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Author Topic: The Bitcoin economy needs about $100,000 a day of new money  (Read 6394 times)
Nagle
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July 05, 2011, 06:04:06 AM
 #1

Bitcoin production is supposed to be about 7200 coins per day, which at $13.75/BTC is currently $99,000. So, right now, it takes about $100,000 a day in new money to keep the price of Bitcoins stable.

We just saw this on the 4th of July. No one was putting much new money into the markets, since it's a US bank holiday, and the price dropped from $15 to $13. The "weekend slump" has been mentioned previously. But it's not because people aren't trading - that's symmetrical. It's because they're not depositing new cash.

How long will the supply of suckers able to collectively put in $100,000 a day hold out?
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July 05, 2011, 06:18:51 AM
 #2

You never know.  If next week PokerStars announces bitcoin poker, we'll very possibly have a revolving door of money somewhat permanently.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper or hardware wallets instead.
Hawker
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July 05, 2011, 06:30:08 AM
 #3

Bitcoin production is supposed to be about 7200 coins per day, which at $13.75/BTC is currently $99,000. So, right now, it takes about $100,000 a day in new money to keep the price of Bitcoins stable.

We just saw this on the 4th of July. No one was putting much new money into the markets, since it's a US bank holiday, and the price dropped from $15 to $13. The "weekend slump" has been mentioned previously. But it's not because people aren't trading - that's symmetrical. It's because they're not depositing new cash.

How long will the supply of suckers able to collectively put in $100,000 a day hold out?

Thats not a lot.  Even a small cap company has bigger sales.
Vandroiy
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July 05, 2011, 10:03:13 AM
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That's miners only.

Speculator profit withdraws into fiat should take more than that, and then there are exchange fees. All three are a value outflow that has to be considered.
haydent
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July 05, 2011, 10:30:34 AM
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Bitcoin production is supposed to be about 7200 coins per day, which at $13.75/BTC is currently $99,000. So, right now, it takes about $100,000 a day in new money to keep the price of Bitcoins stable.

We just saw this on the 4th of July. No one was putting much new money into the markets, since it's a US bank holiday, and the price dropped from $15 to $13. The "weekend slump" has been mentioned previously. But it's not because people aren't trading - that's symmetrical. It's because they're not depositing new cash.

How long will the supply of suckers able to collectively put in $100,000 a day hold out?

i dont think it should be looked at from a point of needed 100,000$ new capital each day. more from the volume perspective.

rather we need min 7200 volume each day to stay stable ? (assuming no old coins sold and all new mined coins sold)

even these days with the low volumes being traded we are easily clearing that goal...



enough so to cover plenty of old coins being sold each day, but they will run out more and more and eventually the base value of a coin will be worth more each time it is traded at a rate higher than it was bought for.

please critique.

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July 05, 2011, 10:55:03 AM
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That is exactly right. I doubt all Bitcoins produced daily are sold immediately as you suggest, but the trend is definitely INFLATIONARY right now and the effect is as you describe.

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Nagle
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July 05, 2011, 03:14:18 PM
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I doubt all Bitcoins produced daily are sold immediately as you suggest, but the trend is definitely INFLATIONARY right now and the effect is as you describe.
Given that a constant influx of cash is required to keep Bitcoin going, it seems that the flow is drying up. Money enters the Bitcoin system through very flaky entities.  Mt. Gox has far too many problems to be considered a safe depository institution, and everyone involved now recognizes this. Tradehill seems better organized, but they haven't been in business long. It was clear over the holiday weekend that new money wasn't entering the system; the order book on Mt. Gox shrank visibly during the selloff. There was some hope that people would add more money on Monday morning, but so far, that hasn't happened much.

