Why regulation will absolutely NOT cause Bitcoin price to go down.

[BitcoinAshley]

"But guys, regulation will mean it's hard to get bitcoins at an exchange. If the exchanges are getting shut down, it will be very hard to get bitcoins, and no one will care about them. Demand will go down and price will fall. Regulation will be the death of bitcoin! No one's going to bother getting Bitcoins if they have to find a sketchy OTC dealer or if exchanges only have a 50% float rate."

How many times have you heard that here?

How come the exact opposite is happening in Argentina? There is an "official exchange rate" between the peso and the dollar, but that is an artificial market with no volume/liquidity - i.e. there are controls on the amount of USD you can legally buy. USD is heavily regulated in Argentina.
What happens if you want more USD than the government will allow you to buy? You will have to go on the black market, which is what people are doing. You go to a shady guy on the street corner who's whispering "dollars" under his breath and looking around nervously because BOTH YOU AND HE ARE RISKING ARREST and you are paying 100% over the 'official' exchange rate. USD is heavily regulated in Argentina, and USD price is rising despite the incredible 'hassle' to get it.

Even if BTC exchanges continue to be shut down left and right, and the government places outright controls on Bitcoins, and the IRS spies on and rabidly chases down anyone even remotely suspected of having bitcoins - price will continue to rise.

I have always used the comparisons to drugs and bittorrent to illustrate how a regulated asset rises in price, and how a regulated asset that is digital and decentralized is practically impossible for law enforcement to shut down. They haven't even been able to shut down the centralized front-end of torrents, which are the websites that provide torrent downloads. So it is not too much of a stretch for me to suggest that regulation will not affect bitcoin for the following reasons:

(1) It is decentralized, so attacks can only be effective against the front-end. (refer to Bittorrent)
(2) Regulation can reduce supply but in many examples, it does not reduce demand (see drugs, and now the U.S. Dollar in Argentina.)
The argument most often made is that reduced supply will automatically lead to reduced demand because of the "hassle" to get it. Well, it's a hassle to get drugs in America and it's a hassle to get U.S. Dollars in Argentina. Both have seen steady price increases within the appropriate time period.

I have always argued that people who think regulation will cause price to fall, while simultaneously holding a position in bitcoins (whose protocol is revolutionary in nature and is absolutely destined to be heavily "regulated" on the front-end) are in a bind. They hold a position that is incongruent with their opinion on the effect of regulations on price, and therefore should either rethink their opinion or sell all of their coins.

Thoughts?

[ElectricMucus]

What has "regulation" as you Libertarians call it (really just compliance with anti money laundering laws) to do with a fixed (non-floating) exchange rate?

[Frozenlock]

"regulation" as you Libertarians call it (really just compliance with money laundering laws)

 

[glendall]

I basically agree with your appraisal of the situation OP.

I think if most major exchanges in most first world countries were shutdown, it would hurt the valuation of Bitcoin. But even if this is the case, Bitcoin would still be fine -- it would just grow a lower rate.

Even if Bitcoin was made 'illegal' in much of the world I still think the price would still rise (but at even a greater penalty). Even if Bitcoin was only limited to use as a blackmarket illegal currency, the future still looks bright.

[ElectricMucus]

"regulation" as you Libertarians call it (really just compliance with money laundering laws)

 

I assumed this is in response the the mtgox/dwolla account seizure, cuz that is what that was about. What else can it be?

[Frozenlock]

"regulation" as you Libertarians call it (really just compliance with money laundering laws)

 

I assumed this is in response the the mtgox/dwolla account seizure, cuz that is what that was about. What else can it be?

Ah ok, I thought you were saying that money laundering laws weren't regulations! 

[ElectricMucus]

"regulation" as you Libertarians call it (really just compliance with money laundering laws)

 

I assumed this is in response the the mtgox/dwolla account seizure, cuz that is what that was about. What else can it be?

Ah ok, I thought you were saying that money laundering laws weren't regulations! 

Regulation of exchanges =/ regulation of Bitcoin

[MonadTran]

Regulation of exchanges =/ regulation of Bitcoin

Right, just as stealing from a single person does not make you a thief.

