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Author Topic: Does Bitcoin need a "stock split"?  (Read 1412 times)
BlueNote
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April 21, 2013, 07:02:18 AM
 #1

Does Bitcoin need a "stock split"?

A stock split is when a company increases the number of shares available for purchase by splitting them by a factor of 2 or more. The effect of a 2-for-1 stock split, for example, is that there are now double the shares available at half the price. The market cap stays the same, but it's now easier for newcomers to buy in at a lower price. You can call it a gimmick, but it has a lot to do with human psychology and human scale numbers.

Now the deflationary character of BTC is fast becoming - to my mind at least - a significant barrier to public acceptance. The rapid increase in purchasing power is a major point of criticism, generating unfounded accusations of "Ponzi scheme" and such. Early adopters are being scorned by critics who say that the run up in price is a "pump and dump" or a "tulip mania," etc. We hear the term "bubble" everywhere even though this thing is only a few years old and has barely gotten off the ground.

While those of us who have studied a bit of economics and monetary theory understand that higher and higher prices for BTC will not mean there "won't be enough for everybody," the general public and the media do not. We all understand that as purchasing power increases we will have to trade in smaller denominations. The smaller units will come into use as they are needed. But many people look at the price and are just baffled. "Why should I pay $200 for ONE of these things," they ask. It just doesn't compute because this is brand new territory. We just haven't seen anything like this before.

So I wonder if it's time now for a BTC "stock split." This would have to be a conscious choice on the part of the whole Bitcoin community, and most especially the exchanges, to go ahead and change how the price is displayed and referenced. If we adopted the .01 BTC unit as our everyday "one bitcoin" (with the "cent" part being implied and/or stated), then Joe Public could go on an exchange and see the current price as $1.24 instead of $124. He could actually wrap his head around that price and feel that he could justify buying some with not much money at all. This would be, by way of analogy to stocks, a 100-for-1 split. There are now 100 times as many units available at 1/100th the price. We should not underestimate the effect of this change on the psychology of the market. Increasing the total number of tradeable units enhances liquidity even if the total valuation stays the same.

In my opinion this changeover is just the natural thing to do. Perhaps it is urgently needed. If this currency is going to continue to soak up value, the price is going to look ever more ridiculous when compared to something like the USD, the quantity of which seemingly approaches infinity. I hear Bernanke is creating $85 BILLION per month in new money! This is like pulling out of a hat multiple new Bitcoin economies every day! If and when all this new money hits the streets, all dollar prices will shoot up drastically. BTC will have to go up in price just from all this inflation, not to mention its rapid growth through good old demand.

So why should we fight human psychology and be displaying one BTC for $500 and $1,000+ in the future when we can just as easily display it as $5 and $10 BTCc (or cBTC)? Futures markets and stock exchanges already adjust units and prices in this way when it's called for. We should too.

And I really think that any criticism over a change like this would be forgotten the next day. People *want* to see the lower price, and they are almost universally oblivious to unit denomination. For the man on the street the idea of a decentralized digital currency is already esoteric enough. Let's not baffle them with ridiculously large numbers making the currency appear ridiculously expensive.

What do you think?

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befuddled
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April 21, 2013, 07:22:03 AM
 #2

1) Run bitcoin-qt.
2) Click "Settings | Options"
3) Select "Display" tab
4) Click the "Units to show amounts in" and change it from BTC to mBTC

Presto, you've done your own personal bitcoin "stock split".
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April 21, 2013, 07:25:06 AM
 #3

What do you think?

Your title doesn't match the body of your post.   A "split" is different from changing the "display format".

The display format most people want to see probably won't be cBTC, but instead mBTC.

Just like the Bitcoin-Qt/bitcoind client allows you to choose whichever display format you wish  (BTC, mBTC, uBTC), I expect each exchange to have a profile setting allowing you to choose which display format.



BlueNote
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April 21, 2013, 07:42:32 AM
 #4

What do you think?

Your title doesn't match the body of your post.   A "split" is different from changing the "display format".


I was just making an analogy to stock quantity and price because I thought it was illustrative of the point I was trying to make about perception. That's why "stock split" is in quotes.

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April 21, 2013, 07:48:13 AM
 #5

What do you think?

