.

[chodpaba]

.

[ElectricMucus]

A very wealthy trader can afford to make a bigger bet on where the price of Bitcoin will be, farther out, than a trader with less deep pockets.

Let that sink in.

Can and must.

[apetersson]

If you are willing to wait for it you can probably get just about any exchange rate you like.  

now you took away the punchline everyone was set up for.
there is one drawback, though. eventually Bitcoin settles in its niche and something else continues to innovate. then it would converge to a non-zero stable value, maybe even driven by - fundamentals.

[ElectricMucus]

I wonder what the Winklevoss are waiting for.  How old are they?

[notme]

I wonder what the Winklevoss are waiting for.

ETF approval

[ElectricMucus]

If you are willing to wait for it you can probably get just about any exchange rate you like. 

now you took away the punchline everyone was set up for.
there is one drawback, though. eventually Bitcoin settles in its niche and something else continues to innovate. then it would converge to a non-zero stable value, maybe even driven by - fundamentals.

Well, Bitcoin ceases to be supply-inelastic when there is something that can substitute for it. I am sure that many of the alt-coin creators have considered this. But as an ecosystem for trust-free services is fleshed out it forms the kind of tide that lifts all boats. I am sure Bitcoin will have many effective competitors, but the rotation to cryptos will be tremendous.

Um, I can't really see altcoins as a Bitcoin substitute. Their valuation is a subset of Bitcoin they function merly as a Bitcoin derivative.

[Impaler]

Wait a sec, LTC has exactly the same inflation rate as BTC as its just a strait copy-paste of the BTC mining scheduled but at 4 blocks in a 10 minute period rather then one.  It has the same coins per block and the same 4 year period between the rewards being halved as BTC, it's just started later in time so its still in the first leg of higher inflation equivalent to what BTC was doing back in around 2012.  So it is as good or as bad as the economics behind BTC.

If your looking for flawed economics look at the fact that both are designed to be deflationary and derive all their valuation from speculation, that's the real weakness.

[BitPirate]

Wait a sec, LTC has exactly the same inflation rate as BTC as its just a strait copy-paste of the BTC mining scheduled but at 4 blocks in a 10 minute period rather then one.  It has the same coins per block and the same 4 year period between the rewards being halved as BTC, it's just started later in time so its still in the first leg of higher inflation equivalent to what BTC was doing back in around 2012.  So it is as good or as bad as the economics behind BTC.

If your looking for flawed economics look at the fact that both are designed to be deflationary and derive all their valuation from speculation, that's the real weakness.

Same coins per block, blocks mined 4x faster.

Same inflation rate? Really??

[Impaler]

Yes moron cause "inflation" (actually growth in monetary base) is relative to the number of coins already created and which will ever be created.  At the end of 4 years BTC was at half of all coins and when LTC hits it's first halving event in a few years or so it will be at half of all LTC.  Thus each chain produces 12.5% of all coins per year the first 4 years, the same inflation rate.  The only difference is LTC chain was started later and is still in an earlier part of the curve.

[Inedible]

Yes moron cause "inflation" (actually growth in monetary base) is relative to the number of coins already created and which will ever be created.

That's not true.

[BitPirate]

Yes moron cause "inflation" (actually growth in monetary base) is relative to the number of coins already created and which will ever be created.  At the end of 4 years BTC was at half of all coins and when LTC hits it's first halving event in a few years or so it will be at half of all LTC.  Thus each chain produces 12.5% of all coins per year the first 4 years, the same inflation rate.  The only difference is LTC chain was started later and is still in an earlier part of the curve.

"Inflation rate" is relative to the number of coins in existence. You said it yourself: growth in monetary base.

LTC's current inflation rate is over 5x that of BTC. See here: https://bitcointalk.org/index.php?topic=227395.0 .

[granolageek]

I wonder what the Winklevoss are waiting for.  How old are they?

35, FWIW. With any kind of luck they have 40 good years left, and maybe 20 less good after that.

[ElectricMucus]

Just wondering do you trade Litecoins?

[Technomage]

Interesting thoughts. I agree that as a speculative scarce asset bitcoins will always fluctuate in value, but in time the growth phase will be over and it will settle in a place where the value is not driven purely by speculation anymore. How long this will take, that I don't know. I'd say that if Bitcoin is still up and running and useful, this will happen during the next decade. This decade is all about the growth phase, which might reach its peak around 2020.

When the intensive growth phase is over and we reach a sort of semi long term top (if we still have inflating paper monies at the time, we would eventually go over that top too in relation to those paper monies) and make a correction down, which is when the volatility of Bitcoin starts to go down in general. Bitcoin would be more like gold but gold on steroids (as it's actually useful and convenient as a medium of exchange).