[N12]

Convertibility/Liquidity is part of the value of an asset/currency like Bitcoin. Drugs have an intrinsic consumption value and Dollars are an established world reserve currency. Bitcoin derives a (large?) part of its value from convertability, and currently this is most reliant on mtgoxUSD. A hit on that would be a hit on its use value as a medium of exchange as well as an investment option.

[Crypt_Current]

Convertibility/Liquidity is part of the value of an asset/currency like Bitcoin. Drugs have an intrinsic consumption value and Dollars are an established world reserve currency. Bitcoin derives a (large?) part of its value from convertability, and currently this is most reliant on mtgoxUSD. A hit on that would be a hit on its use value as a medium of exchange as well as an investment option.

I might have agreed with this a year ago, but Bitcoin's essence (a store of value that outperforms gold and is readily emailed) combined with the explosion of awareness nowadays (random people I ask on the street [yes i do this habitually] are beginning to actually claim to at least have heard of Bitcoin, rather than a year ago when everyone I queried responded something like, "no - what is a bitcoin?") leads me to believe that the demand for Bitcoin is approaching the level where people will go the proverbial extra mile to obtain them.

[mgio]

Sorry OP, you are completely wrong and your analogies don't fit at all.

The dollar has value even if no one from Argentina ever bought one.

Bitcoin does not have value if no one can use it.

Too much regulation will hurt bitcoin and can very easily kill it. Yes, die-hard believers will hold on to their bitcoins but your average investor will panic and sell if it looked like serious regulations were coming. I know I would.

Too much regulation and bitcoin ceases to be a useful currency and that is the ONLY thing that bitcoin has going for it. That is why people want it. Anything that makes it harder for it to function as a currency will negatively affect it's value.

[Crypt_Current]

Sorry OP, you are completely wrong and your analogies don't fit at all.

The dollar has value even if no one from Argentina ever bought one.

Bitcoin does not have value if no one can use it.

Too much regulation will hurt bitcoin and can very easily kill it. Yes, die-hard believers will hold on to their bitcoins but your average investor will panic and sell if it looked like serious regulations were coming. I know I would.

Too much regulation and bitcoin ceases to be a useful currency and that is the ONLY thing that bitcoin has going for it. That is why people want it. Anything that makes it harder for it to function as a currency will negatively affect it's value.

You confuse legal use with actual use.
People CAN'T use marijuana in the US ... but oh boy, they sure do use marijuana!  A LOT of it.  But they CAN'T.  But they DO... because it is HIGHLY (pun intended) valuable to these people.
BTC is essentially gold that you can email.  If you don't see how this concept is absolutely unprecedented, revolutionary, fundamentally liberating on an individual level... Then yeah I guess you think demand will die off.
But it won't.  Demand for BTC can only increase from any prohibition attempts; from its essence (the revolutionary concept of a store of value that outperforms gold and is EMAILABLE [zero storage cost / no third parties necessary]).  This is utterly new to humanity; I totally understand why a lot of people are skeptical about future demand -- there's never been anything like it.
Demand for BTC has been increasing and will not stop; regulation will only add fuel to the fire.

[wonkytonky]

Sorry OP, you are completely wrong and your analogies don't fit at all.

The dollar has value even if no one from Argentina ever bought one.

Bitcoin does not have value if no one can use it.

Too much regulation will hurt bitcoin and can very easily kill it. Yes, die-hard believers will hold on to their bitcoins but your average investor will panic and sell if it looked like serious regulations were coming. I know I would.

Too much regulation and bitcoin ceases to be a useful currency and that is the ONLY thing that bitcoin has going for it. That is why people want it. Anything that makes it harder for it to function as a currency will negatively affect it's value.