Nobody is using Bitcoins for transactions in any significant volume. If Bitcoin had acquired transaction volume before it acquired speculators, it might have succeeded. With the heavy speculation,  Bitcoin is too volatile to be used for retail transactions.  Today we're seeing 10% changes in Bitcoin price over 10 minutes. Without transaction volume, Bitcoin is a pyramid scheme, and needs an ongoing supply of new suckers. That supply seems to be drying up.
SlipperySlope
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July 05, 2011, 03:51:05 PM
 #8

Bitcoin production is supposed to be about 7200 coins per day, which at $13.75/BTC is currently $99,000. So, right now, it takes about $100,000 a day in new money to keep the price of Bitcoins stable.

An unknown, but substantial portion of miners are hoarding bitcoins.  It is a hassle for the small miner to establish an exchange and dwolla account in order to liquidate their mined coins.

I respect your analysis but guess the figure might be closer to $50000 per day than to $100000.

My own contribution to this analysis is that the new cash required to support bitcoin prices drops directly with the price of bitcoins.  So, suppose that as the bitcoin bubble deflates, prices return to April 2011 levels, i.e. around $1 per bitcoin.  Then to keep the price of bitcoins stable, the market would not require $50000 per day, but rather only $7200 per day.

Once the bottom sets in, it will not take much buying power to turn it around.  That's why I think that there will be one or more premature rallies off the bottom, that will make the bottom hard to figure out.
miner249er
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July 05, 2011, 04:08:12 PM
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$100k a day is nothing in the terms of even a small economy - that being said, the entire discussion theme on these forums should be rephrased.

BTC are not an investment - they don't generate profits for a buyer without someone else putting money into them. This is true of all currencies, hence the tired "pyramid scheme" argument.

The demand in the market is ultimately dictated by what people view it's trade value as a currency is. Build applications for merchants/users that make this thing easier and simpler then a credit/debit card and you will see that value increase for the long term, unable to be controlled by speculators.

If you really want to contribute here, convince merchants to accept and support this currency in it's infancy. Develop payment networks that sit on top of BTC that allow for safety/trust in transactions with unknown parties. Support businesses that accept them by using them, if a business you purchase things from doesn't take BTC - send them an email asking them why they do not and if they have plans in the future to do so.

Use Bitcoins as a weapon to kill the paypal/cc mafia's and their exorbitant fees coupled with horrible policies. They leech money from the entire transaction economy increasing the costs for all of those involved.

Stop caring about the current PRICE of BTC/USD and only view what you want BTC to look like in the future, then build for that.
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July 05, 2011, 04:18:52 PM
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Stop caring about the current PRICE of BTC/USD and only view what you want BTC to look like in the future, then build for that.

Good example of negative sentiment.
DrYe5
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July 05, 2011, 04:23:42 PM
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The only real use for bitcoins is masking black market transactions because it is the only instance where anonymity is worth sacrificing security. Since these items are pegged to dollars, the price of bitcoins does not effect the economy (other than instability). In addition, only a small fraction of the ~7 million bitcoins are necessary for this purpose at the current price.

7 Million bitcoins, 700 items on silk road. You do the math.

ribuck
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July 05, 2011, 04:26:48 PM
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If Bitcoin had acquired transaction volume before it acquired speculators, it might have succeeded.
It doesn't work that way. Before Bitcoin acquired speculators, its value was precisely, exactly, $0.00. There was no way it could have acquired any transaction volume.

The speculators provide Bitcoin with enough value that people will want to sell stuff for it. Then the transactors can move in.

I'm sure there are plenty of Bitcoin businesses under development, but things take time.
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July 05, 2011, 04:30:34 PM
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Bitcoin production is supposed to be about 7200 coins per day, which at $13.75/BTC is currently $99,000. So, right now, it takes about $100,000 a day in new money to keep the price of Bitcoins stable.

We just saw this on the 4th of July. No one was putting much new money into the markets, since it's a US bank holiday, and the price dropped from $15 to $13. The "weekend slump" has been mentioned previously. But it's not because people aren't trading - that's symmetrical. It's because they're not depositing new cash.

