Why bitcoins are dropping, and will continue to do so

[muyoso]

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.

No, my question is not like asking that.  Exchange services serve a purpose that had to exist.  POS systems and ATM's do not need to exist.  The need for them to exist will come AFTER bitcoin becomes a stable and very widely used currency.  All POS systems and ATM's would serve now is an extra useless layer between turning your real money into purchased goods.  Take your real money, put it in the ATM, get out your wacky crazy bitcoin money, go to store, pay with wacky crazy bitcoin money, which the teller has to then turn instantly back into real money.  Its like a giftcard with none of the advantages for the seller.

[1713569059]

1713569059

[1713569059]

1713569059

[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.

That is kind of like saying "Look what they did to Napster".

Not the same.

The more likely comparison is "Look what they did to BitTorrent".

ATMs and pos aren't exactly peer to peer.

[Rassah]

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.

No, my question is not like asking that.  Exchange services serve a purpose that had to exist.  POS systems and ATM's do not need to exist.  The need for them to exist will come AFTER bitcoin becomes a stable and very widely used currency.  All POS systems and ATM's would serve now is an extra useless layer between turning your real money into purchased goods.  Take your real money, put it in the ATM, get out your wacky crazy bitcoin money, go to store, pay with wacky crazy bitcoin money, which the teller has to then turn instantly back into real money.  Its like a giftcard with none of the advantages for the seller.

You're getting it backwards. It's not "using real money to get bitcoin," it's using bitcoin to get real money or real goods/services. ATMs will allow you to pull your bitcoin savings out in "real money" cash form, so you can use your bitcoin with fiat-based retailers. As for the POS (point of sale) systems, we need those to have a "widely used currency." They're the systems that you would approach with your bitcoin wallet and pay the retailer in bitcoin. It'll be up to the seller whether to hold the money in bitcoin form or convert, but POS is needed to at least be able to PAY in bitcoin.

[5grainsilver]

Well now I am starting to wonder how long it can maintain this orderly gradual drop.  What do you guys think is the panic point that will start a faster selloff and complete the penny stock pattern?

[Cluster2k]

Well now I am starting to wonder how long it can maintain this orderly gradual drop.  What do you guys think is the panic point that will start a faster selloff and complete the penny stock pattern?

There are no doubt many miners out there who bought equipment specifically for mining.  If their investments have not been paid off yet they may approach the "ah, stuff it!' point where they see the recouping of their costs drifting further into the distance while their hardware depreciates in value.  If enough cut their losses and run (sell up and dump BTCs) we may see a significant drop as I doubt there are enough cashed up investors on the other side to buy up all the coins.  Even the most ardent bitcoin booster must wonder whether if it's worth buying bitcoins today at US$12.85 when they could be US$11 tomorrow.

I sold a bunch of coins around US$18 to pay costs.  Looks like a pretty good decision at the moment.  BTC's value has been in a steady decline for almost a month.  It's not immune to the general shenanigans happening at the moment in the USA and PIIGS. 

[evoorhees]

Even the most ardent bitcoin booster must wonder whether if it's worth buying bitcoins today at US$12.85 when they could be US$11 tomorrow.

The shortsightedness of some of these comments amazes me. Bitcoin is either worth pennies as a silly tech-geek collectors item, or worth thousands of dollars a piece as the new currency of the internet and international trade. There is not much middle ground, and the true value will be realized over the next 6-24 months.

Trying to ponder whether to sell at $12.85, or $11, or $13.46... so silly! 

[evoorhees]

Welcome to deflationary economics 101.

That's why none of us buy computer equipment. We all know we'll get twice the power at half the price in 6 months. I'm still on an Apple II and one of those old Nokia cell phones from 1998. Clearly, deflation ruins economic progress.

PS- Bitcoin is not deflationary, regardless. It's asymptotically inflationary. It's only deflationary if people lose/misplace wallet files faster than the new currency is minted. In fact, BTC is much more inflationary that USD right now.

[netrin]

Bitcoin is not deflationary, regardless. It's asymptotically inflationary. It's only deflationary if people lose/misplace wallet files faster than the new currency is minted. In fact, BTC is much more inflationary that USD right now.

Bitcoins has seen 100%, 50%, and now 30% annual monetary inflation. Dollars have seen 300% M0 monetary inflation with the quantitative easing in 2008-2009. Currently this month, bitcoins are price inflating (currency devaluation) rapidly against the dollar (10% for the past week), but over the years, bitcoin has deflated 80% monthly against the dollar on average (doubled every ~50 days).