You confuse legal use with actual use.
People CAN'T use marijuana in the US ... but oh boy, they sure do use marijuana!  A LOT of it.  But they CAN'T.  But they DO... because it is HIGHLY (pun intended) valuable to these people.
BTC is essentially gold that you can email.  If you don't see how this concept is absolutely unprecedented, revolutionary, fundamentally liberating on an individual level... Then yeah I guess you think demand will die off.
But it won't.  Demand for BTC can only increase from any prohibition attempts; from its essence (the revolutionary concept of a store of value that outperforms gold and is EMAILABLE [zero storage cost / no third parties necessary]).  This is utterly new to humanity; I totally understand why a lot of people are skeptical about future demand -- there's never been anything like it.
Demand for BTC has been increasing and will not stop; regulation will only add fuel to the fire.

this

[MAbtc]

Perhaps if the utility of bitcoin were in the same universe as the utility of the dollar. Your theory only works if the basis for demand remains -- a huge assumption.

This is what you have not proven: If bitcoin enters the black market, legally viable alternatives will not take its place.

Current demand IMO is based mostly on speculation in re to store of value -- not bitcoin's use as currency. There is little demand for bitcoin as an actual currency/payment system – people don’t need it. If shit goes south, there are plenty of legal alternatives. And IMO, the average person – who bitcoin needs for mass adoption – is happy to use Paypal, credit cards, bank transfer, etc. without getting their hands involved in anything legally dubious. What will happen to bitcoin's perceived use as currency if it becomes particularly difficult to obtain fiat currency with it? It's starting to sound like the Peso! Will people be paying premiums to offload their bitcoin? 

In the case of a US government crackdown, would you expect speculators to stick around? If so, why? And in such a case, what happens to all the VC capital that perma-bulls keep going on about? Successful VCs love to invest in legally questionable ventures, don't they? Yes, any type of government crackdown on bitcoin is going to create a frenzy of investment!

Oh, drugs. Let's talk about drugs. Do you really think bitcoin could compare with illegal drugs in terms of demand?

For reference, in 1906, 25 million people were using opium (1.5% of the world population). According to the US Opium Commissioner, in 1911, US residents consumed 500,000 pounds of opium, or ~1 pound per 180 people. As for cocaine, in 1906, the US imported 2.86 million pounds of coca leaf, in addition to "large quantities" of manufactured cocaine.

Compare to size of bitcoin economy. Do you think there is 1 million bitcoin users, which would put bitcoin users at 0.014% of the world population? Give or take a couple 100,000 or so? And of those bitcoin users, how many are merely speculators, who will simply leave bitcoin during a prolonged downslide (or at the outset of panic) for other investments? Regardless, doesn't your scenario require mass adoption? Massive demand which currently does not exist?

Bittorrent? The decentralization that you speak of ... what would happen if Gox, Bitstamp, Bitpay, Satoshi Dice were to go down? (the latter won't be safe simply by ceasing to serve US residents going forward) ... and what would merchants do when they see bitcoin operators being picked off by the government?

Anyway, yada yada yada, more devil's advocate shit. But really this idealism is crazy! A lot of what I see here can only be described as pure faith ... at least be open to the possibility that our beloved bitcoin may fall on very hard times someday.

Oh, and regarding the last point of the OP, there is always the possibility that short/medium term outlook ≠ long term outlook. Or that one's outlook contains caveats that account for such things. Some of us think shit may hit the fan in the future. That doesn't mean I'm selling now.

[Zangelbert Bingledack]

I must agree with some others who said that the elephant in the room, ultimately, is that bitcoins are gold bars you can email (and hide in your brain from everyone), and there are people who want and need this superpower more than almost anything else. Moreover, most such people are very wealthy.

All that is needed is merely for people to notice this fact. Then a landgrab commences.

Strictly speaking, the landgrab has already started, but it is happening in layers because people are awakening to this fact in stages. It doesn't seem it will be long until it is staring every billionnaire in the face, at least.

[Draino]

I agree with OP and I challenge everyone to remember the mindset you had as an adolescent geek.  Now, if suddenly that awesome cyberpunk-style digital currency you've been mining for months suddenly became a challenge or even illegal to get.. would that make you more, or less, motivated to get your hands on it?  I think that rebellious part is still in there for many of us, particularly when it aligns with our principles.

