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Author Topic: For now, bitcoin only suitable as a store of value  (Read 3002 times)
johnyj
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April 13, 2013, 02:58:40 AM
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This kind of large price swing will create huge uncertainty for the merchant and anyone who doing trade using bitcoin as a currency. For a currency, the most important character is stable exchange value

For a limited amount of supply, this kind of fast price swing is expected. So it will not be suitable for use as a transaction medium, if the merchant who receive the coins don't exchange the coin to USD immediately, he might lose 2/3 of it's exchange value overnight, it is clear none of the merchat will accept this kind of risk

So, currently the most possible use for bitcoin is act as a store of value, or the base currency. As a store of value, people tends to hold it for a long time, and in long term the price will always rise due to limited supply, the short term price swing will be irrelevant

Only when bitcoin first successfully established itself as a reputable digital asset, it price will stablize and then it can slowly becomes a widely used medium of exchange. Currently the people's confidence are still very weak and the large price swing is unavoidable

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Impaler
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April 13, 2013, 06:42:52 AM
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Catch-22

BTC is too volatiles to use for commerce so it has no exchange value.
BTC's store-of-value is based on its ability to be exchanged, it only has store-of-exchange-value
If it has not exchange value then it has no store or value.

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April 13, 2013, 08:44:11 PM
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Catch-22

BTC is too volatiles to use for commerce so it has no exchange value.
BTC's store-of-value is based on its ability to be exchanged, it only has store-of-exchange-value
If it has not exchange value then it has no store or value.


Normally you can't have both. USD can not work as a store of value since it inflates continously, but it works as a medium of exchange. Gold do not work as a medium of exchange but they hold value

And, low liquidity does not mean no exchange value, if price greatly swing between 30-300, it's just high volatility, you have to either deleverage or buy some derivatives to hedge the risk, if you don't have the time to care about exchange. I have explained before that majority of people will not pay bitcoin for daily consumption, since fiat money already works enough good

A retirement saving medium is where bitcoin will succeed first, if you have started to save in bitcoin each month since last year, now your retirement saving account is worth many times more than a fiat money saving account, even after this crazy rally and crash




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April 13, 2013, 08:48:01 PM
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It's just a disruptive, growth industry in its early penny stock stages. Penny stocks are volatile just like bitcoin. This doesn't mean they always will be.

My attempt at adding to the bitcoin-using marketplace: https://bitcointalk.org/index.php?topic=171843.0
Like online video games? Check it out! I'm selling at a big discount
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April 13, 2013, 09:33:33 PM
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People always raise the example of IT products (even you know you can buy same product with less money in the future, you will still buy it today) and claim there is no problem for a deflative currency to become a medium of exchange

That is the wrong way to look at the problem, since in this example you have no alternative payment method. If you have another inflative currency which lose its value as fast as IT products, you would definitely spend that currency to buy IT products and hold the deflative currency

And this is what will happen, people will spend fiat and hold bitcoin. Even if they ran out of fiat, they could possibly take a loan to spend, since the interest of the loan is much less than the value appreciation of bitcoin, they only need to sell small amount of the coin each year to pay back the loan when exchange price is favorable


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April 14, 2013, 12:21:00 AM
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Bitcoin can be both a store of value and a medium of exchange. People will hoard many bitcoins but a bitcoin economy can exist with a small fraction of bitcoins in existence. The key to bitcoin succeeding is to first be used in functions with little exchange risk. A remittance is the first thing that comes to mind. A person can send bitcoin to an exchanger in a foreign country as collateral who thens quickly sells btc in the market and gives the proceeds to the recipient of the remittance.

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April 14, 2013, 06:30:05 AM
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Bitcoin can be both a store of value and a medium of exchange. People will hoard many bitcoins but a bitcoin economy can exist with a small fraction of bitcoins in existence. The key to bitcoin succeeding is to first be used in functions with little exchange risk. A remittance is the first thing that comes to mind. A person can send bitcoin to an exchanger in a foreign country as collateral who thens quickly sells btc in the market and gives the proceeds to the recipient of the remittance.

