Something's Got to Give

[Razick]

First of all, I am a huge Bitcoin fan, and while I don't think it will replace the US Dollar, I do think it could replace PayPal, and maybe even credit cards for some purposes. I think it may even become a common sight at the local convenience stores, and be widely used for international money transfers as well.

However, although some members of the Bitcoin community don't seem to want to hear it, there is something wrong with the current market situation. Not only has Bitcoin gone up 1052% since late January, but also 405% in just the past 30 days. That's 13% daily growth. In fact, Bitcoin has doubled in just one week, from a price of $73.50 on March 25th to a high of $147 a few hours ago.

Not only that, but BTC-E, often the exchange of more veteran traders, is still in the upper $90s, such a discretion not only seems unnatural, but may suggest that many more experienced traders are getting nervous.

There are some statistics to support the massive growth, for example, the user-base of Blockchain.info as well as the number of unique addresses have over doubled since January. Furthermore, little could we forget the halving of the block reward, but do these events warrant the triple digit prices we've been seeing? I don't think so.

First of all, a halving of new Bitcoins created does not warrant even a doubling of the price of all Bitcoins ever mined. Even combined with the increase in users, I think $25 or even $50 along with 3-8% monthly growth is sustainable, but what we've got right now is not.

Not only do I think that the current prices can not be sustained, I also think it's hurting Bitcioin as a currency. I've never given much weight to the theory that deflation causes hording and the death of a currency, however, a situation like we've got now does cause some problems. For one, the bulls are hording, who wants to spend a currency that is increasing in value at 405% monthly? The other side of the issue is that the bears don't want to touch Bitcoin. While my business does accept Bitcoin, I am nervous about accepting a currency at $142 that I believe could crash, at least partially, at any time, leaving me to cover the cost of the customer's purchase! Secondly, while I think long term this will be resolved by denominating prices in mBTC, right now we've got an odd situation where a customer has to pay BTC0.0705 to cover a $10 purchase; they aren't used to doing this. Last of all, I'd like to point out that while we in the Bitcoin community understand the root causes of at least some of the growth, to outsiders, this is a bubble, simple as that. I don't think that helps Bitcoin's image.

Long term, I believe this will sort itself out, and this will likely not be the last time we see these prices. I wouldn't be surprised if in one or two years Bitcoin is stable at over $100. In closing, I want to warn that the higher you are, the harder you fall, and remind traders of the 2011 bubble.

[Razick]

Fixed the notepad-induced formatting error! 

[RodeoX]

Something has given. It is the mainstream resistance to bitcoin.  

[Razick]

Something has given. It is the mainstream resistance to bitcoin.  

That's true, but-- back to the post with you! 

[justusranvier]

First of all, I am a huge Bitcoin fan, and while I don't think it will replace the US Dollar, I do think it could replace PayPal, and maybe even credit cards for some purposes. I think it may even become a common sight at the local convenience stores, and be widely used for international money transfers as well.

However, although some members of the Bitcoin community don't seem to want to hear it, there is something wrong with the current market situation. Not only has Bitcoin gone up 1052% since late January, but also 405% in just the past 30 days. That's 13% daily growth. In fact, Bitcoin has doubled in just one week, from a price of $73.50 on March 25th to a high of $147 a few hours ago.

Not only that, but BTC-E, often the exchange of more veteran traders, is still in the upper $90s, such a discretion not only seems unnatural, but may suggest that many more experienced traders are getting nervous.

There are some statistics to support the massive growth, for example, the user-base of Blockchain.info as well as the number of unique addresses have over doubled since January. Furthermore, little could we forget the halving of the block reward, but do these events warrant the triple digit prices we've been seeing? I don't think so.

First of all, a halving of new Bitcoins created does not warrant even a doubling of the price of all Bitcoins ever mined. Even combined with the increase in users, I think $25 or even $50 along with 3-8% monthly growth is sustainable, but what we've got right now is not.

Not only do I think that the current prices can not be sustained, I also think it's hurting Bitcioin as a currency. I've never given much weight to the theory that deflation causes hording and the death of a currency, however, a situation like we've got now does cause some problems. For one, the bulls are hording, who wants to spend a currency that is increasing in value at 405% monthly? The other side of the issue is that the bears don't want to touch Bitcoin. While my business does accept Bitcoin, I am nervous about accepting a currency at $142 that I believe could crash, at least partially, at any time, leaving me to cover the cost of the customer's purchase! Secondly, while I think long term this will be resolved by denominating prices in mBTC, right now we've got an odd situation where a customer has to pay BTC0.0705 to cover a $10 purchase; they aren't used to doing this. Last of all, I'd like to point out that while we in the Bitcoin community understand the root causes of at least some of the growth, to outsiders, this is a bubble, simple as that. I don't think that helps Bitcoin's image.

