Why is Bitcoin so cheap?

[xxjs]

Falkvinge says it's over valued.

https://bitcointalk.org/index.php?topic=293809.0

Falkvinge makes a mistake in my mind: he only looks at bitcoins current value for transactional purposes.

50% chance of bitcoin being worth $500,000 in 10 years is obviously way too high a guess.

It seems the market gives this a chance of 0.1%. I give it a higher chance personally... that's why I'm long bitcoin.

It seems he thinks that the market is "wrong" if it is higher than it should be according to his theory that the value of the current "real" trade. Of course it is not, speculation is not an error, it is just foresight.

I also think he is wrong in the assumption that the value is related to the trade volume. In my view the value is rooted in the reservation demand. If bitcoin somehow would replace fiat, it is not necessarily so that the value of the bitcoins would be the same as the value of the current fiat supply (including debt). It could be smaller or greater.

[Singlebyte]

The market is no omnipotent all-knowing sentient being.
It doesn't take every variable into consideration, it is the variables.
Just like the weather "takes all temperatures into consideration".

But in contrast to the weather, the variables contain much more human decisions.
Humans can be wrong, therefore the market can be wrong.
(wrong in the sense of being a bad decision for the market participants or in accurateness of predictions)

Believe me, the market takes that (bad/good human decisions) into consideration as well!

Well. I do not believe you. You have a belief system, obviously. You believe into market being 100% efficient. Feel free to prove your point. Just a blind faith will not cut it.

Do you believe in God too, by any chance?

I'll tell you what I believe in. LOL. There is a teapot orbiting the Sun. Dare you to say it isn't so!

Wow...time for someone to take an enconomics class or two.

Your lack of basic economics is really starting to reflect in your posts.  Please post a link that supports your claim. (Would love to see a link to your orbiting teapot theory!)  I can give you hundreds that say the market is always right.  This was taught in economics 101 and is really common sense. 


But like you said....believe what you will & I will do the same.

[murraypaul]

I think you are arguing different points.
The market accurately reflects the total sum of current sentiment amongst participants. If that is your definition, then the market is always right.
If you feel that the market should reflect some inherent value of the item, then it often fails.

[murraypaul]

On Cryptsy, the average market participant seems to be an auto selling bot dumping whatever has just cleared from the multipools.
The markets for most altcoins are so far from efficient it isn't even funny.

[Birdy]

Do you think that your average Bitcoin market participant matching the four criteria above? I would think that actually typical Bitcoin market participant is:

- a child
- a poorly educated
- without much real world experience
- without much trading experience
- an emotional wreck
- some more derogatory characteristics.

Why would you say that?
The only one that is about right is "-without much trading experience", as many there are many more technical interested people and ideological people involved (Bitcoin's concept does match quite well with all liberal thinkers).

[Singlebyte]

Vladimir,

I think we are arguing two different view points regarding the phrase "The Market is Always Right".

Read this short article:
http://www.fxtimes.com/commentaries/the-market-is-always-right-even-when-its-wrong/

I believe you are arguing against point number 1 from this article (the market is not 100% efficient), and I am arguing for point number 2.


In essence, we are attacking the phrase from different positions.  If this is the case, then your statements would be as valid as mine and I totally understand your view.  We just have a different prospective of the phrase.


I was just trying to answer the thread title "Why are Bitcoins So Cheap" from a common economic position.   It is because the market dictated the price.  It is not relevant what somebody thinks it should be.

[johnyj]

I also believe that there is way too many suckers that bought at 31$, then sold at 2$ then again bought at 266$ and then sold at 70$ and these guys inject too much emotions into all of this. This could also include Falkvinge, BTW.

LOL  

Spot on! I guess Mr. F sold majority of his coins at $40 and now he hopes the price will go down to let him re-enter his position  

[johnyj]

Soros, who made much more serious money than professors of economy schools said the market is always wrong (Self-strengthened mainstream bias will cause the price of securities diviate largely from true value of the underlying assets for a long time)

Actually the value of money is a totally psychological thing, based on people's belief. If no one believe that the dollar has any value, then it will not be accepted anywhere and lose all of its value overnight. But if more than 50% of people believe that dollar has value, then the rest of the people might just follow

A belief based on mathematics and network should be much stronger than a belief based on bankers and politicians

[deeplink]

If no one believe that the dollar has any value, then it will not be accepted anywhere and lose all of its value overnight.