Yes, crossboarder transfer is another advantage, a store of value that can be send to anywhere on the planet quickly and safely

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April 14, 2013, 10:43:10 AM
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People always raise the example of IT products (even you know you can buy same product with less money in the future, you will still buy it today) and claim there is no problem for a deflative currency to become a medium of exchange

That is the wrong way to look at the problem, since in this example you have no alternative payment method. If you have another inflative currency which lose its value as fast as IT products, you would definitely spend that currency to buy IT products and hold the deflative currency

And this is what will happen, people will spend fiat and hold bitcoin. Even if they ran out of fiat, they could possibly take a loan to spend, since the interest of the loan is much less than the value appreciation of bitcoin, they only need to sell small amount of the coin each year to pay back the loan when exchange price is favorable


But if the mindset of everyone is that bitcoin will only go up, it is the case for retailers and merchants as well. They would rather get paid in bitcoins than in fiat, and could offer better prices that correlates to the expected price rise of bitcoins. The world you are describing is a world where consumers expect Bitcoin to rise, but merchants don't.
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April 14, 2013, 11:28:16 AM
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Merchants do not have the ability to pull currency away from people who wish to hoard it, the buyer determines the currency used in commerce because they make decisions on what money to spend (if any) before being presented with products.  In BTC economics their is only one thing a merchant could be selling that is attractive enough to part with the hyper-deflating money for anything that's not a drug, MORE MINING HARDWARE. 

It's an economy that resembles a wild-west gold-rush boom-town.  Miners hoard their gold and only spend it on Booze and Whores (SilkRoads), or buy more picks and Shovels (Avalon & ButterFly Labs) or try to play the commodity market (Mt.Gox).  It's basically a big circle-jerk that's not actually producing any real surplus value and which is completely dependent on it's own continued growth.

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April 14, 2013, 11:32:36 AM
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Bitcoins are usable for speculating and trading stuff online.

That's it, a store of value implies inherent stability which bitcoin can not be, ever. It's an asset with high elasticity, the highest possible actually.
johnyj
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April 15, 2013, 01:10:37 AM
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Merchants do not have the ability to pull currency away from people who wish to hoard it, the buyer determines the currency used in commerce because they make decisions on what money to spend (if any) before being presented with products.  In BTC economics their is only one thing a merchant could be selling that is attractive enough to part with the hyper-deflating money for anything that's not a drug, MORE MINING HARDWARE. 

It's an economy that resembles a wild-west gold-rush boom-town.  Miners hoard their gold and only spend it on Booze and Whores (SilkRoads), or buy more picks and Shovels (Avalon & ButterFly Labs) or try to play the commodity market (Mt.Gox).  It's basically a big circle-jerk that's not actually producing any real surplus value and which is completely dependent on it's own continued growth.

The gold rush actually shifted the US economy center towards west coast, many companies growed out of it, even lasted until today, how is that of no real value

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April 15, 2013, 01:13:39 AM
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People always raise the example of IT products (even you know you can buy same product with less money in the future, you will still buy it today) and claim there is no problem for a deflative currency to become a medium of exchange

That is the wrong way to look at the problem, since in this example you have no alternative payment method. If you have another inflative currency which lose its value as fast as IT products, you would definitely spend that currency to buy IT products and hold the deflative currency

And this is what will happen, people will spend fiat and hold bitcoin. Even if they ran out of fiat, they could possibly take a loan to spend, since the interest of the loan is much less than the value appreciation of bitcoin, they only need to sell small amount of the coin each year to pay back the loan when exchange price is favorable


But if the mindset of everyone is that bitcoin will only go up, it is the case for retailers and merchants as well. They would rather get paid in bitcoins than in fiat, and could offer better prices that correlates to the expected price rise of bitcoins. The world you are describing is a world where consumers expect Bitcoin to rise, but merchants don't.

