Bitcoin the Bubblecoin

[cbeast]

I've been talking with a friend of mine for over two years about investing in Bitcoin. He is not at all interested. He calls it bubblecoin and has a point. Bitcoin will always trade at plus or minus 50% or more and will never stabilize. There is no plan to create any stabilizing factor. Simply expanding the user base will not stop people from pumping and dumping and causing panics. If this were true, then small countries would generally have unstable currencies and large countries would have stable currencies.

Price is psychological and there are no psychological tools to create faith in the price stability, nor is there even any discussion about it. Psychology, sociology, and economics uses statistics to create useful tools. Bitcoin uses "invisible hands" of the free market. Analysts use statistics to look at the market, but their results are not peer reviewed, nor even publicly available. Market analysts are the soothsayers of economics. We need a useful predictive tool for Bitcoin price that is useful for business.

[coastermonger]

It's interesting to see it turn into a kind of commodity/currency hybrid... but I wonder what the long term effects on the price will be (like decades from now)

1.) We know that over time the rate at which coins are created will taper off, making btc even more scarce
2.) We also know that over time btc will reach pretty much every available market it can reach, saturating the number of people available and willing to adopt the tech.  

In the far future I wouldn't be surprised to see some kind of price stability, albeit very high.  Somewhat similar to the Berkshire Hathaway stock price, the shares never split.  

Another thing to consider is that as the price gets higher and higher, the market becomes harder to manipulate.  A thousand dollars could have bought you more than a thousand BTC in the early days (a significant percentage of the total market) but these days a thousand dollars can only buy you a few bitcoins (a much smaller share of the market)

As the price goes higher, I think some of the larger holders will be tempted to dilute their holdings and sell off some as well.  Either that or some kind of mechanism encourages the centralization of most bitcoin holdings, in which case we're pretty much screwed by a small number of major market players...

[bitcoinrevelacio]

I do not think it is wise to invest USD into BTC to make more USD. I think that people need to get into btc and use it as money. As time goes on and the user base grows I think it should be easier to be immersed in the economy. It will not stop the price from fluctuating, it will just make it less noticeable. You will still be able to tell if the price goes up and down over the years, but over the days it will probably not be noticed. The price of USD in terms of other currency constantly fluctuates, but it is not a concern for most people.

So, I don't think it needs to stabilize. We just need to be able to buy what we want with the btc we earn.

[foggyb]

Bitcoin will always trade at plus or minus 50% or more and will never stabilize.

Relative to what? Who says bitcoin must forever be priced in USD?

[cbeast]

Bitcoin will always trade at plus or minus 50% or more and will never stabilize.

Relative to what? Who says bitcoin must forever be priced in USD?

Relative to what people generally value. If everything fluctuated in price like Bitcoin we wouldn't have menus, we would just throw handfuls of money in the air and see how much lands on the counter. 

[lixiaolai]

I've been talking with a friend of mine for over two years about investing in Bitcoin. He is not at all interested. He calls it bubblecoin and has a point. Bitcoin will always trade at plus or minus 50% or more and will never stabilize. There is no plan to create any stabilizing factor. Simply expanding the user base will not stop people from pumping and dumping and causing panics. If this were true, then small countries would generally have unstable currencies and large countries would have stable currencies.

Price is psychological and there are no psychological tools to create faith in the price stability, nor is there even any discussion about it. Psychology, sociology, and economics uses statistics to create useful tools. Bitcoin uses "invisible hands" of the free market. Analysts use statistics to look at the market, but their results are not peer reviewed, nor even publicly available. Market analysts are the soothsayers of economics. We need a useful predictive tool for Bitcoin price that is useful for business.

Don't take bitcoin as an investing tool, which is too dangerous to even think of.

Regard bitcoin as a revolution of society and investigation of an idea, which is much better to be more serious.

[QuestionAuthority]

Bitcoin is not a currency it’s a steak. My corner grocer had T-bones on sale last week for $5.99 a pound, this week they’re $10.99 and next week they might be $6.99. You are never going to know the exact price of btc or steak until you check the price today. Welcome to the world of commodity trading; glad you could join us.

[xan_The_Dragon]

u say bubble i say easy money

[cbeast]

Bitcoin is not a currency it’s a steak. My corner grocer had T-bones on sale last week for $5.99 a pound, this week they’re $10.99 and next week they might be $6.99. You are never going to know the exact price of btc or steak until you check the price today. Welcome to the world of commodity trading; glad you could join us.

I guess that's why we don't barter much anymore. Bitcoin would be more useful as a currency than a commodity. I'm just trying to offer a way to make it so.

[QuestionAuthority]

I understand and it’s a good idea but not at this stage in the game. Bitcoin cannot be or act like a currency yet.

[BTCisthefuture]

I have to agree, and it's one of the bigger problems facing bitcoin.  If bitcoin is ever going to be a "currency" like it was meant to be it is going to have to be more stable.  And quite frankly there isn't anything in place to make that happen, I agree that simply more merchants and people using bitcoin isn't in itself going to make it stable, more stable yes but probably not stable to the point of it being used as an actual currency.

My theory is that
1) Someone/something will come up with some new code to help stabilize bitcoin some how, how this gets implemented with the approval of the entire community is yet to be seen though. I know some very smart people have some very good ideas they are working with right now.

