The Bitcoin economy needs about $100,000 a day of new money

[mouse]

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

Further, if this were always true, the miners would stop cashing out on the weekends and save that for weekdays.

[nmat]

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.

I actually think this is true and problematic. Nobody gets bit coins because they need to buy something with bitcoins. Am I wrong? You can already buy things at ebay and amazon with dollars/euros. Bitcoins need to be an available payment option for existing services that people already use. If this doesn't happen (and most likely won't), bitcoins will only exist for speculators thus making it a piramid scheme.

Sorry about my pessimistic vision, but I just don't see anybody really interested in this by any reasons other than ROI.

[proudhon]

I'm not bullish about bitcoins right now, but why should we assume that all 7200 bitcoins go to market each day?

[makomk]

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

Funnily enough, this appears to be exactly what has happened... the weekend dips disappeared not long after lots of people started talking about how they were getting their USD into the site for the weekend to take advantage of them.

[billyjoeallen]

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.

That's patently untrue. Bitcoin allows for micropayments in order to reduce spam and brute force password hacking. That's a use value greater than zero.   

[molecular]

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.

Why do you assume miners immediately cash in all their mined coins?

[foggyb]

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.

Why do you assume miners immediately cash in all their mined coins?

I run a medium-size bitcoin mining farm. Haven't sold any coins for weeks.

[Sannyasi]

i got my little dinky rig but i am also holding onto my coins as well

[haydent]

i got my little dinky rig but i am also holding onto my coins as well

same

[marcus_of_augustus]

Mine and hold. 

[billyjoeallen]

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.

Why do you assume miners immediately cash in all their mined coins?

Obviously they don't, but early adopters sell enough to make the effect roughly the same.

[molecular]

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.

Why do you assume miners immediately cash in all their mined coins?

Obviously they don't, but early adopters sell enough to make the effect roughly the same.

Well, that still doesn't allow to deduct "it takes about $100,000 a day in new money to keep the price of Bitcoins stable."

[Nagle]

It's worth noting that the price of Bitcoins went up until it reached roughly the cost of "mining". Then the rise stopped. The price has basically been around $14-15/BTC for weeks now, with occasional excursions usually associated with Mt. Gox problems.

The difficulty stops rising when mining becomes uneconomic, because miners drop out and new miners don't start up. We currently seem to be in a situation where many existing miners with sunk costs continue to operate, but buying hardware no longer pays. See the difficulty discussion.

The cost of mining acts as a price ceiling, not a floor.

(Yes, in theory, heavy demand from Bitcoins for transactional purposes could push prices beyond the cost of mining. But that's not happening. Most of the enthusiasm for Bitcoins comes from "miners".)

[marcus_of_augustus]

It's worth noting that the price of Bitcoins went up until it reached roughly the cost of "mining". Then the rise stopped. The price has basically been around $14-15/BTC for weeks now, with occasional excursions usually associated with Mt. Gox problems.

The difficulty stops rising when mining becomes uneconomic, because miners drop out and new miners don't start up. We currently seem to be in a situation where many existing miners with sunk costs continue to operate, but buying hardware no longer pays. See the difficulty discussion.

The cost of mining acts as a price ceiling, not a floor.

(Yes, in theory, heavy demand from Bitcoins for transactional purposes could push prices beyond the cost of mining. But that's not happening. Most of the enthusiasm for Bitcoins comes from "miners".)

Beyond help I'm afraid.

... mining cost has been well below the "price" of bitcoins for months now. Do some research before spouting off your FUD.

[Nagle]

Beyond help I'm afraid.

... mining cost has been well below the "price" of bitcoins for months now. Do some research before spouting off your FUD.

I think that's backwards.  The mining cost is now above the price of Bitcoins.  Or so seems to be the grumbling in the mining community from those considering buying hardware.

[nazgulnarsil]

are you high?

[BenRayfield]

Central bank based economies get closer to complete crash every year. Bailouts get more expensive. National debts accelerate. Taxes increase. The whole system is going toward a global economy crash. Cryptocurrencies, being a new kind of money, are not automatically subject to all the same laws that are bringing down those systems, and have other advantages, so as the existing economies crash, cryptocurrencies are the only way out. Even if Bitcoin crashes to pennies per bitcoin, its still a good investment (if you buy at that time) for that reason. Its going to grow because its not subject to many of the flaws of the existing system.

