Too much speculation

[FreeMoney]

Macho, what do you think speculation is? If I sell my coins because I think I'll be able to buy them back later for less, is that speculation? What if I buy them now because I don't want to pay higher prices that I expect later?

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[MoonShadow]

My general point is that most of the recent activity has been due to an increase in speculation rather than huge inroads into business.

Do you have any evidence to support this position, or is this a personal opinion?  Is is silly to assume that all business transacted in Bitcoin is going to be advertised on the Trade page.  Nor would it take much of an increase in business to bump up the value of the few bitcoins currently in circulation.  A couple of Bitcoin savvy campus pot dealers could explain the marked rise in price, all they would have to do is tell their existing clients, "I'm switching to Bitcoin exclusively, to protect myself, so you'll have to do the same if you wish to continue to do business" and the demand from a couple dozen potheads per savvy dealer and the price shoots for parity.

[MoonShadow]

This is what I'm talking about ... the bitcoin community is infested with mindless cheerleaders for profit thinking it s ok to completely divorce economy from human values and physical production. This is the EXACT same nonsense we were bombarded with when deregulation of US economy was pushed bringing rise to such "useful financial instruments" like derivatives, "encouraging 'investment'", "stimulating economy" ... we've heard it all ... in the meantime industry was destroyed, physical production plummeted, millions of people found themselves on the street all the way speculators made wonderful profits, charts were happily jiggling on the way up ... that's how "important role" they play.

Nothing that you have written thus far is rooted in economic reality, or even in economic history.  The causes of the crash are various, but certainly not what you have been led to believe.  I recommend that you either read up on the topic, starting with "Whatever Happened to Penny Candy?" and "Economics in One Lesson".  However, if you are inclined to continue fretting about economic fallacies instead, perhaps you shouldn't expose yourself to our corruptive natures and simply abandon this whole Bitcoin idea.

[BrightAnarchist]

My general point is that most of the recent activity has been due to an increase in speculation rather than huge inroads into business.

Do you have any evidence to support this position, or is this a personal opinion?  Is is silly to assume that all business transacted in Bitcoin is going to be advertised on the Trade page.  Nor would it take much of an increase in business to bump up the value of the few bitcoins currently in circulation.  A couple of Bitcoin savvy campus pot dealers could explain the marked rise in price, all they would have to do is tell their existing clients, "I'm switching to Bitcoin exclusively, to protect myself, so you'll have to do the same if you wish to continue to do business" and the demand from a couple dozen potheads per savvy dealer and the price shoots for parity.

I think this week's 50% crash should answer your question. Bitcoin is extremely volatile, and like any financial asset, has the potential to experience bubbles. I think we've just burst our first mini-bubble (50 cents down to 23 cents is a huge move for anyone wanting to use Bitcoin as a paypal substitute!)

This doesn't mean Bitcoin won't continue to go up in the long run -- I strongly believe the long-term trend is up for fundamental reasons -- but I certainly could feel the "froth" of excitement on the forums lately. Psychology is at work here as much as fundamentals.

I have nothing against speculation, and I certainly believe attempts to curtail it do more harm than good. I'm just warning, from personal experience, that business is way, way better and more long-term profitable than speculation, and that I greatly would prefer stability to volatility in my choice of cryptocurrency.

Is an increase in stability possible while keeping everything voluntary? Yes. The only way is if we continue to focus on using it as a currency. Speculators will be speculators, but the rest of us need to keep our heads and continue to push Bitcoin businesses. Monetization (usage as currency, rather than investment) always increases stability -- just like gold used to be more stable when it was used as currency rather than as a commodity investment like it is today.

[kiba]

you do this kind of thing, you're a leech on human society feeding of off others and I despise you!

Please explain how risking my neck to provide liquidity(in the form of currency speculation) means that I am feeding off society.

[MoonShadow]

My general point is that most of the recent activity has been due to an increase in speculation rather than huge inroads into business.