[evoorhees]

Bitcoins has seen 100%, 50%, and now 30% annual monetary inflation. Dollars have seen 300% M0 monetary inflation with the quantitative easing in 2008-2009. Currently this month, bitcoins are price inflating (currency devaluation) rapidly against the dollar (10% for the past week), but over the years, bitcoin has deflated 80% monthly against the dollar on average (doubled every ~50 days).

Bitcoin has never deflated - it is always inflating at a diminishing rate. Its price has fallen. Price changes =/= inflation or deflation.  Don't confuse a symptom of inflation (rising prices) with inflation itself (increase in the money supply).

Bernanke does this all the time and it drives me crazy. He says, "the rising costs of food and energy are driving inflation higher." Nonsense. HE is driving inflation higher, and as a result food and energy costs are rising. It's like 1984 word-isms. War is peace. Freedom is slavery. Debt is stimulus

[netrin]

Bitcoins has seen 100%, 50%, and now 30% annual monetary inflation. Dollars have seen 300% M0 monetary inflation with the quantitative easing in 2008-2009. Currently this month, bitcoins are price inflating (currency devaluation) rapidly against the dollar (10% for the past week), but over the years, bitcoin has deflated 80% monthly against the dollar on average (doubled every ~50 days).

Bitcoin has never deflated - it is always inflating at a diminishing rate. Its price has fallen. Price changes =/= inflation or deflation.  Don't confuse a symptom of inflation (rising prices) with inflation itself (increase in the money supply).

Bernanke does this all the time and it drives me crazy. He says, "the rising costs of food and energy are driving inflation higher." Nonsense. HE is driving inflation higher, and as a result food and energy costs are rising. It's like 1984 word-isms. War is peace. Freedom is slavery. Debt is stimulus

I am careful to distinguish between 'monetary xflation' and 'price xflation'. I have not confused terms; You have. I'm sure you've read a lot of Austrian, but perhaps you should familiarize yourself with the mainstream (aka the century in which you live), if only to know thy enemy, if you will:

On the Origin and Evolution of the Word Inflation
by Michael F. Bryan
http://www.clevelandfed.org/research/commentary/1997/1015.pdf

[evoorhees]

I am careful to distinguish between 'monetary xflation' and 'price xflation'. I have not confused terms; You have. I'm sure you've read a lot of Austrian, but perhaps you should familiarize yourself with the mainstream (aka the century in which you live), if only to know thy enemy, if you will:

Yes, the mainstream economists misuse the term. Given that they were unable to predict the largest economic disaster since the Great Depression, I tend not to lend credence to their opinions and misguided definitions. Not to mention the manipulation of this terminology is insidious, it has confused the entire world as to the reasons for the increasing price of milk. It has gotten to a point where people believe "inflation" is just a natural phenomenon in a market economy, instead of an intentional and deliberate policy by the central bank.

The discrepancy in definitions is not an innocent evolution of language, it is an intentional perversion of meaning which obscures an extremely important phenomenon. I refuse to mislead other people and follow suit by adopting and perpetuating molested vernacular.

[netrin]

I am careful to distinguish between 'monetary xflation' and 'price xflation'. I have not confused terms; You have. I'm sure you've read a lot of Austrian, but perhaps you should familiarize yourself with the mainstream (aka the century in which you live), if only to know thy enemy, if you will:

Yes, the mainstream economists misuse the term. Given that they were unable to predict the largest economic disaster since the Great Depression, I tend not to lend credence to their opinions and misguided definitions. Not to mention the manipulation of this terminology is insidious, it has confused the entire world as to the reasons for the increasing price of milk. It has gotten to a point where people believe "inflation" is just a natural phenomenon in a market economy, instead of an intentional and deliberate policy by the central bank.

Like it or not, fractional reserve banking exists and must be described. The Fed created M0 inflation to counter M1, M2 deflation. Bad money deflates, people default or pay off principal, contracting the debt based money supply. Many of those same people/institutions who once had debt now have newly printed dollars. Is that inflation or deflation?

The more 'real' (food, energy, metal, M0) inflated massively in the last three years. The less 'real' (M2, M3, deposits) deflated.

The discrepancy in definitions is not an innocent evolution of language, it is an intentional perversion of meaning which obscures an extremely important phenomenon. I refuse to mislead other people and follow suit by adopting and perpetuating molested vernacular.

Please read the article I personally retrieved for you. It's short.

