has a store of value component so it is likely that Bitcoin velocity would be lower.  At $1B per month I would expect (based on economic theory) for BTC:USD exchange rate to be north of $1,000.

GDP is a measure of commerce over time.  Money Supply is a timeless value.  Velocity is the conversion factor.  A Velocity of 1 means an economy with x monetary units engaged in x transactions annually (i.e. each unit was used once).   

[keystroke]

Based on prior estimates which put the upper limit of the exchange rate as $1 million equivalent if it saw universal adoption, and a simple ratio of world monthly economic output.

Like I said a velocity of 8.5 is unheard of in any economy anywhere on the planet ... ever.  So either you forgot to carry a one or your something is wrong with your analysis.

For example the US money supply (M2) is roughly $10T and US annual GDP is ~$15T.  That is a velocity of 1.5.   If the Bitcoin economy had a similar velocity of money to support current price (~$135 * 11M BTC * 1.5 = $2.3B) $2.3B in commerce annually.  Of course Bitcoin also has a store of value component so it is likely that Bitcoin velocity would be lower.  At $1B per month I would expect (based on economic theory) for BTC:USD exchange rate to be north of $1,000.

GDP is a measure of commerce over time.  Money Supply is a timeless value.  Velocity is the conversion factor.  A Velocity of 1 means an economy with x monetary units engaged in x transactions annually (i.e. each unit was used once).   

Funny I was just looking at the St. Louis Fed's data for money velocity last night... Awesome analysis. What services do you see growing the Bitcoin economy in the near term? Any thoughts on the valuation 1, 2, 5 years from now?

[MatTheCat]

LOL!

I don't think so..  I think there is large international transactions taking place in bitcoin more than you know...  how else is Iran going to sell their sanctioned oil ?

He said:

Apparently the value of bitcoin has NOTHING to do with goods/services.
That is if you subscribe to many of the wackos on this forum.
If you live in the real world you understand that the value of Bitcoin must be grounded in reality. Thus it is currently overvalued as the trade does not support such a price.

If Iran were to to be doing oil deals in Bitcoin, that would be the equivalent of them designing thier economic defence mechanism with a great big shiny 'weak spot' that glows red. Iran is not an end of level baddie on a computer game!

Now back to the real world with you

P.S. The wackos will have their delusions spelled out to them soon enough. And you know what, the sort of volatility that has come to be taken as 'normal' will mean that most of them won't even suspect a thing when the day of reckoning comes. Bitcoin went from $147 to $108 today. That is like a 40% drop! In any other market that would be running out of skyscraper windows time. I personally am looking forward to hearing from deathcode when the day inevitably comes. I am sure he will have some phantastical conspiracy theory as to why things never went quite the way, he, in his mighty all knowing wisdom, predicted that they would. He will then call anyone who doubts his sophisticated all-knowing prognosis, an 'idiot', who doesn't understand what Bitcoin is all about.

[MonkeyBear68]

What most seem to miss is that the BTC/dollar ratio is irrelevant in terms of Bitcoins ability to act as a means of transferring value across the internet.

If I wish to buy something for $100 then I can go to an exchange and if Bitcoin is at $100/BTC then I buy a single BTC and send it. If Bitcoin was at $1/BTC then I would go to an exchange and buy 100 BTC and send them. No matter what if I immediately use the BTC to buy the product, then the BTC/dollar ratio is irrelevant.

Speculator's and investor's are necessary in order to have a supply of BTC available on the exchanges. If more businesses accept BTC then obviously more Bitcoins are taken out of circulation (at least temporarily) by being held in the daily transactions of those businesses. Thus the value of a BTC will need to go up as more businesses utilize it. Since the Bitcoin supply is limited to 21 million the value could indeed rise quickly with both speculators and users buying it.

The biggest problem I see is the fact that Mt Gox has been going down so much. They need to be running 24/7 so that BTC and Dollars can trade freely. A crucial part of Bitcoins acceptance in the general public will be the easy conversion to Dollars. Mt Gox fills a crucial roll providing this. Think of how you feel when Debit/Credit is down and you are at the till. Since goods in society are priced in dollars the exchanges need to be up and available to provide the link!!

[Lethn]

There are two possible outcomes that I'm going with in regards to this price rise that I think will be the main explanations for what's happening with Bitcoin at the moment:

. Because Bitcoins are a deflationary currency, like gold being deflationary, they are merely pricing themselves based on the amount of inflation paper money is going through right now, which as we all know is ridiculous amounts, I think that particularly because Bitcoins are unregulated prices are going to go through the roof for them because of how much of our conventional currencies are being printed every day so the central banks can't manipulate the prices as much as they do with gold and silver. I don't think Bitcoins or Bitcoin hoarders are the problem and this is just a reflection of what a shit storm we're in currently and we need to stop trying to price things in paper money

. Assuming that paper money isn't being inflated ( personally I'm loling at the possibility but what the hell ) eventually the Bitcoin 'hoarders' will have to sell and as they keep selling the currency will break apart as more and more people adopt it and prices will go back to more 'acceptable' levels but again I find this very unlikely because how much paper money is being printed

I really do think these massive price rises and volatility is a symptom of money printing, the amount of overall Bitcoins as far as we all know has stayed exactly the same so I think we need to start thinking of Bitcoin more as a currency and less as a commodity to be priced in paper, that I think is where the true problem is with selling Bitcoins for the paper currencies, I think eventually the central banks aren't going to be able to stop other products and commodities going up in price and they will follow Bitcoins' pricing of paper money, the question is when of course, but I don't think anyone will be able to answer that.

