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Author Topic: Bitcoin price is too high at 20$/BTC  (Read 10167 times)
relative
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June 23, 2011, 11:26:35 PM
 #1

I think current prices are highly speculative, and even if bitcoins will be a huge success story cannot be sustained for the next few years.

Here's why, counter-arguments welcome. If you think I'm just trolling or trying to buy cheap, simply ignore this thread please.

I'll assume a price of 20$/BTC from here on, even though the top was at 30.

1.

2.6 million coins a year are mined until 2013, 1.3 million coins a year after that.
at 20$/BTC, that's equivalent to more than 50 million dollars in one year, or approx. 170 million dollars within 5 years, that have to flow into the system to sustain this price.

i.e. people have to buy BTCs for 170 million dollars!
what are the circumstances to make that happen?

(that's of course only if miners sell all of their gains, but if miners keep some of their coins it only means they expect to sell it for even more in the future!)

2.

bitcoin can draw its value only from demand from circulation, and temporarily from speculation.

money supply definitions are very diverse and incomparable, but just to give you an idea: M1 money supply of the eurozone is about 28% of annual GDP, M1 money supply of the US about 14% of GDP.

a bitcoin economy with a money supply of even 30% annual GDP would be valued at 21 million BTC, or 430 million $ a year.
what do you think the bitcoin economy amounts to a year? 5 figures? 6 figures?
what demand for bitcoins do you think that creates?

3.

in addition to that, by the above numbers and 6.5 million BTC supply now, the BTC money supply grows by 40% within a year, or by 18% a year over the next 5 years.

that's huge inflation, unless there is ADDITIONAL demand from circulation and/or speculation.

a bitcoin economy valued at 430 million dollars a year now at 20$/BTC is at 600 million $ in a year, or 1 BILLION $ a year in 5 years.

==>

20$/BTC is HIGHLY speculative.
maybe the bitcoin economy explodes and these prices are sustained, but to think that the price even rises substantially would mean the scenario above would have to be outperformed, or demand from speculation increase even more so, for years to come.


edit: corrections. I miscalculated the GDP numbers.
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DamienBlack
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June 23, 2011, 11:42:42 PM
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First you overestimate by assuming that all mined coins are sold. I think 80%+ are kept. Rerun all those number with only a fifth the coins for sale.

Secondly, judging by the bids that got filled recent crash, there was millions of dollars worth sitting in open buy orders. There may be many millions more that just didn't get a chance to be involved in that trade. My point -- bitcoins are starting to become really big, and it has attracted some people willing to put some serious money down.

$170 million in 5 years is actually a really small market on a global scale. Small businesses make that much. For a comparison that might be close to home -- Dungeons and Dragons brings in $1 billion a year. And yet, very few people actually ever spend any money on it. M:TG doesn't release their stats, but people have estimated it could be greater than $5 billion a year.

So if bitcoins only become as big as magic the gathering (which, lets face it, not many people have heard of), we may see $25 billion in the next 5 years. By your simplistic calculations, that would put the price of a bitcoin at > $3,000.

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June 23, 2011, 11:46:53 PM
 #3

First you overestimate by assuming that all mined coins are sold. I think 80%+ are kept. Rerun all those number with only a fifth the coins for sale.
I've addressed that. if that's correct it makes it an even worse bubble.

Quote
$170 million in 5 years is actually a really small market on a global scale. For a comparison that might be close to home -- Dungeons and Dragons brings in $1 billion a year. And yet, very few people actually ever spend any money on it. M:TG doesn't release their stats, but people have estimated it could be greater than $5 billion a year.

ok, if you think 170 million $ will come in (or a lot more in case you're speculating on a rising price), you are set.
I don't think very many people realize though what kind of numbers are required to sustain this price.

Quote
So if bitcoins only become as big as magic the gathering (which, lets face it, not many people have heard of), we may see $25 billion in the next 5 years. By your simplistic calculations, that would put the price of a bitcoin at > $3,000.

I don't understand this comparison. people spend money on games.
they expect returns on investments.


fun fact: the bitcoin economy will be as big as antigua and barbuda in 5 years ;-)
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June 23, 2011, 11:50:10 PM
 #4

First you overestimate by assuming that all mined coins are sold. I think 80%+ are kept. Rerun all those number with only a fifth the coins for sale.