Do you have any evidence to support this position, or is this a personal opinion?  Is is silly to assume that all business transacted in Bitcoin is going to be advertised on the Trade page.  Nor would it take much of an increase in business to bump up the value of the few bitcoins currently in circulation.  A couple of Bitcoin savvy campus pot dealers could explain the marked rise in price, all they would have to do is tell their existing clients, "I'm switching to Bitcoin exclusively, to protect myself, so you'll have to do the same if you wish to continue to do business" and the demand from a couple dozen potheads per savvy dealer and the price shoots for parity.

I think this week's 50% crash should answer your question. Bitcoin is extremely volatile, and like any financial asset, has the potential to experience bubbles. I think we've just burst our first mini-bubble (50 cents down to 23 cents is a huge move for anyone wanting to use Bitcoin as a paypal substitute!)

This doesn't mean Bitcoin won't continue to go up in the long run -- I strongly believe the long-term trend is up for fundamental reasons -- but I certainly could feel the "froth" of excitement on the forums lately. Psychology is at work here as much as fundamentals.

I have nothing against speculation, and I certainly believe attempts to curtail it do more harm than good. I'm just warning, from personal experience, that business is way, way better and more long-term profitable than speculation, and that I greatly would prefer stability to volatility in my choice of cryptocurrency.

Is an increase in stability possible while keeping everything voluntary? Yes. The only way is if we continue to focus on using it as a currency. Speculators will be speculators, but the rest of us need to keep our heads and continue to push Bitcoin businesses. Monetization (usage as currency, rather than investment) always increases stability -- just like gold used to be more stable when it was used as currency rather than as a commodity investment like it is today.

I notice that you ignored the question posed, so I'll assume that it was an opinion.

[BrightAnarchist]

I notice that you ignored the question posed, so I'll assume that it was an opinion.

Definitely an opinion, I don't dispute you on that . My general point is that a quick 6X rise followed by a 50% crash is definitely a market overheated by speculation. The technical analysis guy posted nearly 100% bulls on bitcoin near the recent top.

That said, I absolutely agree with you that some of that rise is probably very real and based on fundamentals and business adoption, so to an extent I didn't really phrase my opinion fully -- it's a mixture, so we're not exactly in disagreement here (I'm not claiming 100% speculation is where the volume is coming from), but rather that obviously there's a LOT of it going on, and that Bitcoin it nowhere near stable. As to what the ratio of fundamental vs speculative juices are, nobody knows.

[Macho]

Rising rice prices help feed and clothe rice farmers.

If the prices rose too far, the same speculators would lower them to reasonable levels at which people could afford to buy and eat rice.

I can't believe people are brainwashed enough to actually say this ... the speculators are buying rice for *the sole purpose* of selling it at higher price so net effect is that the rice is more expansive than it would be if the market was untampered with (not manipulated) with a cut going to the speculator. The speculator *does nothing else* than take the cut. There is no value added, he just steals the money counting on the fact that regular people do not have the time or desire to watch for such a thing (because they are honest and actually producing real goods rather than feeding off of someone else's work). Then he can up the game and convince some gullible people to become "investors" and actually buy the stuff he is hoping to sell at higher price (calling it fancy names like "investment fund") ... the suckers invest their money of course again for the sole purpose of making more money, this is how it snowballs. Suckers buying it makes the graph go up helping to convince other suckers that now is the good time to "invest". The increased demand in turn makes the prices rise even more, he repeats this until he can find enough suckers to buy the crud he is selling. Then he goes out of the market being an insider and knowing that he is going to sell it which is going to crash the price. By this time however the crud he created changed so many hands that nobody really knows where it came from so he is safe. Then he sells and makes huge profit because of the bubble he created (or with his insider friends), the suckers loose big time ... oh, investment got wrong, nobody knows why, the invisible hand of market decided ... oh sure, save that crap for another suckers not me. Net effect = few people made huge profits doing nothing else than moving some numbers around, a much larger pool of suckers who "invested" got robbed and in the meantime million people died of hunger in poor countries because of the artificially inflated price of food while the bubble was forming. Yeah and i the meantime few rice farmers made some more money because few of the breadcrumbs from this scam has fallen their way ... but they probably "invested" it in another bubble which is going to implode next year. Final result, everybody looses except speculator who didn't do anything useful in the first place!

