Actual Bitcoin commerce vs. speculation

[DeathAndTaxes]

Bitcoin's use in day-to-day commerce will generally trail its investment/speculative usage by at least an order of magnitude, until that market is fully saturated, allowing commerce usage time to catch up. At least, it makes sense to me.

It will never "catch up" and that is fine.


Gross World Product*: $71 trillion
Global Annual Forex Volume: $1,423 trillion
Ratio of currency speculation to actual goods/services: ~20:1

Non-speculators trade because they HAVE to. As an example, a compnay receives 100 BTC and needs USD to pay for materials, they aren't trading to make an exchange rate profit, they are trading because they need to.  Likewise someone buying an Avalon (is/was? only sold for BTC) who only has USD is trading because they need BTC.   If there are no speculators (or low speculative volume) the market is going to have huge spreads and low liquidity.  In order for non-speculators to have deep liquid markets generally requires a multiple of speculative volume.  This applies to currencies and commodities, Bitcoin will be no different. 

In summary, all markets need speculators in order to be efficient and speculation will ALWAYS be a magnitude higher than "real economy".


* GWP is the the sum of all the gross national product for all nations.  Gross national product excludes imports and exports, since all imports are another countries exports they aren't useful in looking at global production.

[Melbustus]

First it becomes gold 2.0 and then it very naturally becomes a widely used payment mechanism? Who knows

Agreed that it's likely Gold 2.0 first. It's fairly weak-minded to look at current everyday consumer-oriented transaction volume and conclude that it's problematically low. That completely misses both the likely growth paths, and the various possible ultimate success domains.

Bitcoin has the same properties as gold, but minus gold's huge modern-day weakness: tangibility. As bitcoin therefore naturally eats into gold's use-cases, it gets spread to more hands, and transaction volume for greater variety of uses follows. In addition, layered non-strictly-monetary uses of the blockchain will develop, etc...

[oda.krell]

I don't think the entire issue of speculation vs. commercial transactions vs. gold-like store of value is quite as black and white as many here seem to paint it.

One, those who, like a mantra, keep repeating: there's no real transaction volume, therefore the price is unsustainable, are ignoring the store of value function as motivation for current price levels. This has been pointed out above of course.

Two, on the other hand, those who fail to see any problem with the lackluster commercial adoption, seem to be ignorant of the fundamental trust problem bitcoin faces, and likely, will continue to face in the near future. Everyone on this forum will gladly trade 1 btc for the current market price, but with near certainty a majority of the world's population sees the value of a bitcoin substantially below that value, if not at zero.

Three, this is were two points above should be combined: commercial transactions are not per se necessary for bitcoin to hold value, but each commercial transaction represents at least two people that agree that bitcoin actually *does* hold the value that mtgox says it does. Which ultimately is necessary for bitcoin to fully unfold its 'store of value' function.

[Wary]

for bitcoin to hold value, but each commercial transaction represents at least two people that agree that bitcoin actually *does* hold the value that mtgox says it does.

One, actually. The seller doesn't have to believe that the stuff he sells holds any value

[glub0x]

here https://bitcointalk.org/index.php?topic=170826.msg2706332#msg2706332
they claim a 30% income boost
they are a physical computer store and are the first in france to accept bitcoin.

[oda.krell]

for bitcoin to hold value, but each commercial transaction represents at least two people that agree that bitcoin actually *does* hold the value that mtgox says it does.

One, actually. The seller doesn't have to believe that the stuff he sells holds any value

*snort* Funny. But... not entirely true: he must have believed he at least could make the trade I described when he got that bitcoin. So at some point in time, he believed it held some value.

[oda.krell]

[...]

And, there should be no presumption that there should be a single, agreed upon exchange rate in order for Bitcoin to funciton. As we have seen, once the limits of arbitrage volume are reached, friction between markets will maintain a channel that refuses to close. Once this becomes the proverbial firehose-through-a-soda-straw we will likely see rather large arb channels. This, particularly if governments choose to impose capital controls. It is not entirely unprecedented to see de-facto, and even official currencies with bifurcated exchange rates under these circumstances.