If it was merely based on belief the US (and other nation states) would have probably already collapsed entirely. It is force and violence that gives fiat money its perceived value. It does not matter what you believe as long as the government is able to force people to use it to pay them off or threaten them with violence if they don't accept dollars for settlements.

[Spaceman_Spiff]

If no one believe that the dollar has any value, then it will not be accepted anywhere and lose all of its value overnight.

If it was merely based on belief the US (and other nation states) would have probably already collapsed entirely. It is force and violence that gives fiat money its perceived value. It does not matter what you believe as long as the government is able to force people to use it to pay them off or threaten them with violence if they don't accept dollars for settlements.

I don't think that's true.  Otherwise, hyperinflation wouldn't happen.

[Birdy]

If no one believe that the dollar has any value, then it will not be accepted anywhere and lose all of its value overnight.

If it was merely based on belief the US (and other nation states) would have probably already collapsed entirely. It is force and violence that gives fiat money its perceived value. It does not matter what you believe as long as the government is able to force people to use it to pay them off or threaten them with violence if they don't accept dollars for settlements.

There is a limit of what you can achieve with force, sure you can easily force a single person to accept dollars. But if nearly everyone thinks dollars are worthless, no use of force would rescue the system.

[deeplink]

If no one believe that the dollar has any value, then it will not be accepted anywhere and lose all of its value overnight.

If it was merely based on belief the US (and other nation states) would have probably already collapsed entirely. It is force and violence that gives fiat money its perceived value. It does not matter what you believe as long as the government is able to force people to use it to pay them off or threaten them with violence if they don't accept dollars for settlements.

I don't think that's true.  Otherwise, hyperinflation wouldn't happen.

During a hyper-inflationary event people riot en mass and government is no longer able to control the masses by threats of violence. When the thread of violence diminishes, belief will become the driving force behind the currency (like with Bitcoin) but that belief is evaporating at an increasing rate during hyperinflation.

[Adrian-x]

I also believe that there is way too many suckers that bought at 31$, then sold at 2$ then again bought at 266$ and then sold at 70$ and these guys inject too much emotions into all of this. This could also include Falkvinge, BTW.

LOL  

Spot on! I guess Mr. F sold majority of his coins at $40 and now he hopes the price will go down to let him re-enter his position  

I came to the same conclusionas as Falkvinge in December 2012. I sold 2/3s of all my coins for an average of $13.

I overcame my belief system once I read a 1997 ish article on gold and fiat. It is hidden on this website but it explained why Bitcoin has value above that of the velocity of money theory, and will become a store of wealth just because of its limited supply.

so spot on just corect the $40 down by a100%

[MAbtc]

I also believe that there is way too many suckers that bought at 31$, then sold at 2$ then again bought at 266$ and then sold at 70$ and these guys inject too much emotions into all of this. This could also include Falkvinge, BTW.

LOL  

Spot on! I guess Mr. F sold majority of his coins at $40 and now he hopes the price will go down to let him re-enter his position  

Yeah, anytime a bear exists, it's because he sold and is chasing missed profits.

 

[User705]

The markets aren't right or wrong they are just markets.  Also most people who bloviate about the markets are usually "proffessors of stuff" who aren't even participants in any markets but do it to sound smart and get a paycheck from someone.  That's their market/racket.  Think about this conundrum.  Any time a deal is made in the markets the buyer and seller are at the same time the smartest and dumbest traders.  They are smart because they made a deal where no one else did and dumb because a buyer had to pay more then anyone and everyone else offered and a seller had to settle for less then anyone and everyone else was willing to sell only for a higher price.  Figure that one out. 

[johnyj]

If no one believe that the dollar has any value, then it will not be accepted anywhere and lose all of its value overnight.

If it was merely based on belief the US (and other nation states) would have probably already collapsed entirely. It is force and violence that gives fiat money its perceived value. It does not matter what you believe as long as the government is able to force people to use it to pay them off or threaten them with violence if they don't accept dollars for settlements.