Not to mention, full blown illegal sounds to me like it's right down Wall St.'s alley.

[RationalSpeculator]

Perhaps if the utility of bitcoin were in the same universe as the utility of the dollar. Your theory only works if the basis for demand remains -- a huge assumption.

This is what you have not proven: If bitcoin enters the black market, legally viable alternatives will not take its place.

Current demand IMO is based mostly on speculation in re to store of value -- not bitcoin's use as currency. There is little demand for bitcoin as an actual currency/payment system – people don’t need it. If shit goes south, there are plenty of legal alternatives. And IMO, the average person – who bitcoin needs for mass adoption – is happy to use Paypal, credit cards, bank transfer, etc. without getting their hands involved in anything legally dubious. What will happen to bitcoin's perceived use as currency if it becomes particularly difficult to obtain fiat currency with it? It's starting to sound like the Peso! Will people be paying premiums to offload their bitcoin? 

In the case of a US government crackdown, would you expect speculators to stick around? If so, why? And in such a case, what happens to all the VC capital that perma-bulls keep going on about? Successful VCs love to invest in legally questionable ventures, don't they? Yes, any type of government crackdown on bitcoin is going to create a frenzy of investment!

Oh, drugs. Let's talk about drugs. Do you really think bitcoin could compare with illegal drugs in terms of demand?

For reference, in 1906, 25 million people were using opium (1.5% of the world population). According to the US Opium Commissioner, in 1911, US residents consumed 500,000 pounds of opium, or ~1 pound per 180 people. As for cocaine, in 1906, the US imported 2.86 million pounds of coca leaf, in addition to "large quantities" of manufactured cocaine.

Compare to size of bitcoin economy. Do you think there is 1 million bitcoin users, which would put bitcoin users at 0.014% of the world population? Give or take a couple 100,000 or so? And of those bitcoin users, how many are merely speculators, who will simply leave bitcoin during a prolonged downslide (or at the outset of panic) for other investments? Regardless, doesn't your scenario require mass adoption? Massive demand which currently does not exist?

Bittorrent? The decentralization that you speak of ... what would happen if Gox, Bitstamp, Bitpay, Satoshi Dice were to go down? (the latter won't be safe simply by ceasing to serve US residents going forward) ... and what would merchants do when they see bitcoin operators being picked off by the government?

Anyway, yada yada yada, more devil's advocate shit. But really this idealism is crazy! A lot of what I see here can only be described as pure faith ... at least be open to the possibility that our beloved bitcoin may fall on very hard times someday.

Oh, and regarding the last point of the OP, there is always the possibility that short/medium term outlook ≠ long term outlook. Or that one's outlook contains caveats that account for such things. Some of us think shit may hit the fan in the future. That doesn't mean I'm selling now.

Great post! Thanks for sharing!

[BitcoinAshley]

Good thoughts here, thanks all for replying. I'll just reply to EM here because rest of you seem to have taken care of each other 

What has "regulation" as you Libertarians call it (really just compliance with anti money laundering laws) to do with a fixed (non-floating) exchange rate?

I'm confused as to why I am a libertarian? And I was confused as to why anti-money-laundering laws are not regulation, although that is not what I am specifically referring to, it is still a regulation that increases barrier to entry for start-ups more than it actually prevents money laundering (it makes it about 2% harder to transfer fiat to and from BTC but once there money laundering is as easy as 1,2,3. And let's not forget that anti-ML laws did not prevent HSBC and the other banks from doing it for years...)However, I am not saying that governments 'should' or 'shouldn't regulate Bitcoin businesses; I did not really make that argument so I am confused as to why the libertarian accusation It is not the point of this thread, the point is the effect of said regulation, not whether or not it should exist.
Furthermore, I am confused as to how a fixed exchange rate is related because I not once mentioned it. Unless you are referring to the official USD/peso rate which I would presume is fixed by the argentinian government but as I said, artificial market. Focus is on the real exchange rate i.e. what Joe Plumber on Main St. is actually paying for it, not what his government tells the rest of the world he is paying.