2) Something "better" replaces bitcoin. Bitcoin is version 1.0 in the p2p crypto currency market and it's become quite evident that people like the idea of this type of currency ,  so it's not unrealistic that someone or some company will come up with something similar but address some of bitcoins problems and gains acceptance from the mainstream.

[Jutarul]

Bitcoin is not a currency it’s a steak...never going to know the exact price of btc or steak until you check the price today.

I LOL'd 

[cbeast]

People tend to believe something that is in writing. If the most current average price of Bitcoin is encoded in the block in a way that is generally regarded as fair, then people would use that price. If exchanges want to trade at a different price, that's fine and will be reflected in the next block. That's the difference between spot price and rolling average which would make Bitcoin more stable on both ends. It is less likely that it will trade with huge price swings if speculators know there is another price mechanism in play besides exchange rates.

[superduh]

People tend to believe something that is in writing. If the most current average price of Bitcoin is encoded in the block in a way that is generally regarded as fair, then people would use that price. If exchanges want to trade at a different price, that's fine and will be reflected in the next block. That's the difference between spot price and rolling average which would make Bitcoin more stable on both ends. It is less likely that it will trade with huge price swings if speculators know there is another price mechanism in play besides exchange rates.

as if real currency ever holds it's value. the price swings are just there for now

[BTCLuke]

This thread is the very essence of why Austrian economists say bitcoin cannot be money. If bitcoin was physical, they'd be right, too.

But there is something that Austrian economists are not taking into consideration at all, nor do they seem to value much:

The next money needs to be digital, because commerce has moved online.

So if the world demands a money that exists online, and this fluctuation in price is always going to plague any money that exists online, then the public will therefore accept bitcoin, volatility and all, because there is no alternative.

Anyway, once a bitcoin is worth tens of thousands or possibly millions of USDs, public perception of it will be that it is "too big to fail" simply because they can't grasp the math of how far it will be to fall.

Once they think of bitcoin like that, volatility should get a good bit lighter.

[wumpus]

People tend to believe something that is in writing. If the most current average price of Bitcoin is encoded in the block in a way that is generally regarded as fair, then people would use that price. If exchanges want to trade at a different price, that's fine and will be reflected in the next block. That's the difference between spot price and rolling average which would make Bitcoin more stable on both ends. It is less likely that it will trade with huge price swings if speculators know there is another price mechanism in play besides exchange rates.

There are many motivations to manipulate this mechanism and at worst we'd end up with LIBOR-like scandals, if miners could encode any price that they want into the chain.

It could only work if there is a decentralized exchange and price discovery mechanism, and a way to reach consensus about the current and averaged trading prices (in all world currencies?). There are many technical and economical hurdles to this and it is a problem with a scope much larger than bitcoin.

I guess it'd be an interesting project, but people have been arguing about this since the beginning, I'm still waiting for someone to come up with a concrete plan and implement it.

[d'aniel]

I recently read this very insightful article on money vs. bubbles:

http://unqualified-reservations.blogspot.ca/2013/04/bitcoin-is-money-bitcoin-is-bubble.html

The [Bubble Theory of Money] asserts that money and a bubble are the same thing.  Both are anomalously overvalued assets.  Both obtain their anomalous value from the fact that many people have bought the asset, without any intention to use it, but only to exchange it for some other asset at a later date.  The two can be distinguished only in hindsight.  If it popped, it was a bubble.  If not, money - so far.

[cbeast]

I recently read this very insightful article on money vs. bubbles:

http://unqualified-reservations.blogspot.ca/2013/04/bitcoin-is-money-bitcoin-is-bubble.html

The [Bubble Theory of Money] asserts that money and a bubble are the same thing.  Both are anomalously overvalued assets.  Both obtain their anomalous value from the fact that many people have bought the asset, without any intention to use it, but only to exchange it for some other asset at a later date.  The two can be distinguished only in hindsight.  If it popped, it was a bubble.  If not, money - so far.

I've been talking about this since I called it Pricecoin. Back then I was thinking it would need to be a separate crypto, but now I see it could be a layer like Bitcoin Payment Messages. It's very simple. Include the exchange rate used in every transaction (in local currency) and also sample rates reported by the exchanges. Use this data at the mining supernodes to compile a running average price in terms of several major currencies. That result can be encoded into the current block and read off the blockchain. This would act like pegging the price to a basket of currencies.

[prof7bit]

There is no plan to create any stabilizing factor

The market is the stabilizing factor. You don't need to plan it, it will just happen. After realizing that there is a huge profit opportunity I have written a bot that will exploit it and extract volatility from the market and convert it into profit for me. Others will do the same. Since there is only a finite amount of volatility the more people are extracting and converting it the fewer volatility will remain.

[cbeast]

There is no plan to create any stabilizing factor

The market is the stabilizing factor. You don't need to plan it, it will just happen. After realizing that there is a huge profit opportunity I have written a bot that will exploit it and extract volatility from the market and convert it into profit for me. Others will do the same. Since there is only a finite amount of volatility the more people are extracting and converting it the fewer volatility will remain.

How will it stabilize? Where is your evidence about limited volatility, do you mean less than 100%? I understand that you try to guess at the price changes to make money, but so does everyone else. Can you point to a mathematical theory that supports the idea that speculation stabilizes price?