Scum of the Earth! If I wouldn't be that of a big believer in freedom and personal responsibility I would lock these people up the the worst prison until they rot! Instead I'm trying to educate people about this so the market speaks and people just REFUSE to participate in this and realize what a scam it is ... but I'm being lambasted by religious number and graph worshipers who just don't give a damn about the effects on the actual real world it has. Oh but our graphs are going up, that can't be wrong ... give me a break.

[kiba]

Rising rice prices help feed and clothe rice farmers.

If the prices rose too far, the same speculators would lower them to reasonable levels at which people could afford to buy and eat rice.

I can't believe people are brainwashed enough to actually say this ... the speculators are buying rice for *the sole purpose* of selling it at higher price so net effect is that the rice is more expansive than it would be if the market was untampered with (not manipulated) with a cut going to the speculator. The speculator *does nothing else* than take the cut. There is no value added, he just steals the money counting on the fact that regular people do not have the time or desire to watch for such a thing (because they are honest and actually producing real goods rather than feeding off of someone else's work). Then he can up the game and convince some gullible people to become "investors" and actually buy the stuff he is hoping to sell at higher price ... the increased demand in turn makes the prices rise even more, he repeats this until he can find enough suckers to buy the crud he is selling. Then he goes out of the market being an insider and knowing that he is going to sell it which is going to crash the price. By this time however the crud he created changed so many hands that nobody really knows where it came from so he is safe. Then he sells and makes huge profit because of the bubble he created (or with his insider friends), the suckers loose big time ... oh, investment got wrong, nobody knows why, the invisible hand of market decided ... oh sure, save that crap for another suckers not me. Net effect = few people made huge profits doing nothing else than moving some numbers around, a much larger pool of suckers who "invested" got robbed and in the meantime million people died of hunger in poor countries because of the artificially inflated price of food while the bubble was forming. Yeah and i the meantime few rice farmers made some more money because few of the breadcrumbs from this scam has fallen their way ... but they probably "invested" it in another bubble which is going to implode next year. Final result, everybody looses except speculator who didn't do anything useful in the first place!

Scum of the Earth! If I wouldn't be that of a big believer in freedom and personal responsibility I would lock these people up the the worst prison until they rot! Instead I'm trying to educate people about this so the market speaks and people just REFUSE to participate in this and realize what a scam it is ... but I'm being lambasted by religious number and graph worshipers who just don't give a damn about the effects on the actual real world it has. Oh but our graphs are going up, that can't be wrong ... give me a break.

Guess what? You probably called 99% of the bitcoin community scumbags. I guess the bitcoin community is a place of villainy and evilness. Why would you dare to walk amongst some of the most evil people on earth?

[BrightAnarchist]

LOL, honestly I just re-read my post here and now I'm thinking it's really irrelevant, it's like someone complaining about the way the Earth rotates around the Sun.

Financial markets will always behave the way they do, that is, insanely. Hopefully longer-term Bitcoin will increase its stability, so people can still speculate to their hearts content, but they'll do so with more leverage for smaller moves (like FOREX) so that it doesn't affect business.

So, IMO, the problem will solve itself in the long run. Case closed for me on this issue.