Obviously this is all thin ice speculation since we simply don't know if anyone uses Bitcoin in 2020 anymore. But as long as there isn't a clear cryptocurrency replacement for Bitcoin, or a reason for one, I see no reason to assume that people wouldn't use Bitcoin in 2020. What I do know is that cryptocurrencies will be there, and they will play a larger and larger role in world economies, that is pretty much guaranteed.

Later this century we will see gold & silver largely devalued as asteroid mining comes into play (trust me, sooner or later it is coming) which will be the time when cryptocurrencies are actually the only scarce monetary assets in existence, which will put them in a very respected position. That is the final seal that guarantees cryptocurrency domination.

[apetersson]

someone should come up with a cryptocurrency inflation index, which combines market cap + block rewards of all known cryptocurriencies.

[Impaler]

Yes moron cause "inflation" (actually growth in monetary base) is relative to the number of coins already created and which will ever be created.  At the end of 4 years BTC was at half of all coins and when LTC hits it's first halving event in a few years or so it will be at half of all LTC.  Thus each chain produces 12.5% of all coins per year the first 4 years, the same inflation rate.  The only difference is LTC chain was started later and is still in an earlier part of the curve.

"Inflation rate" is relative to the number of coins in existence. You said it yourself: growth in monetary base.

LTC's current inflation rate is over 5x that of BTC. See here: https://bitcointalk.org/index.php?topic=227395.0 .

That rate of inflation is CONSTANTLY CHANGING for BOTH COINS.  It's just a matter of how far down the mining curve it is.  LTC started Oct 2011 making it 22 months old.  It has the same inflation rate as BTC had 22 months after it's launch.  Any side by side comparison will always show that LTC has a higher inflation rate then BTC but that ratio is just coincidentally around 4 right now, it has nothing to do with the 4 times greater nominal block rates.

The day LTC started it had a million times the inflation rate as BTC had on that day back in 2011, as time goes on the rates for both coins will decline and the gap both in absolute and relative terms will decline.  Years from now BTC will be growing at 1% a year and LTC at 1.1% an insignificant difference.  chodpaba has ignorantly concluded (or at least implied) that LTC ALWAYS has a 4x higher inflation rate, and any conclusion drawn from that is going to be flawed.  As for what a fair valuation for LTC is I have no comment but at least get your basic terminology right before you post your speculations.

[Pruden]

All things being equal this still means more like 1/(e^4). Not 1/4.

I've probably missed where you justified this. Could you point me to it?

[ElectricMucus]

But really. This has been talked to death.

Bitcoin is behaving exactly as you would expect for a supply-inelastic asset class.

I would argue that elasticity doesn't really apply to Bitcoin because it implies demand based upon inherent value. But Bitcoins have no inherent value, just the network provides utility which is something else.
In other words demand and liquidity are dependent on positive feedback since the utility comes out of distribution which in turn follows the market price.

[ElectricMucus]

But the similarity ends on the demand side, demand is no where near as constant as in real assets like cotton.

A better comparison would be Rhodium which even has volatility of a similar magnitude to Bitcoins.


The supply side has even more inelastic properties than cotton since it's production is tied as a byproduct of other metals. But the demand side doesn't have the inelastic properties you suggest, I would even say it is highly elastic, like Bitcoins speculation driven by a large extent.

[Adrian-x]

This thread has been an enjoyable read.
I agree with chodpaba that people think linearly and not exponentially, Bitcoin was exciting to start as I saw the opportunity for exponential growth but when I witnessed it in the market in 2011 and the beginning of the 2013 it was hard to comprehend.

It also stands to reason that the halving of Bitcoin's rate of inflation, is known and as such most investors tend to have their coins.  It is only the new investors now who don't yet have coins and creates an opportunity for growth via the "elastic demand".

 As Bitcoin has an almost inelastic supply, and as / if demand increases, we should expect exponential growth in price.  I am left with the following thoughts;  As the price increases, demand tends to wane, as "new" early adopters tend to move on to new things to avoid being laggards, (hence the interest in LC or alts)

So the supply dose becomes somewhat elastic relative to demand by adjusting as old coins go into circulation and this should happen with every magnitude of growth, if it doesn't, the price will stagnate and tend to fall to its utilitarian value, and then grow organically based on the demand and flow of money.

So I understand exponential growth is possible, and have seen it in action, I see the elasticity of demand adjusting radically to the point it actually discourages adoption, so as I don't understand how you model that mathematically, I don't think it can be predicted.

It's like; because the supply is finite, the supply has to be constantly distributed as demand increases, if it isn't then the supply finds a balance based on the excising demand.  (ie wealth extraction has to take place as Bitcoin is adopted, but if it takes place too rapidly it self corrects)