Secondly, judging by the bids that got filled recent crash, there was millions of dollars worth sitting in open buy orders. There may be many millions more that just didn't get a chance to be involved in that trade. My point -- bitcoins are starting to become really big, and it has attracted some people willing to put some serious money down.

$170 million in 5 years is actually a really small market on a global scale. Small businesses make that much. For a comparison that might be close to home -- Dungeons and Dragons brings in $1 billion a year. And yet, very few people actually ever spend any money on it. M:TG doesn't release their stats, but people have estimated it could be greater than $5 billion a year.

So if bitcoins only become as big as magic the gathering (which, lets face it, not many people have heard of), we may see $25 billion in the next 5 years. By your simplistic calculations, that would put the price of a bitcoin at > $3,000.

price is actually right about where it should be at right now, $32 was when it wasn't. The more people that use bitcoin, the greater the value they become, and thats why you can divide them up by 0.00000000 -- if we all ended up switching to this currency it would be very common to use a lot of decimals. I decent wage monthly would be 0.500000000 which might equal $5000 USD.

Once you understand that, you understand what keeps bitcoins at the current rate they are at and can judge the bitcoin economy based on the price per btc.
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June 23, 2011, 11:51:50 PM
 #5

The price is always where it should be.
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June 23, 2011, 11:52:47 PM
 #6

http://falkvinge.net/2011/06/16/bitcoins-four-drivers-part-one-unlawful-trade/
http://falkvinge.net/2011/06/18/bitcoins-four-drivers-part-two-international-trade/


These are the other side's fantasy. The other side being the opponents of OP in this debate.
DamienBlack
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June 23, 2011, 11:59:32 PM
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Quote
So if bitcoins only become as big as magic the gathering (which, lets face it, not many people have heard of), we may see $25 billion in the next 5 years. By your simplistic calculations, that would put the price of a bitcoin at > $3,000.

I don't understand this comparison. people spend money on games.
they expect returns on investments.

I was merely trying to drive home how small an amount $170 mil is.

And the piece you might be missing is that this isn't some pyramid scheme where the money would only come from people investing. Say a poker site open up that is as big as pokerstars but uses bitcoins. In that case, people will want bitcoins to _use_, not as an investment. Pokerstars generated > $10 billion in deposits a year (before the US restrictions). If that much money is trying to funnel itself through the bitcoins system, the price of a bitcoin will be huge.

And that is just one industry. There are thousands of industries that could benefit from bitcoin. Some less legal than others. If a couple catch on, there is a chance that the value of a bitcoin will be so huge we won't even think in terms of bitcoins anymore. But it is only a chance, and maybe a very slim chance. That slim chance is what is giving bitcoin its value right now.

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relative
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June 23, 2011, 11:59:52 PM
 #8


actually, from speed-reading alone, I think we are on the same side.
they postulate that a substantial part of international trade will move their "demand from money circulation" to bitcoin and that causes prices to rise.

no argument there. if you are reasonably sure that happens, buy buy buy.
I doubt the majority of bitcoin "investors" have that view.
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June 24, 2011, 12:03:11 AM
 #9

I think current prices are highly speculative, and even if bitcoins will be a huge success story cannot be sustained for the next few years.

Here's why, counter-arguments welcome. If you think I'm just trolling or trying to buy cheap, simply ignore this thread please.

I'll assume a price of 20$/BTC from here on, even though the top was at 30.

1.

2.6 million coins a year are mined until 2013, 1.3 million coins a year after that.
at 20$/BTC, that's equivalent to more than 50 million dollars in one year, or approx. 170 million dollars within 5 years, that have to flow into the system to sustain this price.

i.e. people have to buy BTCs for 170 million dollars!
what are the circumstances to make that happen?

(that's of course only if miners sell all of their gains, but if miners keep some of their coins it only means they expect to sell it for even more in the future!)

2.

bitcoin can draw its value only from demand from circulation, and temporarily from speculation.

money supply definitions are very diverse and incomparable, but just to give you an idea: M1 money supply of the eurozone is about 28% of annual GDP, M1 money supply of the US about 14% of GDP.

a bitcoin economy with a money supply of even 30% annual GDP would be valued at 21 million BTC, or 430 million $ a year.
what do you think the bitcoin economy amounts to a year? 5 figures? 6 figures?
what demand for bitcoins do you think that creates?