[MoonShadow]

This is what I'm talking about ... the bitcoin community is infested with mindless cheerleaders for profit thinking it s ok to completely divorce economy from human values and physical production. This is the EXACT same nonsense we were bombarded with when deregulation of US economy was pushed bringing rise to such "useful financial instruments" like derivatives, "encouraging 'investment'", "stimulating economy" ... we've heard it all ... in the meantime industry was destroyed, physical production plummeted, millions of people found themselves on the street all the way speculators made wonderful profits, charts were happily jiggling on the way up ... that's how "important role" they play.

"There is enormous inertia—a tyranny of the status quo—in private and especially governmental arrangements. Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable."

-Milton Friedman

http://en.wikiquote.org/wiki/Milton_Friedman

[nelisky]

So, Macho, do your statements actually apply here? You talk about rice, which is bought with money to then sell for more money. Controlling the distribution channels by all means possible (probably by owning the production, or at least holding exclusive rights to it) seems like the only way to achieve that.

Now, bitcoins... you can't control production, anyone can produce. You can't hold exclusive rights to distribution, it's p2p. And, frankly, it's not some basic necessity that you can control people with/for. I have bitcoins because I like many of their aspects, and because I'm a geek. I know that there's much more to bitcoins than that, and the speculation is actually making these bitcoins attractive to at least one niche... the speculators, giving me a good leverage on my holdings.

Of course they can make the coins loose all value, or just make them way to expensive for the average joe but... wait a minute, I can put my computer to work and generate these, or I can trade with the people that, like yourself, do not get fooled by speculators and all round "scumbags" that make a profit out of trading bitcoins, pretty much making these more valuable for everyone else, by the way...

Yes, scammers and copycats will come and hurt everyone. Yes, not so honest hyip schemes will appear and steal people out of their coins. That's just a sign that bitcoins are now interesting enough for that to happen and that's positive I guess. And, frankly, where else do you get someone to ask people to invest in their ponzi scheme by calling the thread "just another stupid pyramid scheme"? Honesty to the extreme!

So, in the spirit of disclosure, I developed the lottery site, out of the need to have some excuse to try the bitcoin client in a service environment. I'm not a die hard gambler, I'm more the type that loves to gamble because I'm always thinking about a way to beat the house, and I know I consistently fail. Heck, even when I'm the house I end up loosing money

I think you are crying wolf too soon in the game. This is a small community that actually plays very well with each other. Yes, everyone has their own opinion about pretty much everything and we all have a lot to learn from each other. Your questions are not without a reason, I'm sure, but it sounds like you are being judgmental and, frankly, that usually just backfires.

[Macho]

Guess what? You probably called 99% of the bitcoin community scumbags. I guess the bitcoin community is a place of villainy and evilness. Why would you dare to walk amongst some of the most evil people on earth?

If somebody does this, he *is* a scumbag whether he realizes it or not. And not because I'm calling him that ... a robber is not a scumbag because I call him one, he is a scumbag because he robs people. If you want to remedy the situation you need to go to the root cause ... simply, do not do it! And inform everybody else why it is a bad thing to do. The big guns on Wall Street *are* scumbags and a lot of people are suffering because of them ... a lot of people will suffer if you're going to do this with bitcoin too. It's a matter of personal responsibility and yes also of morality ... do you want true production and creative people to suffer because of your thirst for money/profit?

It is a moral question, but we are people, we are supposed to care about morality ... otherwise we are just barbarians running around hitting each other with clubs on the head and seeing who comes out of it alive. Are we civilized or are we not? Do we care about the big picture consequences of our actions or do we not? It's personal question that everybody has to answer for himself.

As for me, I'm absolutely unwilling to compromise my personal integrity and morality for profit or I would loose what I consider making me human. I'm not an animal to be ruled by my primitive urges.

[BrightAnarchist]

Guess what? You probably called 99% of the bitcoin community scumbags. I guess the bitcoin community is a place of villainy and evilness. Why would you dare to walk amongst some of the most evil people on earth?

