Adjusting your way of spending money

[Elwar]

I know that so many of the uninformed like to claim that nobody will spend bitcoins because "why spend when the value will go up".

However ignorant that is, I am noticing that I need to adjust my spending when using bitcoins as opposed to dollars.

I have been paid up on my mortgage for a couple of months now, same with my credit cards. I paid them early out of habit of "I have the money, I need to pay it anyway, so I might as well pay it now".

But I pay for my web hosting service with bitcoins. I got my invoice for this month which is due next week and my first instinct was to go ahead and pay it and get it out of my way. Then I realized, a week from now my bitcoins could be worth a lot more.

So the best strategy there is to pay it at the last possible moment.

And then there are things like travel or things you may book months in advance to get a better price. Why would I pay for a vacation this summer hoping to get a 10% discount when, if I wait until this summer, my money could be worth a lot more than the 10% savings.

It may be something we need to get used to and change our habits both as consumers and providers.

Now I am sure that there will be ignorant people shouting "see! that's why Bitcoin won't work, nobody will spend their money!".

That is not what I am saying at all. The alternative for these cases would be me holding cash and not gaining any wealth over time. I am talking about maximizing my spending power by holding off on spending while building wealth. But still spending nonetheless.

[BTCisthefuture]

I know that so many of the uninformed like to claim that nobody will spend bitcoins because "why spend when the value will go up".

However ignorant that is, I am noticing that I need to adjust my spending when using bitcoins as opposed to dollars.

How is that uninformed or ignorant. I think it's very true that a large population of BTC owners aren't spending BTC, they are hoarding/investing in BTC. 

In the future I hope BTC is a good currency, as it stands right now it's more a commodity that people hoard & and invest in than it is a currency.

With the recent HUGE spike in value over the last couple of months I've ran into very few people who are spending their BTC, it's the opposite from what ive seen, people are buying and hoarding.


Sorry I just didn't understand why you think its uninformed or ignorant to think that most people arent spending their BTC. Care to explain ?

[Elwar]

With the recent HUGE spike in value over the last couple of months I've ran into very few people who are spending their BTC,

What are they spending then?

[Stephen Gornick]

So the best strategy there is to pay it at the last possible moment.

It all depends if you expect the exchange rate to go up or down.   During about the middle of this runup so far, I made a larger purchase from a Bitcoin merchant sooner than I had been planning on purposely to lock in the exchange rate such that if the rate dropped I got at least what I thought was a fantastic exchange rate.   Ends up I had done that way too soon, but I'm not complaining.

But also what is available to use are derivatives such as PUT options at MPEX and BTC/USD futures contracts at ICBIT.

Now this adds a little more effort to a purchase decision but there's a good reason to consider it.  Specifically, right now if I can wait until April 14th to spend my coins, I might get a small discount on a purchase then by instead today selling BUJ3 futures contracts on ICBIT at $150.    

So let's say I am planning on spending 1 BTC, worth right now about $137.    

There are buyers paying $150 for BUJ3 contracts.   Each BUJ3 represents $10 worth of BTC/USD.    

So by depositing 1 BTC into my ICBIT.se account, I would then sell about 15 of the BUJ3 contracts at $150 (quantity 15 was chosen since that is the closest quantity to the current sell price, for $10 contracts).   Then it doesn't matter if the exchange rate goes up or down, I will have about $150 worth of bitcoins on April 14th.

Scenarios:
If BTC/USD settlement price on April 14th is $100, then you would end up with 1.410 BTC (after fees), worth about $141.  Gain $4 versus making your purchase today.
If BTC/USD settlement price on April 14th is $170, then you would end up with 0.792 BTC (after fees), worth about $135.60, Loss $1.40 versus purchasing today.

Now this is just for holding off until settlement 10 days from now but in the scenario where the price drops I earned about a 3% discount for letting my bitcoin be tied up for ten days.   Extend this out a few months where, for example, the BUU3 contract settles September 15th, 2013, then you have a higher price that you can sell at (currently $168, so you sell 17 BUU3s) and you get significant gains by committing your 1.0 BTC now:


Scenarios:
If BTC/USD settlement price on Sept. 15th is $100, then you would end up with 1.671 BTC (after fees), worth about $167.  Gain $30 versus making your purchase today.  (or about a 22% discount for tying up your money for a period of less than 6 months).
If BTC/USD settlement price on Sept. 15th is $200, then you would end up with 0.867 BTC (after fees), worth about $173, Gain $36 versus purchasing today. (or about a 26% discount for tying up your money for a period of less than 6 months).

[Elwar]

So the best strategy there is to pay it at the last possible moment.

It all depends if you expect the exchange rate to go up or down.   During about the middle of this runup so far, I made a larger purchase from a Bitcoin merchant sooner than I had been planning on purposely to lock in the exchange rate such that if the rate dropped I got at least what I thought was a fantastic exchange rate.   Ends up I had done that way too soon, but I'm not complaining.

But also what is available to use are derivatives such as PUT options at MPEX and BTC/USD futures contracts at ICBIT.

Now this adds a little more effort to a purchase decision but there's a good reason to consider it.  Specifically, right now if I can wait until April 14th to spend my coins, I might get a small discount on a purchase then by instead today selling BUJ3 futures contracts on ICBIT at $150.    

