Why bitcoins are dropping, and will continue to do so

[5grainsilver]

I made some mistaks in my analysis of bitcoin.  I was looking at it like a stock, but the difference is that my method of analysis is designed to track and piggyback on institutional order flow.  There is no institutional order flow in bitcoin.  Stupid mistake! 

Bitcoin is now behaving just like you would expect if you think about it.  The market is comprised of speculators and miners.  The miners regularly sell, and the speculators can only speculate to the long side.  That leads to the occassional speculative spike, followed by profit taking and selling off by the miners.  This is creating a pattern of the market stepping down price levels in an orderly manner as miners lower their standard of what they are willing to sell for.  This will continue to happen until we reach <$1.00.  If shorting was possible we would already be there IMO.  Of course it could blow up at any time if we get some more dumb money coming in from a media story or something.  And then it will crash again.  I think bitcoin has already seen its all time high though, and will go down soon as a unique piece of internet history.   

[Rassah]

The market is comprised of speculators and miners.  The miners regularly sell, and the speculators can only speculate to the long side.  That leads to the occassional speculative spike, followed by profit taking and selling off by the miners.  This is creating a pattern of the market stepping down price levels in an orderly manner as miners lower their standard of what they are willing to sell for.  This will continue to happen until we reach <$1.00.  If shorting was possible we would already be there IMO.  Of course it could blow up at any time if we get some more dumb money coming in from a media story or something.  And then it will crash again.  I think bitcoin has already seen its all time high though, and will go down soon as a unique piece of internet history.   

Perhaps. Or perhaps doing things like designing working/secure phone apps, shop POS systems, ATMs, competent and easy exchanges, and easy-to-use secure wallet software just takes a bit more time.

[niemivh]

And why the bitcoin value is entirely dependent on the black market. 

It is simple supply and demand.  Lets look at each side. 

Supply:

Supplied by miners.  Any serious operation NEEDS to sell to pay utilities.  That creates a steady supply of bitcoins offered at market price on a regular basis. 

That alone is what kills it at this point.  Everyone is still using this a profit making game, which means all mined coins are getting sold off for market price.


Bottom line: almost no one wants Bitcoins for Bitcoin's sake.  People want Bitcoins to sell for dollars now or later, or they want them to purchase illegal items.  That's really all they're used for right now and it's unfortunate.

Welcome to deflationary economics 101.

 

A system in which he who can afford to sit the longest on their pile of money wins.  A system that resembles a bunch of hens sitting on eggs rather than the exchange of goods and services and economic growth through production and investment.  A system in which if a person was able to take a time machine into the future they would have become richer simply through the 'virtue of saving'.

[grue]

A system in which he who can afford to sit the longest on their pile of money wins.  A system that resembles a bunch of hens sitting on eggs rather than the exchange of goods and services and economic growth through production and investment.  A system in which if a person was able to take a time machine into the future they would have become richer simply through the 'virtue of saving'.

better than inflationary currency, where everyone is buying mass produced electronics every year, and in the process, racking up a ton of debt

[Nagle]

Here's the last 30 days on Tradehill.  (I'm using Tradehill because various screwups at Mt. Gox have messed up their data for the last month. Tradehill and Mt. Gox never stay far apart for long.)

Bitcoins seem to be leveling out in the $14-$15 range, and there's a modest downward trend. "Rallies" and "crashes" are just noise. The days of high volatility around June 18-22 reflect Mt. Gox's troubles. The rest of the time, volatility is usually within +- $0.50/day.

There's less going on than looking at short-term market data suggests.

[Oldminer]

Agreed.

http://www.youtube.com/user/BitcoinChannel#p/u/9/aWxbXGQ3Ezk

http://www.youtube.com/watch?v=oJ_Ndua0-n4

[5grainsilver]

Yeah but if you are going to use daily charts you need to use mtgox, because tradehill data only goes back like 30 days.  If you see the full picture on the long term chart, you see a parabolic run up from zero to 30, followed by a blowoff top, a triangle breakdown, and a pause with a downward drift we are in right now before the next leg which will probably be down to sub 10. 



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[istar]

Yeah but if you are going to use daily charts you need to use mtgox, because tradehill data only goes back like 30 days.  If you see the full picture on the long term chart, you see a parabolic run up from zero to 30, followed by a blowoff top, a triangle breakdown, and a pause with a downward drift we are in right now before the next leg which will probably be down to sub 10. 



Uploaded with ImageShack.us

I think you could be right if I remember correctly what I read somewhere, that miners can sell for $3 and still make a profit. If that is right, it means the price will go down to just around $3

Another huge problem is early miners sitting at huge amounts of bitcoins which they can also sell for $3 and still make a profit.

In the long term 2-3 years when miners cannot sell to cheap and early adopters have sold, price will increase. But right now its slowly going to go down the coming months. Unless...Unless there are lots of new investors, which is not impossible considering it has just started to appear in china. However if the markets go down, it will attract less investors.

[n4l3hp]

Your electricity must be free or really cheap if you can profit at $3 per coin. At $0.21 per kw in my area, $7.00 per coin is needed so that I can at least pay the electric bill. The fees for the funds transfer and exchanges is not even included.