Long term, I believe this will sort itself out, and this will likely not be the last time we see these prices. I wouldn't be surprised if in one or two years Bitcoin is stable at over $100. In closing, I want to warn that the higher you are, the harder you fall, and remind traders of the 2011 bubble.

tl;dr: Use a payment processor and let them worry about the exchange rate risk. BitPay is signing up new merchants every day and, even though the use of Bitcoin for commerce is lagging far behind the speculative growth in the exchange rate, the actual economic economic activity which will support Bitcoin's purchasing power in the long term is growing.

[Razick]

First of all, I am a huge Bitcoin fan, and while I don't think it will replace the US Dollar, I do think it could replace PayPal, and maybe even credit cards for some purposes. I think it may even become a common sight at the local convenience stores, and be widely used for international money transfers as well.

However, although some members of the Bitcoin community don't seem to want to hear it, there is something wrong with the current market situation. Not only has Bitcoin gone up 1052% since late January, but also 405% in just the past 30 days. That's 13% daily growth. In fact, Bitcoin has doubled in just one week, from a price of $73.50 on March 25th to a high of $147 a few hours ago.

Not only that, but BTC-E, often the exchange of more veteran traders, is still in the upper $90s, such a discretion not only seems unnatural, but may suggest that many more experienced traders are getting nervous.

There are some statistics to support the massive growth, for example, the user-base of Blockchain.info as well as the number of unique addresses have over doubled since January. Furthermore, little could we forget the halving of the block reward, but do these events warrant the triple digit prices we've been seeing? I don't think so.

First of all, a halving of new Bitcoins created does not warrant even a doubling of the price of all Bitcoins ever mined. Even combined with the increase in users, I think $25 or even $50 along with 3-8% monthly growth is sustainable, but what we've got right now is not.

Not only do I think that the current prices can not be sustained, I also think it's hurting Bitcioin as a currency. I've never given much weight to the theory that deflation causes hording and the death of a currency, however, a situation like we've got now does cause some problems. For one, the bulls are hording, who wants to spend a currency that is increasing in value at 405% monthly? The other side of the issue is that the bears don't want to touch Bitcoin. While my business does accept Bitcoin, I am nervous about accepting a currency at $142 that I believe could crash, at least partially, at any time, leaving me to cover the cost of the customer's purchase! Secondly, while I think long term this will be resolved by denominating prices in mBTC, right now we've got an odd situation where a customer has to pay BTC0.0705 to cover a $10 purchase; they aren't used to doing this. Last of all, I'd like to point out that while we in the Bitcoin community understand the root causes of at least some of the growth, to outsiders, this is a bubble, simple as that. I don't think that helps Bitcoin's image.

Long term, I believe this will sort itself out, and this will likely not be the last time we see these prices. I wouldn't be surprised if in one or two years Bitcoin is stable at over $100. In closing, I want to warn that the higher you are, the harder you fall, and remind traders of the 2011 bubble.

tl;dr: Use a payment processor and let them worry about the exchange rate risk. BitPay is signing up new merchants every day and, even though the use of Bitcoin for commerce is lagging far behind the speculative growth in the exchange rate, the actual economic economic activity which will support Bitcoin's purchasing power in the long term is growing.

+1, we do use BitPay, but prefer to skip the banking side of things so we just exchange via Mt Gox.

Long term, I agree, but right now, it's overpriced to the point of obscenity.

[Snowfire]

Something has given. It is the mainstream resistance to bitcoin.  

Not. This will, if anything, stiffen mainstream resistance to acceptance as a currency. The current rush is all speculators piling into the game, not anyone who seriously contemplates using BTC as money. Mainstream acceptance will come with stability.

[the founder]

IT'S NOT MONEY!

Bitcoin is not "money" as currently defined.   It's not a currency..   it's a store of wealth.    The offline world equals would be Gold and Silver.  

Think of it this way..  you have 1500 dollars,  you put it in a gold coin...  its value appreciates over time... a few years from now you go there and cash it out for 2000 (just an example).

That gold coin stored your wealth for that period of time and increased it's value...    that's an old school version of bitcoin.

Now countries trade in gold, central banks trade in gold,  but you don't walk into walmart and hand over a gold coin for your massive christmas shopping.

You know why you don't hand over that Gold coin for shopping at Walmart, because you can buy more at walmart next month with it.   Hence why Bitcoin is not currency as normally defined.. it's a store of wealth.

You want to go shopping at walmart,  you cash .003 of your bitcoin and get your money and use that...   just as if you sold 1/10th of your gold coin to go shopping there..

[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.

[wopwop]

correction:

someone's got to give

as in the last one holding bitcoins

[mindtomatter]

First of all, I am a huge Bitcoin fan, and while I don't think it will replace the US Dollar, I do think it could replace PayPal, and maybe even credit cards for some purposes. I think it may even become a common sight at the local convenience stores, and be widely used for international money transfers as well.

