2013-10-23 Yahoo Finance: How Bitcoin Could Become a Viable Currency

[Kikkerdril]

http://finance.yahoo.com/blogs/the-exchange/bitcoin-could-become-viable-currency-163337407.html

The decentralized electronic crypto-currency has risen 15 fold relative to the U.S. dollar since the beginning of the year, from $13.30 on December 31 to $205.50 on October 22, its highest price since April.

This extreme momentum is fueled by speculators betting on huge upside in the event bitcoin continues to get adopted by more businesses and over time evolves into an accepted means of exchange. The resulting bullish price behavior has then attracted traders who observe the rise and pile in, expecting the trend to continue. Finally, the upside is exacerbated by illiquidity, or the limited bitcoin supply.

[seafarer124]

Uninformed heap of shite!!!!!!!!!!!!!

[Arvicco]

"In order to become a viable currency, Bitcoin needs to be exactly like all the other boring, low-volatile currencies. Why don't you kids just drop your silly messianic notions and submit to the powers of benevolent central planners like the rest of the flock?"

[odolvlobo]

I'm not clear about what you object to in this article. I think it is very accurate. The volatility hampers its ability to be used as a store of value.

[Arvicco]

I'm not clear about what you object to in this article. I think it is very accurate. The volatility hampers its ability to be used as a store of value.

Respectfully, I disagree. Suppose, we have two currencies. Currency A demonstrates a very low volatility - it barely moves 1% either way on a monthly bases, and on average loses 3% of its value per year. Currency B is highly volatile, with 40% monthly up/down swings not out of question. The thing is, however, it moves more up than down, and on average appreciates ~100% every year. Which currency is a better long-term store of value?

The thing is, the asset that appreciates fast is ALWAYS more volatile just because of this appreciation, compared to one that just sits at one price. In order to grow several orders of magnitude to any valuation that makes sense, Bitcoin NEEDS to be more volatile than its going-nowhere centrally-controlled fiat cousins. Ideally, BTC would appreciate in a neat straight line without any bubbles and bursts - but even in such ideal scenario it would still be orders of magnitudes MORE volatile than the control group. It's just that simple. So, applying "volatility is bad in and of itself" critique to a fast appreciating asset is a pure nonsense.

[odolvlobo]

I'm not clear about what you object to in this article. I think it is very accurate. The volatility hampers its ability to be used as a store of value.

Respectfully, I disagree. Suppose, we have two currencies. Currency A demonstrates a very low volatility - it barely moves 1% either way on a monthly bases, and on average loses 3% of its value per year. Currency B is highly volatile, with 40% monthly up/down swings not out of question. The thing is, however, it moves more up than down, and on average appreciates ~100% every year. Which currency is a better long-term store of value?
The thing is, the asset that appreciates fast is ALWAYS more volatile just because of this appreciation, compared to one that just sits at one price. In order to grow several orders of magnitude to any valuation that makes sense, Bitcoin NEEDS to be more volatile than its going-nowhere centrally-controlled fiat cousins. Ideally, BTC would appreciate in a neat straight line without any bubbles and bursts - but even in such ideal scenario it would still be orders of magnitudes MORE volatile than the control group. It's just that simple. So, applying "volatility is bad in and of itself" critique to a fast appreciating asset is a pure nonsense.

In the case of someone intending to hold the currency for a long time, short term volatility is irrelevant (except on the rare occasions where it becomes long term volatility). However, in all other cases, volatility is a problem because it increases risk, and therefore cost. Also, you can't assume that bitcoin is going to increase in value over the long term. It could just as easily drop to 0 over the long term.

[aigeezer]

It could just as easily drop to 0 over the long term.

Not any more, I suggest. Now people who have sunk cost mining commitments would keep it going indefinitely, human nature being what it is. They We would probably keep it going at a cult level "to play with justify the equipment". BTC can certainly decline in value, but I think the floor is non-zero now, unlike the early pizza era. "Long term" is sufficiently ambiguous that we will both be right - BTC will not be used a few geological eons from now. Fiat, fwiw, will reach zero - it always does eventually.   

[HeliKopterBen]

Bitcoin is up over 1500% against the dollar in 2013 yet is described as "fledgling."  Nearly all other assets on earth have collapsed against bitcoin so far this year and this decade but bitcoin is "too volatile."  This tells me that bitcoin still has huge upside potential.

[TTBit]

Bitcoin needs to be viewed as an asset among portfolio managers. I haven't done the analysis, but bet that the correlation between bitcoin and any other traditional asset is zero. From there, it doesn't matter what the volatility is - it can be added to portfolios to reduce overall portfolio risk no matter what the volatility of bitcoin happens to be.

[alexanderanon]

If stability is considered a valuable aspect of a fledgling currency, then that value would drive its demand, and would unravel its stability.

[hl5460]

Guys, check the banker's view on "Bitcoin Volatility – The 4 perspectives"

http://bitcoinmagazine.com/6543/bitcoin-volatility-analysis/

[odolvlobo]

If stability is considered a valuable aspect of a fledgling currency, then that value would drive its demand, and would unravel its stability.

That's a very interesting point.

[aigeezer]

If stability is considered a valuable aspect of a fledgling currency, then that value would drive its demand, and would unravel its stability.

That's a very interesting point.

Damned if you do, damned if you don't. At least in the eyes of the media...

Nice catch, alexanderanon. They have to write - something - every cycle, which is every day for many of them. If nothing happens, they have to pretend something did happen. BTC surges on news of X. BTC plummets on news of Y. BTC is too much this. BTC is not enough that. After a while the contradictions and fallacies become relatively easy to notice. The biggest danger (I think) is in casually looking to a media outlet for news of the day, forgetting temporarily about their deadline-driven practices.

[Anon136]

"Finally, the upside is exacerbated by illiquidity, or the limited bitcoin supply." Someone correct me if im wrong but that is not what liquidity means. liquidity is related to the availability of BUYERS not sellers of a particular good.

not bad, i mean hes very fair. though i think hes putting the cart before the horse. hes saying, in order for bitcoin to become more widely accepted it needs to stop being so volatile, but the only think that will stop it from being so volatile is wider acceptance. so needless to say, i hope he is wrong.