[5grainsilver]

Price will depend on demand, not cost of electricity.  If bitcoins could be converted back to energy that argument would make sense, but it can't.  Difficulty will respond to price.  We have already seen that happen on the way up.

[conspirosphere.tk]

Yes: price depends on demand and difficulty depends on price, but also:
demand depends on price: if the price manage to increase for a while, or at least stops dropping, you may expect more investment/speculative demand -and even the opposite applies.

Expectations on future price play a special role on miners (and even power bills who will arrive in the next future): many may continue to mine for a while for insignificant profits, hoping for better times by further increases of the BTC price, but after a while if nothing changes many miners (me included) will go looking for s.t. better to do with their hardware, electricity and time when they lose any hope for better returns.

[muyoso]

Perhaps. Or perhaps doing things like designing working/secure phone apps, shop POS systems, ATMs, competent and easy exchanges, and easy-to-use secure wallet software just takes a bit more time.

You can't be serious.  I swear 50% of the people involved with bitcoins are completely delusional.  Who is investing in ATM's and POS systems?  Do you know how expensive those are to implement?  The totality of bitcoins are worth under a hundred million USD right now.  In 2005, Visa and Mastercard alone did 100 million USD of volume for customers in around 23.87 minutes.

Who the hell is investing in ATM's and POS systems for bitcoin.  Come on, you guys are smarter than this.   

[niemivh]

A system in which he who can afford to sit the longest on their pile of money wins.  A system that resembles a bunch of hens sitting on eggs rather than the exchange of goods and services and economic growth through production and investment.  A system in which if a person was able to take a time machine into the future they would have become richer simply through the 'virtue of saving'.

better than inflationary currency, where everyone is buying mass produced electronics every year, and in the process, racking up a ton of debt

Isn't there a relative means of balancing these two opposing forces in the economic system?  Moreover, why in our 'inflationary system', that i assume you are alluding to, does the inflation occur?  What is the cause of it in your opinion?

[BitcoinBug]

Who the hell is investing in ATM's and POS systems for bitcoin.  Come on, you guys are smarter than this.   

http://biticon.wordpress.com/2011/03/31/bitcoin-atm/

It is just a hobby project for now though. But as much as I can see, there are lots of highly technical people with high beliefs in Bitcoin and also lots of money pouring into Bitcoin on stock exchanges, so why does the possibility of investing into POS seem so off to you? If Bitcoin is the future, POS will be part of that. Probably not in a month and possibly not in a year, but later, SURE!

[Jack of Diamonds]

You can't be serious.  I swear 50% of the people involved with bitcoins are completely delusional.  Who is investing in ATM's and POS systems?  Do you know how expensive those are to implement?  The totality of bitcoins are worth under a hundred million USD right now.  In 2005, Visa and Mastercard alone did 100 million USD of volume for customers in around 23.87 minutes.

Who the hell is investing in ATM's and POS systems for bitcoin.  Come on, you guys are smarter than this.  

You're right on this one. Ultra-libertarians and Ron Paul supporters/homeless people who know little of how financial markets work could actually tarnish bitcoins reputation with these claims.

'We' aren't anywhere near the level of Bitcoin ATMs. Point of sales devices, definitely, like klemen091 mentioned above.

This currency (or commodity) is only 2 years old. Talking about bitcoin withdrawals from public places is like mentioning a Pluto expedition for space travel, it's not going to happen for a very long time under current circumstances.

I like Bitbills as the most convenient tool to date. Not too expensive to produce, relatively easy to redeem.

http://www.bitbills.com/

[jtimon]

Sorry, I haven't read the whole thread but, shouldn't it be in the speculation board?

[Rassah]

Perhaps. Or perhaps doing things like designing working/secure phone apps, shop POS systems, ATMs, competent and easy exchanges, and easy-to-use secure wallet software just takes a bit more time.

You can't be serious.  I swear 50% of the people involved with bitcoins are completely delusional.  Who is investing in ATM's and POS systems?  Do you know how expensive those are to implement?  The totality of bitcoins are worth under a hundred million USD right now.  In 2005, Visa and Mastercard alone did 100 million USD of volume for customers in around 23.87 minutes.

Who the hell is investing in ATM's and POS systems for bitcoin.  Come on, you guys are smarter than this.   

Pretty much anyone who sees the potential of Bitcoin transacting and has money to invest should be investing. The first person to come up with a well designed POS system will likely capture the first mover and networking advantages, dominate the market, and make millions. Your question is like asking, "who the hell is investing in exchange services" about 6 months ago. Sure, it would've seemed like a stupid money-losing investment then, but look at Mtgox activity and profits today.

[grod]

"Who the hell is investing in GPU mining hardware in 2010?  It's a losing proposition, you'll never make back the price of those 5870s"

Hindsight is 20/20.  The people making the same arguments against early adopter GPU miners would likely give their left nut for a time machine to summer of 2010.

[jtimon]

Sorry, I haven't read the whole thread but, shouldn't it be in the speculation board?

I don't think there was a 'speculation' board when this thread was started.

"RALLY !!" Wasn't created there neither.

[5grainsilver]

Investing in ATMs etc would be pretty risky considering governments will shut bitcoin down if it starts looking too much like a real currency.  Look at what they did to egold.