I don't think that people are forced to use fiat money, it is because that so far they have no other alternative and they never realized that there could be an alternative

The fiat money's value is maintained partly by existing consensus (unit of counting), partly by a balance between scarcity and availability through central bank's OMO

If fiat money can be acquired easily like toilet paper, then it will worth nothing; if people do not get fiat money as income (from top of the financial system: Government spending and bank lending), then it is no difference than a foreign currency or stock, not so many people will care about its value

Some belief affect people's life more than others. If dollar's purchase power dropped 50% in a week, people will lose their belief of fiat money, start to hoard physical goods and refuse to accept fiat money, thus accelerate dollar's fall. But if bitcoin's value dropped 50% in a week, most of the people don't care, since their income will not be affected

Things will get interesting when more and more people start to receive bitcoin as their income, but that might never happen at large scale due to ever rising exchange rate of bitcoin (people tends to spend inflative fiat instead of deflative bitcoin, they might even mortgage the coins and get a loan to spend)

[giantdragon]

Too few real businesses accept Bitcoins now. For example, there are no Bitcoin-accepting shops, restaurants, workshops at all in Riga (capital of Latvia, EU member).
When this will change, BTC easily will go $1000+ IMHO.

[johnyj]

Too few real businesses accept Bitcoins now. For example, there are no Bitcoin-accepting shops, restaurants, workshops at all in Riga (capital of Latvia, EU member).
When this will change, BTC easily will go $1000+ IMHO.

I visited Riga a while ago, I think I only need som good forex exchange at major airport/train station/habour so that I can exchange bitcoin for some euro when I travel to Riga  

[NewLiberty]

If no one believe that the dollar has any value, then it will not be accepted anywhere and lose all of its value overnight.

If it was merely based on belief the US (and other nation states) would have probably already collapsed entirely. It is force and violence that gives fiat money its perceived value. It does not matter what you believe as long as the government is able to force people to use it to pay them off or threaten them with violence if they don't accept dollars for settlements.

I don't think that people are forced to use fiat money, it is because that so far they have no other alternative and they never realized that there could be an alternative

The fiat money's value is maintained partly by existing consensus (unit of counting), partly by a balance between scarcity and availability through central bank's OMO

If fiat money can be acquired easily like toilet paper, then it will worth nothing; if people do not get fiat money as income (from top of the financial system: Government spending and bank lending), then it is no difference than a foreign currency or stock, not so many people will care about its value

Some belief affect people's life more than others. If dollar's purchase power dropped 50% in a week, people will lose their belief of fiat money, start to hoard physical goods and refuse to accept fiat money, thus accelerate dollar's fall. But if bitcoin's value dropped 50% in a week, most of the people don't care, since their income will not be affected

Things will get interesting when more and more people start to receive bitcoin as their income, but that might never happen at large scale due to ever rising exchange rate of bitcoin (people tends to spend inflative fiat instead of deflative bitcoin, they might even mortgage the coins and get a loan to spend)

Yes people are forced to use fiat money for at least one thing...
US Dollars are is required for paying taxes in the USA.  (It is called fiat for a reason)
There are some institutionalized controls in place already for a Dollar -> Bitcoin transition.
I could probably write an article on this, but the germ of it is that with Capital Gains taxation and other taxes in place already, the dollar can inflate against bitcoin and the capital gains paid in dollars will fund the deflating dollar.  Those with assets encumbered by dollar denominated debt will see the debt value diminish and the asset retain its intrinsic value (so the rich get richer) and renters impoverished (except those with Bitcoin income).  There are quite a number of institutionalized mechanisms that will be natural brakes on the transition, not the least of which is the size of the economy as a whole.

[Wary]

50% chance of bitcoin being worth $500,000 in 10 years is obviously way too high a guess. It seems the market gives this a chance of 0.1%. I give it a higher chance personally... that's why I'm long bitcoin.

And most of us giving much higher chances. But the market in a whole doesn't.

I think the market is wrong. Market is self-regulating, but with BTC the regulating levers reached their limits: the 0.1% of investors that understand bitcoin have already invested all they can afford to lose. When the understanding will spread, market will become efficient and price will match the real chances of bitcoin.