If somebody does this, he *is* a scumbag whether he realizes it or not. And not because I'm calling him that ... a robber is not a scumbag because I call him one, he is a scumbag because he robs people. If you want to remedy the situation you need to go to the root cause ... simply, do not do it! And inform everybody else why it is a bad thing to do. The big guns on Wall Street *are* scumbags and a lot of people are suffering because of them ... a lot of people will suffer if you're going to do this with bitcoin too. It's a matter of personal responsibility and yes also of morality ... do you want true production and creative people to suffer because of your thirst for money/profit?

It is a moral question, but we are people, we are supposed to care about morality ... otherwise we are just barbarians running around hitting each other with clubs on the head and seeing who comes out of it alive. Are we civilized or are we not? Do we care about the big picture consequences of our actions or do we not? It's personal question that everybody has to answer for himself.

As for me, I'm absolutely unwilling to compromise my personal integrity and morality for profit or I would loose what I consider making me human. I'm not an animal to be ruled by my primitive urges.

Whoa Macho, you totally hijacked my thread ...

The best thing about Bitcoin is that it is indifferent to your opinions, or mine, or anyone else's... that's why it's so wonderful. It's 100% voluntary. Unlike the USD, which is subject to Bernanke's every whim. If anything, the Bitcoin community is the anti-Fed, anti-Wall Street, anti-monetary centralization. It is not here to rip anyone off like fiat currency, Bitcoin just IS. What is there not to like?

[xc]

Walter Block's Defending the Undefendable
http://mises.org/books/defending.pdf
Chapter 22, pg 165 in book (pg. 183 in pdf)

A nice refresher on the socially beneficial role of the speculator.  Small excerpt:

Kill the speculators! is a cry made during every famine that has ever existed. Uttered by demagogues, who think that the speculator causes death through starvation by raising food prices, this cry is fervently supported by the masses of economic illiterates. This kind of thinking, or rather nonthinking, has allowed dictators to impose even the death penalty for traders in food who charge high prices during famines. And without the feeblest of protests from those usually concerned with civil rights and liberties.

Yet the truth of the matter is that far from causing starvation and famines, it is the speculator who prevents them. And far from safeguarding the lives of the people, it is the dictator who must bear the prime responsibility for causing the famine in the first place. Thus, the popular hatred for the speculator is as great a perversion of justice as can be imagined. We can best see this by realizing that the speculator is a person who buys and sells commodities in the hope of making a profit. He is the one who, in the time-honored phrase, tries to “buy low and sell high.”

XC

[kiba]

If somebody does this, he *is* a scumbag whether he realizes it or not. And not because I'm calling him that ... a robber is not a scumbag because I call him one, he is a scumbag because he robs people. If you want to remedy the situation you need to go to the root cause ... simply, do not do it! And inform everybody else why it is a bad thing to do. The big guns on Wall Street *are* scumbags and a lot of people are suffering because of them ... a lot of people will suffer if you're going to do this with bitcoin too. It's a matter of personal responsibility and yes also of morality ... do you want true production and creative people to suffer because of your thirst for money/profit?

I brought bitcoins for six dollars. I have never stolen from anybody anything. I brought and sell everything fair and square. I also wrote a bounty and fund part of it through my own personal expense for a bitcoin google chrome extension to make payment easier. I also organized the donation campaign to the CCC and the EFF.

This is a false accusation of my character. Name a person that I have actually robbed from.

[anarchy]

LOL, honestly I just re-read my post here and now I'm thinking it's really irrelevant, it's like someone complaining about the way the Earth rotates around the Sun.

Financial markets will always behave the way they do, that is, insanely. Hopefully longer-term Bitcoin will increase its stability, so people can still speculate to their hearts content, but they'll do so with more leverage for smaller moves (like FOREX) so that it doesn't affect business.

So, IMO, the problem will solve itself in the long run. Case closed for me on this issue.

Glad you came to that realisation.  When you said 'Maybe Bitcoin businesses should peg to the dollar' I was starting to question your nickname

Anarcho-capitalist-libertarian-mises signing out.
Btw don't feed that Macho troll.. no good will come from it.