Good call, maybe merchants will provide some discount, but that is difficult due to high volatility, a merchant might not have so much freedom in timing

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April 15, 2013, 01:19:11 AM
 #13

I could play roulette 5 times putting my bet on red each time. This could win me a lot of money or lose me a lot of money or come close to even.

If I play roulette 5000 times putting my bet on red each time I will more closely get the result of being down 1-2% as the house advantage dictates.

If I buy and spend bitcoin every day/week for several years the result will be a slow climb as bitcoin is a depreciating currency.

So no, bitcoin is not only suitable as a store of value.

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April 15, 2013, 01:30:42 AM
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I could play roulette 5 times putting my bet on red each time. This could win me a lot of money or lose me a lot of money or come close to even.

If I play roulette 5000 times putting my bet on red each time I will more closely get the result of being down 1-2% as the house advantage dictates.

If I buy and spend bitcoin every day/week for several years the result will be a slow climb as bitcoin is a depreciating currency.

So no, bitcoin is not only suitable as a store of value.

If half of the time you are holding no coin, you lose half of the appreciation potential, it means as soon as you spent, you must buy back, then why not just buy and hold bitcoin and spend fiat

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April 16, 2013, 03:47:30 AM
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Catch-22

BTC is too volatiles to use for commerce so it has no exchange value.
BTC's store-of-value is based on its ability to be exchanged, it only has store-of-exchange-value
If it has not exchange value then it has no store or value.


Normally you can't have both. USD can not work as a store of value since it inflates continously, but it works as a medium of exchange. Gold do not work as a medium of exchange but they hold value

And, low liquidity does not mean no exchange value, if price greatly swing between 30-300, it's just high volatility, you have to either deleverage or buy some derivatives to hedge the risk, if you don't have the time to care about exchange. I have explained before that majority of people will not pay bitcoin for daily consumption, since fiat money already works enough good

A retirement saving medium is where bitcoin will succeed first, if you have started to save in bitcoin each month since last year, now your retirement saving account is worth many times more than a fiat money saving account, even after this crazy rally and crash

I'm with Impaler on this; What is happening right now is; buyer purchases some BTC for a transaction, by the time the transaction occurs, his bitcoins drop in value so he can't afford what he was planning to get so buys less goods and services. the seller (of goods and services) gets his BTC but by the time he converts to $, BTC has lost value so he's not getting as much for his product. How long do you think that can continue before people stop buying and selling goods and services with BTC?? And when they do, how do you hold the exchange value of a currency that you can't buy or sell anything with?!

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April 16, 2013, 03:53:38 AM
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Catch-22

BTC is too volatiles to use for commerce so it has no exchange value.
BTC's store-of-value is based on its ability to be exchanged, it only has store-of-exchange-value
If it has not exchange value then it has no store or value.


Normally you can't have both. USD can not work as a store of value since it inflates continously, but it works as a medium of exchange. Gold do not work as a medium of exchange but they hold value

And, low liquidity does not mean no exchange value, if price greatly swing between 30-300, it's just high volatility, you have to either deleverage or buy some derivatives to hedge the risk, if you don't have the time to care about exchange. I have explained before that majority of people will not pay bitcoin for daily consumption, since fiat money already works enough good

A retirement saving medium is where bitcoin will succeed first, if you have started to save in bitcoin each month since last year, now your retirement saving account is worth many times more than a fiat money saving account, even after this crazy rally and crash

I'm with Impaler on this; What is happening right now is; buyer purchases some BTC for a transaction, by the time the transaction occurs, his bitcoins drop in value so he can't afford what he was planning to get so buys less goods and services. the seller (of goods and services) gets his BTC but by the time he converts to $, BTC has lost value so he's not getting as much for his product. How long do you think that can continue before people stop buying and selling goods and services with BTC?? And when they do, how do you hold the exchange value of a currency that you can't buy or sell anything with?!

Some time price is rising, you win, some time price is dropping, you lose, it evens out long term

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April 16, 2013, 04:10:02 AM
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Catch-22

BTC is too volatiles to use for commerce so it has no exchange value.
BTC's store-of-value is based on its ability to be exchanged, it only has store-of-exchange-value
If it has not exchange value then it has no store or value.