[justusranvier]

Like I said a velocity of 8.5 is unheard of in any economy anywhere on the planet ... ever.  So either you forgot to carry a one or your something is wrong with your analysis.

I'm aiming for +/- one order of magnitude so if the actual number is $100 million monthly instead of $1 billion monthly that's close enough. It would imply a theoretical maximum exchange rate of 1 BTC = $10 million.

[Razick]

There are two possible outcomes that I'm going with in regards to this price rise that I think will be the main explanations for what's happening with Bitcoin at the moment:

. Because Bitcoins are a deflationary currency, like gold being deflationary, they are merely pricing themselves based on the amount of inflation paper money is going through right now, which as we all know is ridiculous amounts, I think that particularly because Bitcoins are unregulated prices are going to go through the roof for them because of how much of our conventional currencies are being printed every day so the central banks can't manipulate the prices as much as they do with gold and silver. I don't think Bitcoins or Bitcoin hoarders are the problem and this is just a reflection of what a shit storm we're in currently and we need to stop trying to price things in paper money

. Assuming that paper money isn't being inflated ( personally I'm loling at the possibility but what the hell ) eventually the Bitcoin 'hoarders' will have to sell and as they keep selling the currency will break apart as more and more people adopt it and prices will go back to more 'acceptable' levels but again I find this very unlikely because how much paper money is being printed

I really do think these massive price rises and volatility is a symptom of money printing, the amount of overall Bitcoins as far as we all know has stayed exactly the same so I think we need to start thinking of Bitcoin more as a currency and less as a commodity to be priced in paper, that I think is where the true problem is with selling Bitcoins for the paper currencies, I think eventually the central banks aren't going to be able to stop other products and commodities going up in price and they will follow Bitcoins' pricing of paper money, the question is when of course, but I don't think anyone will be able to answer that.

Inflation is high, but don't you think it's closer to upper single digits rather than 4 figure?

[mobodick]

Apparently the value of bitcoin has NOTHING to do with goods/services.

That is if you subscribe to many of the wackos on this forum.

If you live in the real world you understand that the value of Bitcoin must be grounded in reality. Thus it is currently overvalued as the trade does not support such a price.

I don't think so..  I think there is large international transactions taking place in bitcoin more than you know...  how else is Iran going to sell their sanctioned oil ?

AAAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

LOL, seriously, have you seen the market cap of bitcoin? There are not enough transactions of value to justify the coverage of even a small part of the oil market.

Iran produces a whole bitcoin economy per day.
They would have to move all the bitcoins in existance per day to move those barrels. (hint: they can only do that once).

So dream on lol.

[Razick]

Apparently the value of bitcoin has NOTHING to do with goods/services.

That is if you subscribe to many of the wackos on this forum.

If you live in the real world you understand that the value of Bitcoin must be grounded in reality. Thus it is currently overvalued as the trade does not support such a price.

I don't think so..  I think there is large international transactions taking place in bitcoin more than you know...  how else is Iran going to sell their sanctioned oil ?

AAAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

LOL, seriously, have you seen the market cap of bitcoin? There are not enough transactions of value to justify the coverage of even a small part of the oil market.

Iran produces a whole bitcoin economy per day.
They would have to move all the bitcoins in existence per day to move those barrels. (hint: they can only do that once).

So dream on lol.

+1, not to mention that Iran basically hates freedom. I know that sounds bigoted, but it's pretty much true.

[nobbynobbynoob]

Inflation is high, but don't you think it's closer to upper single digits rather than 4 figure?

It's probably somewhere between 5 and 15% pa in the US and UK... but wait! Hasn't the Fed tripled the monetary base since 2008? So that doesn't quite compute.

I won't be surprised if real inflation is 50+% pa in countries like Argentina, however.

[justusranvier]

It's probably somewhere between 5 and 15% pa in the US and UK... but wait! Hasn't the Fed tripled the monetary base since 2008? So that doesn't quite compute.

Much of that money hasn't actually been spent yet. It's being used to cover up the holes in bank balance sheets. The inflation won't hit until it's no longer possible to hide the loss of cash flow created by the bad loans that are being ignored.

[WinVery.com]

The gauge of the value's supply is exponentially increasing.