[Anonymous]

Merchants  wont take a risk to buy and sell products if there is a risk they will lose half their money overnight. That said speculators smooth the market out and prevent things getting out of hand. You can always depend on people buying low and selling high...which is the opposite of the state monopoly

Things recover a lot quicker when the bulls and the bears are allowed to do their thing.

[Macho]

I brought bitcoins for six dollars. I have never stolen from anybody anything. I brought and sell everything fair and square. I also wrote a bounty and fund part of it through my own personal expense for a bitcoin google chrome extension to make payment easier. I also organized the donation campaign to the CCC and the EFF.

This is a false accusation of my character. Name a person that I have actually robbed from.

I'm sorry, I know my words are strong ... I understand that most people do not realize what they are doing. Can you call a child taking someone else's apple a scumbag because he "stole it"? I do not think so ... but it is expected that the child grows up and as a grown up is going to be held liable for the same action. It's time to grow up

It's the intention that counts, from the outside it is very hard if not impossible to distinguish speculation and genuine demand. Of course if you buy bitcoins to do some business with them and in the meantime it rises you're not speculator nor scumbag.

What gives bitcoin its value right now? What is backing it? There are not enough real useful services (meaning other than "let me try this" type of things which are driven by pure enthusiasm for the novelty of bitcoin - which is going to go away soon) so most of the apparent "value" is a bubble created by exactly the type of speculators hoping to make a profit. This is not real value ... it's virtual, it doesn't exist ... in the real world nobody values bitcoins for the sake of being bitcoins. It baffles my mind how anybody can see this as something good, why would it be good? For what? because it makes pretty charts? This type of economy is just a giant ponzi scheme snowballing and snowballing until there is enough suckers to believe it will go further up ... when the world runs out of suckers people start selling off unleashing a raging inferno of sell-offs where those who sell off first are at the top of the pyramid making huge profits while the base is going to loose big time ... in the end no real value or wealth was ever created, the money just changed hands (was redistributed) from the suckers to those at the top. there is not value in that ... pretty charts showing rising numbers are not wealth. It's fraud and a scam ... the only real value is physical economy and services that people desire *other than* monetary gain. Selling "investment funds" for the sake of making more money from money is not a service anybody would desire if they wouldn't want more money from it ... the same goes for gambling, casinos etc. - NOBODY would participate if there wasn't a prospect for making more money out of just money. This is the scam ... that *can't be done*, it's zero sum game. You can NOT make money from money this way or create real wealth ... you can just take it from somebody else - and that is just wrong and YES IT IS IMMORAL too!

[Macho]

Merchants  wont take a risk to buy and sell products if there is a risk they will lose half their money overnight. That said speculators smooth the market out and prevent things getting out of hand. You can always depend on people buying low and selling high...which is the opposite of the state monopoly

Things recover a lot quicker when the bulls and the bears are allowed to do their thing.

This is third time I hear this nonsense ... how do speculators "smooth the market"? That's just so immensely stupid thing to say, they actually *create* the swings. I can't imagine by what mechanism would they "smooth" it ... but I can see the mechanism of how they make it swing violently ... hear hear

When some commodity is rising in price here come the speculators to "invest" which in turn makes the price rise even more, if enough people do this through "investment funds" and so on, the artificial demand completely overtakes the real physical demand and it is impossible to say which is which ... this goes on again until there are suckers left to be pulled in by looking at pretty charts with pretty lines which do not represent anything else at that point than the number of other suckers who are willing to do the same. Now, the world runs out of suckers ... BOOOM economy is fucked as it's going to cause mayhem, everybody selling like crazy to be first to sell to be as close to the top of the pyramid as possible and/or not lose the most. Have you seen the news lately? This is EXACTLY what is happening right now ... so I'm hardly pulling things out of my ass, am I?