There's certainly been a perversion of the language to a point, but you have to be realistic. The vast majority are confused by archaic usage. Even those 'in the know' can not be expected 'to know' without context unless you preach to the choir. Perhaps you can use the monetary- and price- terms as I have, which would have been just as well understood in Jefferson's day as today.

I have a pet peeve against the loose usage of 'irony' - the contradiction of the context - not just contradiction nor unfortunate circumstances. Or the use of 'tea' to refer to any herbal infusion. The use of 'liberal' to mean economic conservative and 'conservative' to mean liberal. But what's the point? Whether by manipulation, improvement, or laziness, language changes.

[Tronlet]

I fight a loosing battle against the loose usage of 'irony'

Oh, the irony.

[netrin]

I fight a loosing battle against the loose usage of 'irony'

Oh, the irony.

STREPSIADES: No Zeus? Then who makes it rain? Answer me that.

SOCRATES: Why, the Clouds, of course. What’s more, the proof is incontrovertible. For instance, have you ever yet seen rain when you didn’t see a cloud? But if your hypothesis were correct, Zeus could drizzle from an empty sky while the clouds were on vacation.

STREPSIADES: By Apollo, you’re right. A pretty proof. And to think I always used to believe the rain was just Zeus pissing through a sieve.

[5grainsilver]

Just had to bump this lol.  Looks like the fundamentals are winning out now that the dumb money from the media exposure has dried up.  Classic bubble/pumpndump. 

[Rassah]

Just had to bump this lol.  Looks like the fundamentals are winning out now that the dumb money from the media exposure has dried up.  Classic bubble/pumpndump. 

Can you list the numerical aspects of the fundamentals, and the corresponding price?

[5grainsilver]

Well, with no reason to use them instead of regular fiat, and real risk of government intervention making them worthless, and a continuing supply coming on the market daily, I would guess under 10 cents.  That worth comes from the very small chance this will take off.  A low probability, huge payoff bet.     

Imho of course, and I could be dead wrong.  So diversify.  I personally would start watching charts for a buy point under 1.00, just to see if it sets up.  I might buy some around 10 cents regardless of charts.

[Rassah]

Well, with no reason to use them instead of regular fiat, and real risk of government intervention making them worthless, and a continuing supply coming on the market daily, I would guess under 10 cents.  That worth comes from the very small chance this will take off.  A low probability, huge payoff bet.     

Imho of course, and I could be dead wrong.  So diversify.  I personally would start watching charts for a buy point under 1.00, just to see if it sets up.  I might buy some around 10 cents regardless of charts.

So, entirely guess-based then...

[Drifter]

Well, with no reason to use them instead of regular fiat, and real risk of government intervention making them worthless, and a continuing supply coming on the market daily, I would guess under 10 cents.  That worth comes from the very small chance this will take off.  A low probability, huge payoff bet.    

Imho of course, and I could be dead wrong.  So diversify.  I personally would start watching charts for a buy point under 1.00, just to see if it sets up.  I might buy some around 10 cents regardless of charts.

You have to be kidding yourself if you think the price will drop to 10 cents. Anyone who sold a decent amount between $10-30 would happily buy thousands of coins at $1 or $2. If I sold 1000 coins at $25 and prices fell to $1, I would want to buy those 1000 coins back, plus more and still have a large profit. Especially considering there is nothing wrong with bitcoin, it just hasn't taken off as fast or in the way some have envisioned.

Obviously a guess, but anyone who made a good amount of money in the double digit range would have to be an idiot not to invest some, say 1/10th, back in once they think it has hit a low point. The chance to gain that income twofold would outweigh the risk of losing a small amount of your income at those low costs. That alone would keep us above the very low digits.  

[Stuffe]

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. 

Demand: 

Reasons to buy.

1.  Investment.  Nope.  Not in any real amounts.  Investors like security and the bitcoin is pretty much the opposite of secure.  They also like secure exchanges and the bitcoin exchanges are pretty shady compared to mainstream exchanges.  That is kind of an understatement really. 

2.  To use as a transactional currency.  This is the real appeal of the bitcoin.  But there is no reason for someone to convert dollars to bitcoins and buy something unless it is illegal.  It is inconvenient and provides zero protection against theft or fraud. 

That leaves us with a large, steady supply regardless of price, and limited demand based on black market products. 

I wish I could short bitcoins.       

I agree, the supply side is running wild.
This is why I suggested making it a factor of transactions (read https://bitcointalk.org/index.php?topic=26380.0)