I assumed this is in response the the mtgox/dwolla account seizure, cuz that is what that was about. What else can it be?

It's not in response to a specific incident. It's in response to a commonly introduced flawed argument that insists that a forced reduction in supply will automatically result in a greater reduction in demand. This is what I addressed.
Currently all we've seen is existing regulations applied to exchanges, and banks in certain countries shutting down exchanges for political reasons (Poland for example.) I'm not saying every shut-down was for political reasons (some were just idiots and didn't have enough cushion in their account to make the banks sleep easy with the MASSIVE volume of deposits and withdrawals) but it's certainly an issue. And if/when regulations start being introduced specifically targeting Bitcoin or cryptocurrencies, we will see that I am right and it will not cause price to plummet 

Regulation of exchanges =/ regulation of Bitcoin

Thanks, Captain Obvious
It is next to impossible to regulate the Bitcoin protocol itself. I should clarify; it is next to impossible to enforce any regulation that is introduced that forces a change in the bitcoin protocol and also forces that users accept the change. For that reason, I would expect talks of "regulation of bitcoin" to be focused on regulation of bitcoins "front end" or businesses that are involved with bitcoin in some way or another. We don't have to get that specific; it is a safe assumption that "regulation of Bitcoin" refers to regulation of its centralized infrastructure rather than its decentralized protocol. Since the latter is impossible improbable. 

...Yes, a swat team could swoop down in the middle of the night on Gavin and torture/mind control force him to make a genious change in the code that created a huge vulnerability, that no one else on the devteam picks up on before release. *** YAWWWWNNNNNN ***

[naphto]

Thoughts?

So everyone will risk his life, family, friends for a couple of bucks like they do in Argentina?
Oh, wait...

[mgio]

Sorry OP, you are completely wrong and your analogies don't fit at all.

The dollar has value even if no one from Argentina ever bought one.

Bitcoin does not have value if no one can use it.

Too much regulation will hurt bitcoin and can very easily kill it. Yes, die-hard believers will hold on to their bitcoins but your average investor will panic and sell if it looked like serious regulations were coming. I know I would.

Too much regulation and bitcoin ceases to be a useful currency and that is the ONLY thing that bitcoin has going for it. That is why people want it. Anything that makes it harder for it to function as a currency will negatively affect it's value.

You confuse legal use with actual use.
People CAN'T use marijuana in the US ... but oh boy, they sure do use marijuana!  A LOT of it.  But they CAN'T.  But they DO... because it is HIGHLY (pun intended) valuable to these people.
BTC is essentially gold that you can email.  If you don't see how this concept is absolutely unprecedented, revolutionary, fundamentally liberating on an individual level... Then yeah I guess you think demand will die off.
But it won't.  Demand for BTC can only increase from any prohibition attempts; from its essence (the revolutionary concept of a store of value that outperforms gold and is EMAILABLE [zero storage cost / no third parties necessary]).  This is utterly new to humanity; I totally understand why a lot of people are skeptical about future demand -- there's never been anything like it.
Demand for BTC has been increasing and will not stop; regulation will only add fuel to the fire.

There is a huge difference. Marijuana has some inherent value. The US making it illegal doesn't diminish the high you get. People want to smoke marijuana whether it is legal or not. Bitcoins inherent value is related to its usefulness as a currency and store of value. Lack of regulation is part of this usefulness

Bitcoin is not like marijuana. If the US made it illegal to own bitcoin (note that I don't think that will ever happen), it would severely affect it's usefulness as a store of value. Many people would not use it simply because it is not worth the legal risk. Less people using bitcoin means less usefulness and a lower value. A currency is only as valuable as the people who use it believe it is. If it is only used by extremist and libertarians it will never be worth that much. Bitcoin needs to achieve widespread acceptance before its value can really soar. Regulation only hinders that.

Yes, I know all about great benefits and I agree with you on that point. But I think it is balanced out right now by a lot of things: the difficulty in obtaining it, the fact that many people don't understand it, worries about security from hackers, the fear of future regulation by the world's major governments, etc. All these things are slowing bitcoin's adoption.