Normally you can't have both. USD can not work as a store of value since it inflates continously, but it works as a medium of exchange. Gold do not work as a medium of exchange but they hold value

<snip>

I'm with Impaler on this; What is happening right now is; buyer purchases some BTC for a transaction, by the time the transaction occurs, his bitcoins drop in value so he can't afford what he was planning to get so buys less goods and services. the seller (of goods and services) gets his BTC but by the time he converts to $, BTC has lost value so he's not getting as much for his product. How long do you think that can continue before people stop buying and selling goods and services with BTC?? And when they do, how do you hold the exchange value of a currency that you can't buy or sell anything with?!

Some time price is rising, you win, some time price is dropping, you lose, it evens out long term

wow i am amazed how blind investor mentality is! btw, that is not just towards you, there seems to be a lot of that blind mentality around; consumers and suppliers of goods and services are not concerned about the long term value of currency! what matters for that use, $->btc-> goods and services->btc->$, is that for successful trading (of goods and services), the $ at each end has to roughly match! y, sometimes, someone (with the volatility, rarely both) in that transaction will benefit but that is not much security for people whose only interest is $1=$1 within the lifecycle of the transaction. sure, this might not be applicable for all traders (of goods and services) but it represents a downhill direction where less and less people are using btc for exchange of goods and services. my question remains unanswered "how do you hold the exchange value of a currency that you can't buy or sell anything with?!"

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April 16, 2013, 04:39:00 AM
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johnyj:  Imagine a Roulette wheel, sometimes you win, sometime you lose but on average it all even out (well accept for 0 and 00, but lets pretend those aren't their and instead your paying 1% conversion fee at an exchange which has the same net effect).  Now would any sensible merchant agree to be payed with bets on a Roulette wheel?  No because you ALWAYS lose in the end, you hit a streak of losses and are eventually wiped out, business need their operating capitol if they loose it they can't make another set of products to sell just like you can't make another bet.  This is why stability is key.

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April 16, 2013, 02:58:47 PM
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johnyj:  Imagine a Roulette wheel, sometimes you win, sometime you lose but on average it all even out (well accept for 0 and 00, but lets pretend those aren't their and instead your paying 1% conversion fee at an exchange which has the same net effect).  Now would any sensible merchant agree to be payed with bets on a Roulette wheel?  No because you ALWAYS lose in the end, you hit a streak of losses and are eventually wiped out, business need their operating capitol if they loose it they can't make another set of products to sell just like you can't make another bet.  This is why stability is key.

This game is different, the house advantage is at bitcoin side, e.g. who hold the bitcoin wins long term wise. Because the fiat is inflated all the time (now 85 billion per month) and bitcoin supply is limited, the bitcoin value will increase over time

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April 16, 2013, 03:04:50 PM
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wow i am amazed how blind investor mentality is! btw, that is not just towards you, there seems to be a lot of that blind mentality around; consumers and suppliers of goods and services are not concerned about the long term value of currency! what matters for that use, $->btc-> goods and services->btc->$, is that for successful trading (of goods and services), the $ at each end has to roughly match! y, sometimes, someone (with the volatility, rarely both) in that transaction will benefit but that is not much security for people whose only interest is $1=$1 within the lifecycle of the transaction. sure, this might not be applicable for all traders (of goods and services) but it represents a downhill direction where less and less people are using btc for exchange of goods and services. my question remains unanswered "how do you hold the exchange value of a currency that you can't buy or sell anything with?!"

That's what I mean, bitcoin is not suitable for use as a currency due to high appreciation potential. Of course you can invent many derivatives to hedge the exchange risk, but the price will never be stable due to limited supply

Modern money are all valueless digits but they hold their exchange value due to 2 things: Consensus and Trust. If bitcoin has gained enough consensus and trust, it will hold the exchange value. And if it has value, you can buy and sell anything with it

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