Granted. But there is a fundamental difference between "restrictions in region 1 lead to price x, while in region 2 price is y, and arbitrage cannot fully resolve the gap between the two" and "9/10 of earth's population thinks bitcoin is silly make believe money".

Note, I'm not saying that that is the case right now, or will forever be the case. Just that each (commercial) transaction represents a pair of agents that beliebe in bibcoins. Which is good.

[ElectricMucus]

for bitcoin to hold value, but each commercial transaction represents at least two people that agree that bitcoin actually *does* hold the value that mtgox says it does.

One, actually. The seller doesn't have to believe that the stuff he sells holds any value

*snort* Funny. But... not entirely true: he must have believed he at least could make the trade I described when he got that bitcoin. So at some point in time, he believed it held some value.

Not entirely true, if you get them only because you think somebody else holds them at valuable. Granted it's only a marginal difference between the two, but I do think it matters.
There were people who knew very well what they were doing when they got into the pirate ponzi early. I'm not saying that Bitcoin has to suffer the same fate, but it could. The risk of that happening is directly proportional to the spread between valuation due to economic activity and valuation due to speculative demand.

[notme]

[...]

And, there should be no presumption that there should be a single, agreed upon exchange rate in order for Bitcoin to funciton. As we have seen, once the limits of arbitrage volume are reached, friction between markets will maintain a channel that refuses to close. Once this becomes the proverbial firehose-through-a-soda-straw we will likely see rather large arb channels. This, particularly if governments choose to impose capital controls. It is not entirely unprecedented to see de-facto, and even official currencies with bifurcated exchange rates under these circumstances.

Granted. But there is a fundamental difference between "restrictions in region 1 lead to price x, while in region 2 price is y, and arbitrage cannot fully resolve the gap between the two" and "9/10 of earth's population thinks bitcoin is silly make believe money".

Note, I'm not saying that that is the case right now, or will forever be the case. Just that each (commercial) transaction represents a pair of agents that beliebe in bibcoins. Which is good.

I beliebe in bibcoins!

[oda.krell]

[...]

Note, I'm not saying that that is the case right now, or will forever be the case. Just that each (commercial) transaction represents a pair of agents that beliebe in bibcoins. Which is good.

I beliebe in bibcoins!

xpost to the altcoin board: Biebercoin ("bibcoin"), discerning feature: unlike other financial instruments, maturity is optional.

(*groan*)

[ElectricMucus]

for bitcoin to hold value, but each commercial transaction represents at least two people that agree that bitcoin actually *does* hold the value that mtgox says it does.

One, actually. The seller doesn't have to believe that the stuff he sells holds any value

*snort* Funny. But... not entirely true: he must have believed he at least could make the trade I described when he got that bitcoin. So at some point in time, he believed it held some value.

Not entirely true, if you get them only because you think somebody else holds them at valuable. Granted it's only a marginal difference between the two, but I do think it matters.
There were people who knew very well what they were doing when they got into the pirate ponzi early. I'm not saying that Bitcoin has to suffer the same fate, but it could. The risk of that happening is directly proportional to the spread between valuation due to economic activity and valuation due to speculative demand.

Are you saying that currencies are Ponzi schemes in general?

Because, that is generally the case.

I'm not, and I disagree.
There are only certain mechanism which have the same basis as a ponzi but even so they aren't entirely based on that. These are for example compounding interest and deflation. They are neither necessary nor a inherent property and I don't see any reason why these mechanisms can't be minimized or even eliminated.
Look at regional currencies, which only failed because the bureaucracy did shut them down.

[myself]

i said many time bitcoin dont have a economy is a lolconomy and i also said many time that my personal bitcoin velocity is near 0
when you ppl can figure the bitcoin GDP you can calculate the velocity=GDP/M2 ofc for bitcoin M2=M1= 1229787404 USD(atm using http://bitcoincharts.com/bitcoin/)

lol will be generated since there is no fucking way bitcoin GDP to be even close to M2
please go on whit the price talk

[ElectricMucus]

i said many time bitcoin dont have a economy is a lolconomy and i also said many time that my personal bitcoin velocity is near 0

I would say that is pretty much consistent through the userbase.
chodpaba: Forex volume is actual moving money.

