How much systemic risk in BTC?

[thed00der]

It seems like gov't intervention & fraud mean that this currency has high volatility as well as bigger than 0 factor of complete default.  Can anyone reassure me?

[1715421947]

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[BTC Economist]

There is a great deal of systemic risk and the community does not seem willing to address them as it may conflict with their libertarian agenda.

[Stephen Gornick]

It seems like gov't intervention & fraud mean that this currency has high volatility as well as bigger than 0 factor of complete default.  Can anyone reassure me?

Mt. Gox was the largest exchange by a large margin and if trading and exchanging was all that bitcoin was good for, you would be able to argue that this incident would be more than just a temporary setback.

This temporary setback is significant though because Mt. Gox was generally seen as the one place where price discovery mechanism was the most accurate.

As funds and order flow reaches other exchanges, that price discovery will start to be distributed.

Which is likely an improvement over the centralized price discovery we had previously.

Bitcoin itself can continue strong.  An upcoming release of the client will include the wallet encryption feature which should make it be seen as adequately secure for most storing consumer-level values.

Bitcoin isn't growing as fast as it is for no reason.  Those reasons are why these hurdles will be overcome and bitcoin will become even better as a result.

[CurbsideProphet]

Heard the same rationale during the tech bubble.  Bitcon is growing due to speculation, pure and simple.  Those who got in early have ridden the bubble up, hopefully exiting before the burst, what you have now are all the fool lemmings following in their footsteps trying to make an easy buck only to watch their profits go bye bye.

[xunker]

Heard the same rationale during the tech bubble.  Bitcon is growing due to speculation, pure and simple.  Those who got in early have ridden the bubble up, hopefully exiting before the burst, what you have now are all the fool lemmings following in their footsteps trying to make an easy buck only to watch their profits go bye bye.

By no means does that mean there is no value here.  There are still many, many dot-coms from the bubble era that are alive and well.  Sure, only 2% of dot-coms ultimately survived the crash, but that's the point: The bubble did not cause those dot-coms of a crash, they failed largely not because they had no viable long-term business model.

Short moral of the story: Invest for value, not because everyone else is doing it.

If you are riding the BTC train because you have done research and see a value proposition here, that's one thing.  If you are getting in to it because you want something for nothing just because everyone else is doing it, you deserve to lose.

YOU must decide YOURSELF if the model underlying bitcoin is something you wish to trust, and for how long.

[Brutus]

Heard the same rationale during the tech bubble.  Bitcon is growing due to speculation, pure and simple.  Those who got in early have ridden the bubble up, hopefully exiting before the burst, what you have now are all the fool lemmings following in their footsteps trying to make an easy buck only to watch their profits go bye bye.

But there are some enduring technologies as well as notable companies that came from the tech boom.

I believe that the same can be said for Bitcoin.  Even if Bitcoin itself does not make it, the idea of a P2P currency concept like BitCoin is probably going to impact the world in significant ways that we cannot predict at present.  

Also aspects of Bitcoin may fail while others survive and become more robust (certain exchanges, certain business ventures, client software, etc).

And the systemic risk argument has been beaten to death.  The BitCoin block-chain has never been compromised.  

Regarding making a quick buck by mining and speculation that was probably a necessary side effect of the design such that there would be a way to provide value for growing the btc base.  That is simply brilliant.

IMHO the biggest risk is a lack of acceptance for BTC in trade vs some type of systemic technological risk.

[anybodyelseNOW]

For myself bitcoins has many problems.

1. who and how makes the decision about the wallet software.
2. there are to many people with a to big amount % of bitcoins. They can crash with a sell of 350.000 the whole currency.
3. how i can build a business on a currency which isn't stabilized.

that so far

[CurbsideProphet]

"Alive and well" is relative.  JDS Uniphase is alive and well but I don't think the investor that bought in at $100+ a share really cares.

I do agree with your statement xunker everyone needs to do their own due dilligence.  Unfortunately I think more people are looking at the meteoric rise in price and jumping in head first.  BTC does have potential, don't get me wrong, but is ridiculously overvalued at it's current price.  In my opinion, of course.

[Brutus]

For myself bitcoins has many problems.

1. who and how makes the decision about the wallet software.
2. there are to many people with a to big amount % of bitcoins. They can crash with a sell of 350.000 the whole currency.
3. how i can build a business on a currency which isn't stabilized.

that so far

1) The software is open source and anybody can view the source.  You can commit to it here https://github.com/bitcoin/bitcoin If your contribution is useful it might be included in the main branch or you could simply decide to use your own branch or write something from scratch.  Short answer: You decide

2) Possibly but that will hopefully even out over time as more people/entities accept BTC for payment and more btc are 'discovered'.

3) See number 2.  It is new and as such will have certain risks which is often the case with new ideas/technology.  The risks are high but perhaps the potential rewards of being an early adopter are high (only you can determine that - which is the beauty of such a thing).  Your point is a valid one given that a lack of predictability of btc value (relative to other currencies) makes it hard to evaluate business decisions.  Present participants in the US dollar climate are also finding the same lake of predictability (due to inflation, tax, regulation - planned regulation, etc).    

You are asking the right questions but give it time.

Finally given what history depicts happens to all fiat currencies vs a system that has a finite supply of currency units, where do you think the long term trends will lead when comparing the two types of currencies and why?  Hmmmmmm.

[HideousBeastManGuy]

Heard the same rationale during the tech bubble.  Bitcon is growing due to speculation, pure and simple.  Those who got in early have ridden the bubble up, hopefully exiting before the burst, what you have now are all the fool lemmings following in their footsteps trying to make an easy buck only to watch their profits go bye bye.

On one level you are right, but on another you're missing the fact that there is more ways to profit than simply hoping value goes up.  In fact, you could put yourself in a position to profit from a bubble burst as well if you use some imagination.

[anonimouse]

For myself bitcoins has many problems.

1. who and how makes the decision about the wallet software.
2. there are to many people with a to big amount % of bitcoins. They can crash with a sell of 350.000 the whole currency.
3. how i can build a business on a currency which isn't stabilized.

that so far

i was going to say these exact same things.

#1) the wallet is not secure at the moment, and until an EASY, SAFE solution is developed, people will have a hard time adopting BTC
#2) MtGox stepped in and "regulated" the "unregulated" currency because of the high volume sell.  the economy is extremely unstable because of its nature
#3) if i were a business, i would not accept BTC.  it would suck to sell one of your items, only to have your profits discounted 50% a few hours later due to market movements.  investors and individuals need not worry about this, but businesses won't be interested in the uncertainty.

[CurbsideProphet]

On one level you are right, but on another you're missing the fact that there is more ways to profit than simply hoping value goes up.  In fact, you could put yourself in a position to profit from a bubble burst as well if you use some imagination.

Oh no doubt.  There was some fantastic profit to be made during the 2008 market crash (to use a more recent example).  I'm just trying to caution the "newbies" that this game has played out before and a lot of people have been burned.

Bubbles are part of history, dating back to the great tulip bubble and probably even further.  It's like leverage, you can use it to your advantage to exponentially increase your profits but at the same time it can be like a sledgehammer to your head.  People just need to be wary.