However, although some members of the Bitcoin community don't seem to want to hear it, there is something wrong with the current market situation. Not only has Bitcoin gone up 1052% since late January, but also 405% in just the past 30 days. That's 13% daily growth. In fact, Bitcoin has doubled in just one week, from a price of $73.50 on March 25th to a high of $147 a few hours ago.

Not only that, but BTC-E, often the exchange of more veteran traders, is still in the upper $90s, such a discretion not only seems unnatural, but may suggest that many more experienced traders are getting nervous.

There are some statistics to support the massive growth, for example, the user-base of Blockchain.info as well as the number of unique addresses have over doubled since January. Furthermore, little could we forget the halving of the block reward, but do these events warrant the triple digit prices we've been seeing? I don't think so.

First of all, a halving of new Bitcoins created does not warrant even a doubling of the price of all Bitcoins ever mined. Even combined with the increase in users, I think $25 or even $50 along with 3-8% monthly growth is sustainable, but what we've got right now is not.

Not only do I think that the current prices can not be sustained, I also think it's hurting Bitcioin as a currency. I've never given much weight to the theory that deflation causes hording and the death of a currency, however, a situation like we've got now does cause some problems. For one, the bulls are hording, who wants to spend a currency that is increasing in value at 405% monthly? The other side of the issue is that the bears don't want to touch Bitcoin. While my business does accept Bitcoin, I am nervous about accepting a currency at $142 that I believe could crash, at least partially, at any time, leaving me to cover the cost of the customer's purchase! Secondly, while I think long term this will be resolved by denominating prices in mBTC, right now we've got an odd situation where a customer has to pay BTC0.0705 to cover a $10 purchase; they aren't used to doing this. Last of all, I'd like to point out that while we in the Bitcoin community understand the root causes of at least some of the growth, to outsiders, this is a bubble, simple as that. I don't think that helps Bitcoin's image.

Long term, I believe this will sort itself out, and this will likely not be the last time we see these prices. I wouldn't be surprised if in one or two years Bitcoin is stable at over $100. In closing, I want to warn that the higher you are, the harder you fall, and remind traders of the 2011 bubble.

I think all of your concerns are valid in a normal market, but we have such constricted supply relative to an exploding demand.  The process is self feeding, I wrote about this last night http://mindtomatterblog.tumblr.com/post/47008643037/the-perpetual-skeptic-going-bullish-on-the-no-crash

Also as the price increases, people are less and less likely to spend or sell their bitcoins instead opting to hold and see where the price stabilizes.   I also have liked to spend my bitcoins over time, but this latest price spike has suddenly made everything I've ever purchased with bitcoin a horribly bad value for my BTC spent.     

Take BFL for example, if you pre-orderd a jalepeno back in August, that same amount of bitcoins could now buy you two-three of their 60GHz units.  What did you gain by pre-ordering?  Well... A place in line?  But then, electronics are hard to make the first of, much easier to make the 100,000th of - So how valuable even is that place in line?

The point is, I'm a MAJOR proponant of spending your bitcoins - but at the rate of increases here it seems stupid to even think about doing that now lest you find yourself paying several hundred dollars for a year of netflix.

[the founder]

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.

[DeathAndTaxes]

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.

[oleganza]

tl;dr: Use a payment processor and let them worry about the exchange rate risk. BitPay is signing up new merchants every day and, even though the use of Bitcoin for commerce is lagging far behind the speculative growth in the exchange rate, the actual economic economic activity which will support Bitcoin's purchasing power in the long term is growing.

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

http://www.marketwatch.com/story/bitpay-eclipses-silk-road-in-bitcoin-sales-with-explosive-52m-march-2013-04-02

[justusranvier]

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

That's good, but they still have a lot of catching up to do.

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

[nobbynobbynoob]

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

This may be true, but all currencies and commodities, including PMs, have a significant "speculative premium". Yet their value doesn't just crash (very often).

[justusranvier]

This may be true, but all currencies and commodities, including PMs, have a significant "speculative premium". Yet their value doesn't just crash (very often).

The calculation I did takes that into account. If the ratio of economic activity/purchasing power for Bitcoin was the same as the USD, it would require $1 billion of commerce every month to justify $140.

[JimiQ84]

This may be true, but all currencies and commodities, including PMs, have a significant "speculative premium". Yet their value doesn't just crash (very often).

The calculation I did takes that into account. If the ratio of economic activity/purchasing power for Bitcoin was the same as the USD, it would require $1 billion of commerce every month to justify $140.

But Bitcoin is more similar to gold than USD, isn't it? What is economic activity of gold?

[justusranvier]

But Bitcoin is more similar to gold than USD, isn't it? What is economic activity of gold?

Gold is a central banker's toy. What would the market price be if they weren't storing large quantities of it?

[nobbynobbynoob]

But Bitcoin is more similar to gold than USD, isn't it? What is economic activity of gold?

Very significant, I imagine, given how it is stealthily replacing the USD as a means of exchange, especially between Asian giants. (The US cannot very well go and bomb Russia or China into submission!) In India, gold is very widely used as jewellery and money.