If bitcoin days destroyed shoots through the roof one day I would think about discarding the possibility of a sudden high velocity crash, but until that happens it's always on the horizon, just like those mad upside rallies you guys are so fond about.

[ElectricMucus]

i said many time bitcoin dont have a economy is a lolconomy and i also said many time that my personal bitcoin velocity is near 0

I would say that is pretty much consistent through the userbase.
chodpaba: Forex volume is actual moving money.

If bitcoin days destroyed shoots through the roof one day I would think about discarding the possibility of a sudden high velocity crash, but until that happens it's always on the horizon, just like those mad upside rallies you guys are so fond about.

Um... Yeah, it moves between the hands of FOREX traders.

Your point?

The amount of people using the buy and hold strategy are in a prisoners dilemma, once one of the major players decides to defect for whatever reason there won't be anything to stop the others from defecting. Individuals act irrational.

[vokain]

i said many time bitcoin dont have a economy is a lolconomy and i also said many time that my personal bitcoin velocity is near 0

I would say that is pretty much consistent through the userbase.
chodpaba: Forex volume is actual moving money.

If bitcoin days destroyed shoots through the roof one day I would think about discarding the possibility of a sudden high velocity crash, but until that happens it's always on the horizon, just like those mad upside rallies you guys are so fond about.

Um... Yeah, it moves between the hands of FOREX traders.

Your point?

The amount of people using the buy and hold strategy are in a prisoners dilemma, once one of the major players decides to defect for whatever reason there won't be anything to stop the others from defecting. Individuals act irrational.

It is this mass psychology that makes this market predictable. Those individuals you speak of are actually on the lower end of the Bitcoin wealth distribution and they are ill suited to absorb the risk... If they are subject to the greed/fear cycle they are gamblers who will loose most of what they have invested. Conversely, it is possible that those who can actually absorb the risk will lose as well, on an arbitrary time horizon. But their behavior will not be the same. They can comfortably double-down on a Martingale strategy just because its fun.

The game structure is not a simple Prisoner's Dilemma. There are many games afoot.

If so, I kinda like being in this prison! but not alone....

[ElectricMucus]

I can't see why the upper end of the Bitcoin wealth distribution should be excluded from the dilemma. I think it's even more pronounced for them.

[vokain]

I can't see why the upper end of the Bitcoin wealth distribution should be excluded from the dilemma. I think it's even more pronounced for them.

the thing is, if they get out, they are distributing the coins to many more hands ie bringing more "prisoners" in

[johnyj]

This situation is like what I saw in Vietnam: Some business man accept USD payment, but their actual sale in USD is very small. For them USD is a type of money only rich people have, and those rich foreigners seldom appear

Same for bitcoin, only IT and financial aliens from cyberspace have this high credit currency  

Satoshi could change the name to aliencoin to further improve this impression

[ElectricMucus]

I can't see why the upper end of the Bitcoin wealth distribution should be excluded from the dilemma. I think it's even more pronounced for them.

the thing is, if they get out, they are distributing the coins to many more hands ie bringing more "prisoners" in

You'd be surprised how many of them would join the defectors, which brings me back to my thesis that Bitcoins will remain super-volatile over extended periods of time. (Longer than the overall bull market can last)

[ElectricMucus]

I can't see why the upper end of the Bitcoin wealth distribution should be excluded from the dilemma. I think it's even more pronounced for them.

the thing is, if they get out, they are distributing the coins to many more hands ie bringing more "prisoners" in

That's right. The thing about a Martingale is that you don't always have to be right, you just have to be right enough. Whales will make mistakes too. And all you have to do is to be just a little better than they are at calculating risk.

That just made me cringe.