[ercolinux]

The Bitcoin price is driven in part by speculation, but MtGox and the others move a really little amount of BTC (the total number of order placed on MtGox is of about 50.000BTC). If you examine the transactions in the blocks you can see a quite big exchange of BTC. I've found that in 5 hours there are something like 60.000BTC used, that's make about 100.000.000 of BTC/yr moved (and this excluding the big transactions: there are some of 30-40.000BTC in the past 2 days). To have an idea of the evolution of transactions back in december blocks carry an average of  300-400BTC each now we are easily over 2-3.000 BTC
Numbers like those ones tells me that bitcoin are used not only hoarded or used as speculation, so there is an economy around BTC. And when this economy will reach a bigger volume (at least 50-100.000BTC/hour) we probably have the price driven by the request of the market.

Just my satoshi 

[patvarilly]

The Bitcoin price is driven in part by speculation, but MtGox and the others move a really little amount of BTC (the total number of order placed on MtGox is of about 50.000BTC). If you examine the transactions in the blocks you can see a quite big exchange of BTC. I've found that in 5 hours there are something like 60.000BTC used, that's make about 100.000.000 of BTC/yr moved (and this excluding the big transactions: there are some of 30-40.000BTC in the past 2 days). To have an idea of the evolution of transactions back in december blocks carry an average of  300-400BTC each now we are easily over 2-3.000 BTC
Numbers like those ones tells me that bitcoin are used not only hoarded or used as speculation, so there is an economy around BTC. And when this economy will reach a bigger volume (at least 50-100.000BTC/hour) we probably have the price driven by the request of the market.

Just my satoshi 

Ugh!  Why won't this statistic die a painful death?  The overwhelming majority of the bitcoin volume that you see is people sending money to themselves as the "change" part in a transaction.  I've put a cogent explanation here: http://forum.bitcoin.org/index.php?topic=27472.msg346658#msg346658.  My best guess for the actual amount of BTCs moving a day is something like 20,000-50,000 BTCs a day, and if you're sufficiently motivated, you can calculate a pretty accurate estimate yourself (see the post I've linked to).

Here's an example.  Take a look at this block:  http://blockexplorer.com/block/00000000000007200e80dfb3a741b845a5c0e38a1ca5eef43a7059842578e86a.  That shows up as 0.747 million BTCs trading hands in 10 minutes (as far as I can remember, the average daily "volume" measured this way is somewhere around 2-3 M, so this is admittedly an example block chosen to vividly highlight the general problem).  If you bother to take a look at the blocks contents, you'll see that 0.744 million BTCs of *that* is simply one very rich early adopter sending a trickle (679.58 BTCs to be exact) to addresses that may or may not belong to other people (it could be his own Mt. Gox. account, for all we know), and sending large amounts of Bitcoins to himself over and over again.  In other words, in this one block, literally 99.9% of the "volume" is fluff, i.e., someone sending Bitcoins to themselves.  Think this person's just schizophrenic?  Look at just about any other transaction on any other block, most of them transfer something like 99% of the input money back to the sender (it gets worse: focusing on the total volume grossly overweighs transactions by owners of large amounts of BTCs, as in this example, and they *definitely* send large amounts of money back to themselves as change).

Since you were so eager to conclude that the "volume" as you measured was evidence that the BTC "economy" was vibrant, would it be unreasonable to suggest to you that the *actual* volume is evidence of hoarding and speculation?  It's not a coincidence that the *actual* volume is in the same ballpark as the Mt. Gox volume.  I'll let you follow that train of thought to its logical conclusion...

[ercolinux]

Ugh!  Why won't this statistic die a painful death?  The overwhelming majority of the bitcoin volume that you see is people sending money to themselves as the "change" part in a transaction.  I've put a cogent explanation here: http://forum.bitcoin.org/index.php?topic=27472.msg346658#msg346658.  My best guess for the actual amount of BTCs moving a day is something like 20,000-50,000 BTCs a day, and if you're sufficiently motivated, you can calculate a pretty accurate estimate yourself (see the post I've linked to).

Thanks for the explanation, I've got your point and no, I'm not sufficient motivated to do that 
Overall I've got the last 4 blocks, stripped away of the "self transactions" and obtained a 80-90.000BTC/Day instead of 240-250.000 of my previuos stat (stat that was already weighted).
I stay on my idea that the BTC economy really begin to works when we reach the 50-100.000BTC/hours of transactions: with this rate it can be in about a year.