How long will the supply of suckers able to collectively put in $100,000 a day hold out?
I'm not an economist but I think you got it wrong. Whats relevant is the supply and demand of the coins. If 10% of coins are in active trading and others are hoarded then you need money for only the 10% of the 'total value' (total created BTC * price in $) to have a stable price. That is if bitcoin trading is active with say 1,000,000 BTC (supply-side) and 15,000,000$ (demand-side) the price would be 15$/BTC. The rest of approximately 5M bitcoins of course have this same value but if you try to cash them – the price plummets as supply increases. This is the logic of the overall price-production of bitcoin.

Mining changes the amount of total amount of bitcoins, part of which will become new supply to the trade and thus requiring influx of dollars to stabilize the price. If they all were directly cashed out, then your calculation probably would more accurate, although I don't think its even in this case that simple. Anyway, its not that bad, methinks.
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July 05, 2011, 06:22:27 PM
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Stop caring about the current PRICE of BTC/USD and only view what you want BTC to look like in the future, then build for that.

Good example of negative sentiment.

I ask myself the question, if Bitcoins were a private project fueled by investment capital beholden to one voice - how would it be run?

Since we are all owners (in one way or another) in this project and some of us have short-term goals, some longer. Obviously the goals and how you reach them will be dramatically different between those two groups, so this is certainly a grand experiment indeed.

In some ways, I hope that my level of sentiment appeals to all parties. One for the speculators who are hoping for an easy/predictable market bottom - the second for miners looking for profits as a reason to continually increase the hash rate, and last the people who are really stuck with indecision right now - merchants. Right now, the first group is substituting in part for the third. Most of those hoping that the real third will eventually get on board (or that enough others at least feel the same way for the short view).

The irony is that the first two depend on the last. Bitcoin has the potential to be a disruptive technology - but to qualify for this - it needs to disrupt the current digital transaction systems (paypal, visa, mc, etc). That is the true competition and market niche that BTC must capture if the first two groups mentioned have any hope of survival in the long term. Otherwise as a new market, it simply doesn't qualify.
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July 06, 2011, 04:28:01 AM
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You never know.  If next week PokerStars announces bitcoin poker, we'll very possibly have a revolving door of money somewhat permanently.

Oh my god. If this were to happen... my head would explode.
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July 06, 2011, 08:56:27 AM
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Stop caring about the current PRICE of BTC/USD and only view what you want BTC to look like in the future, then build for that.

Yeah we should do this.  But there's no point interacting with this 'Nagle' guy.  His aim is only to talk bitcoin down.  He wants it to fail.  It's pure FUD. 
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July 06, 2011, 10:44:17 AM
 #17

How long will the supply of suckers able to collectively put in $100,000 a day hold out?
That's long since run out. Only the rational folks are left.

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July 08, 2011, 08:22:03 AM
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One thing to be sure of is that Nagle will be the last sucker to buy bitcoins .....

... and your math is absolute crapola, it doesn't 100k a day. You are meant to be a financial markets guy and you haven't 1st clue how money markets function ... I guess that's why Bear-Stearns, Lehman, Morgan-Stanley, Wells-Fargo, Washington Mutual, etc, etc are no longer solvent?

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July 09, 2011, 04:23:31 AM
 #19

It's been noted for a while that the price of Bitcoins sags each weekend.  That's an indication that new money is required daily. You can still trade Bitcoins on a weekend, and people do. You can still mine Bitcoins, and people do. But you can't wire transfer in money from a bank. 
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July 09, 2011, 09:39:17 AM
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It's been noted for a while that the price of Bitcoins sags each weekend.  That's an indication that new money is required daily. You can still trade Bitcoins on a weekend, and people do. You can still mine Bitcoins, and people do. But you can't wire transfer in money from a bank. 

if it were always true that the price goes down on the weekend due to inability to wire fiat money to an exchange, the smart traders would spend the weekdays wiring their money in preparation to buy only on the weekends when prices are low.  This should level out the weekend dips in the long term

in other words if it was always obscenely profitable to do something simple, everyone would be doing it and nothing else, and then it would no longer be profitable

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