3.

in addition to that, by the above numbers and 6.5 million BTC supply now, the BTC money supply grows by 40% within a year, or by 18% a year over the next 5 years.

that's huge inflation, unless there is ADDITIONAL demand from circulation and/or speculation.

a bitcoin economy valued at 430 million dollars a year now at 20$/BTC is at 600 million $ in a year, or 1 BILLION $ a year in 5 years.

==>

20$/BTC is HIGHLY speculative.
maybe the bitcoin economy explodes and these prices are sustained, but to think that the price even rises substantially would mean the scenario above would have to be outperformed, or demand from speculation increase even more so, for years to come.


edit: corrections. I miscalculated the GDP numbers.

Bitcoin - learn it.

At block 210,000 the reward is reduced to 25BTC/block.

edit: maybe you did know that.

Regardless, 1 billion dollars is like 16 cents per person which is like .009 cents per day.

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relative
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June 24, 2011, 12:05:17 AM
 #10

At block 210,000 the reward is reduced to 25BTC/block.

if I'm not mistaken, that's factored into my numbers. that's at the end of 2013, right?
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June 24, 2011, 12:05:56 AM
 #11

At block 210,000 the reward is reduced to 25BTC/block.

if I'm not mistaken, that's factored into my numbers. that's at the end of 2013, right?

yes sorry.

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June 24, 2011, 12:12:40 AM
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a bitcoin economy with a money supply of even 30% annual GDP would be valued at 21 million BTC, or 430 million $ a year.

I'm not sure I understand what you're saying.  US annual GDP is around $15 trillion.
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June 24, 2011, 12:18:48 AM
 #13

You're looking short term.  Long-term, the supply is *done* and people continue to lose irreplaceable coins in various, incredibly pathetic ways.  That's what screws up your analogies to other money supplies, which have no such deflationary mechanism built in.  We're aware of the current inflationary pressure, but pricing in the fact that it has an expiration date.
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June 24, 2011, 12:24:46 AM
 #14

At block 210,000 the reward is reduced to 25BTC/block.

if I'm not mistaken, that's factored into my numbers. that's at the end of 2013, right?

No, January of 2013.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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June 24, 2011, 12:27:59 AM
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At block 210,000 the reward is reduced to 25BTC/block.

if I'm not mistaken, that's factored into my numbers. that's at the end of 2013, right?

No, January of 2013.

yes my mistake by saying "end of". the numbers are still correct.
I calculated with 1,5 years of 50*6*24*365 coins and 3,5 years of 25*6*24*365 coins.

Quote
a bitcoin economy with a money supply of even 30% annual GDP would be valued at 21 million BTC, or 430 million $ a year.

I'm not sure I understand what you're saying.  US annual GDP is around $15 trillion.

I used the (conservative) ratio of money supply vs. GDP (0,3 : 1) to estimate what size the bitcoin economy would have to be to sustain this price.
the US economy has a ratio of (0,28 : 1) if you use M1 (which is questionable because it is a wider definition of money supply. but it's also in favor of BTC
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June 24, 2011, 12:28:14 AM
 #16

Go away.

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June 24, 2011, 12:32:45 AM
 #17

"Bitcoin will make the US dollar worth pennies compared to what its worth to us today."
-AnonymousCSP


"Gold started off having almost no value, pennies for a chunk. Now look at it today, hundreds of dollars for a chunk, ever growing in value."
-AnonymousCSP

"Like Bitcoins, the more people that want and use gold, the higher in value it becomes."
-AnonymousCSP
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June 24, 2011, 12:34:57 AM
 #18

Go away.

I asked you to ignore this thread, Mr. I-sell-bitcoin-shirts-for-euros, didn't I?

Quote

Here's why, counter-arguments welcome. If you think I'm just trolling or trying to buy cheap, simply ignore this thread please.

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June 24, 2011, 12:46:45 AM
 #19

back in April, $5 was unbelievably high for BTC
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June 24, 2011, 12:57:17 AM
 #20

There is no such thing as "too high" of a price. It just comes down to demand and supply. Saying it's "too high" will prevent you from making an underlying analysis. You can't be choking at the price level, look at the big picture and extrapolate however you see fit.

For me, I see value increasing over time.

fortitudinem multis - catenum regit omnia
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