Your title doesn't match the body of your post.   A "split" is different from changing the "display format".


I was just making an analogy to stock quantity and price because I thought it was illustrative of the point I was trying to make about perception. That's why "stock split" is in quotes.


I think (and please correct me if I am wrong) that when a stock is split in half, already existing shareholders get double the shares, in order to retain the value they already had.
Not what happens in a currency.
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April 21, 2013, 08:25:19 AM
 #6

do you mean currency exchange / futures markets yes you can visit IG markets for this

http://www.igmarkets.com.au/cfd/bitcoin-aum-april-2013.html

so that's where the ATO got sections of their press release


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April 21, 2013, 08:33:42 AM
 #7

Presto, you've done your own personal bitcoin "stock split".

And with orders of magnitude to boot! Smiley

I think that day is pretty much just around the corner. If you think about how much you usually spend on something, do you usually count in hundreds of dollars?

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Birdy
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April 21, 2013, 08:42:37 AM
 #8

While a "stock split" isn't necessary to do it, I think you are right and a lot of sites should start using mBitcoints as unit.
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April 21, 2013, 09:40:12 AM
 #9

Bitcoin is not a stock, there is no need for a split.
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April 21, 2013, 10:22:19 AM
 #10

I do agree that the default unit is way to expensive right now. When I try to explain the concept of Bitcoin to someone it always take a while before they get it, because it is totally different than anything they have ever known before. But when I get to the point where I have to say "One bitcoin is currently $1xx" you can see they lost all the intention they had on getting into Bitcoin. Ofcourse you then explain that there are also other units at a smaller price tag, but that doesn't work at all in my experience.

I think if the prices won't drop hard (so that 1 BTC is a couple of bucks max) we will see a shift where two different things will be known to the general public: the current exchange rate (the price of 1 BTC in USD) and the price of 1 cBTC / satoshi / etc in USD. Even though it sounds completely obvious to us, we must remember that this is never the case with the general public (who knows about this stuff through mainstream media).

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April 21, 2013, 10:32:21 AM
 #11

AAPL shares may be $700 or $400 or whatever, which precludes people from buying (I can't get half a share). This problem doesn't exist in bitcoin since you can buy 0.0001 BTC if you wish.

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April 21, 2013, 10:44:24 AM
 #12

AAPL shares may be $700 or $400 or whatever, which precludes people from buying (I can't get half a share). This problem doesn't exist in bitcoin since you can buy 0.0001 BTC if you wish.

The point is that this is a big barrier for people new to Bitcoin (fist they need to know that it's possible, together with all the other things that are totally different). It's also seems a lot less interesting: I own .00000001 BTC VS I own 1 Satoshi.

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April 21, 2013, 01:25:03 PM
 #13

It's already splitted. Trade LTC or other altcoins if you want splitted version of BTC.
BlueNote
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April 21, 2013, 05:29:55 PM
 #14

Bitcoin is not a stock, there is no need for a split.

It's an analogy. It's supposed to help you visualize and understand what switching to a smaller unit of BTC would accomplish in the market. I'm saying that, LIKE a stock split, the quoted price would come way down (for a long time!) and the number of basic tradeable units would go way up. It is hoped this would increase interest in purchasing and/or trading small amounts of BTC thus providing more liquidity.

I'm saying that the community and the exchanges, and whoever speaks publicly for Bitcoin should switch to a smaller unit as the default unit voluntarily. Obviously Bitcoin is not a stock and no one entity owns it or controls its issuance. But by way of analogy we can see that adopting a smaller unit as the default reference for "a Bitcoin" in the public's mind is SIMILAR to when a stock has a great run up in price and the issuers decide to split it so that more people can get in at a lower price.

The hard limit of 21 million units is very small when compared to national currencies. This number is arbitrary, especially considering the fact that a digital currency will never run out of smallest units due to the fact that it is simply a number and does not reference a useful part of a tangible commodity.

This relatively low hard limit was probably chosen precisely to stimulate early demand for the benefit of early adopters, but that phase of the roll out may be coming to an end. If we want billions of people to own and trade Bitcoin, it is logical to promote a much smaller unit as the default unit of trade.

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