So let's say I am planning on spending 1 BTC, worth right now about $137.    

There are buyers paying $150 for BUJ3 contracts.   Each BUJ3 represents $10 worth of BTC/USD.    

So by depositing 1 BTC into my ICBIT.se account, I would then sell about 15 of the BUJ3 contracts at $150 (quantity 15 was chosen since that is the closest quantity to the current sell price, for $10 contracts).   Then it doesn't matter if the exchange rate goes up or down, I will have about $150 worth of bitcoins on April 14th.

Scenarios:
If BTC/USD settlement price on April 14th is $100, then you would end up with 1.410 BTC (after fees), worth about $141.  Gain $4 versus making your purchase today.
If BTC/USD settlement price on April 14th is $170, then you would end up with 0.792 BTC (after fees), worth about $135.60, Loss $1.40 versus purchasing today.

Now this is just for holding off until settlement 10 days from now but in the scenario where the price drops I earned about a 3% discount for letting my bitcoin be tied up for ten days.   Extend this out a few months where, for example, the BUU3 contract settles September 15th, 2013, then you have a higher price that you can sell at (currently $168, so you sell 17 BUU3s) and you get significant gains by committing your 1.0 BTC now:


Scenarios:
If BTC/USD settlement price on Sept. 15th is $100, then you would end up with 1.671 BTC (after fees), worth about $167.  Gain $30 versus making your purchase today.  (or about a 22% discount for tying up your money for a period of less than 6 months).
If BTC/USD settlement price on Sept. 15th is $200, then you would end up with 0.867 BTC (after fees), worth about $173, Gain $36 versus purchasing today. (or about a 26% discount for tying up your money for a period of less than 6 months).

This just further highlights the fact that people will want to pay for things later with bitcoins.

And with a deflationary currency, the value over time will trend upwards.

Now all of this may become less of a factor when everyone is using bitcoins and they only gain value of 2% or so per year. But we are not there yet.

[Stephen Gornick]

This just further highlights the fact that people will want to pay for things later with bitcoins.

And with a deflationary currency, the value over time will trend upwards.

Now all of this may become less of a factor when everyone is using bitcoins and they only gain value of 2% or so per year. But we are not there yet.

I'm perplexed.  Why would I be more or less likely to pay with bitcoins just because you happen to decide not to use bitcoins for spending?

In other words, you hoarding your coins doesn't change the total dollar valuation (TDV) of spending using bitcoins that happens.  

So go ahead and save up your coins if you want.  

How that does benefit Bitcoin is gives an increase in the purchasing power (from the higher exchange rate) to those who will spend them now (like I did, in my example).

[Elwar]

This just further highlights the fact that people will want to pay for things later with bitcoins.

And with a deflationary currency, the value over time will trend upwards.

Now all of this may become less of a factor when everyone is using bitcoins and they only gain value of 2% or so per year. But we are not there yet.

I'm perplexed.  Why would I be more or less likely to pay with bitcoins just because you happen to decide not to use bitcoins for spending?

In other words, you hoarding your coins doesn't change the total dollar valuation (TDV) of spending using bitcoins that happens.  

So go ahead and save up your coins if you want.  

How that does benefit Bitcoin is gives an increase in the purchasing power (from the higher exchange rate) to those who will spend them now (like I did, in my example).

I was not saying that people would not use bitcoins for spending, but they would use it at the last moment. And will be less likely to spend months early in order to save a little.

It is just something to think about. Hotel and travel agencies that like to have things booked months in advance may have to give better incentives if they are paid in bitcoins. We have seen this affect with people pre-ordering mining rigs paying with hundreds of bitcoins last year that are worth a whole lot more now.

[BTCisthefuture]

With the recent HUGE spike in value over the last couple of months I've ran into very few people who are spending their BTC,

What are they spending then?

Dollars (or whatever the currency is in their country).  They are holding onto their BTC though.  Most people I know who know what BTC's are having been purchasing BTC the last couple weeks and holding onto them.  To be fair though it's not like I know a ton of people with BTC, maybe 15 or so.

It's pretty normal though when the price of something starts to skyrocket people are hestitent to spend it, they either want to hold onto it as an investment or sell it to reap the profits they made.

I don't have the links but I've read a few financial articles lately talking about how as of right now BTC is less of a currency and more of a commodity (like gold, silver, stocks, etc etc) and I have to agree with that.  I think the bitcoin 'movement' has quite a bit of growing to do (for example, more retail outlets accepting BTC) for it to become more of a currency and less of a investment or commodity which is what it is right now for the most part.

[farlack]

Bitcoins got super hyper-inflated, how long was it stuck at $13? Then it would not be a big deal to pay ahead of time, you might end up spending $2 more, or $2 less, now its anywhere from $110 a day to $140 a day coins.

Eventually they will stabilize, and it wont be an issue anymore.

[Elwar]

With the recent HUGE spike in value over the last couple of months I've ran into very few people who are spending their BTC,

What are they spending then?

Dollars (or whatever the currency is in their country).  They are holding onto their BTC though.  Most people I know who know what BTC's are having been purchasing BTC the last couple weeks and holding onto them. 

Why would they have dollars in the first place if bitcoins continue to increase in value? Why have a currency that loses value?