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Author Topic: Possible bitcoin crash catalyst? The rise of altcoins  (Read 4466 times)
reg
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November 28, 2013, 08:58:02 AM
 #21

Here's something controversial:

It is well known that bubbles need a signal to pop. For example, in 2012 we had the news that pirateat40 would terminate BS&T, and in april this year we had the mtgox DDOS which ignited a selloff. I think that bitcoin is primed for a correction and I think the catalyst this time could be the dramatic growth of LTC/BTC (and other altcoins) over the last few days.

The market is slowly waking up to the idea that in the future, conversion between altcoins (and bitcoin) will become nearly frictionless, removing any barrier for value to shift between altcoins. Due to open source, any improvement to the bitcoin software can instantly be adopted by the altcoins. Moreover, this could be a solution to bitcoin's deflation problem: Altcoins can absorb new money that is seeking to enter the space of virtual currencies, as we have already been witnessing with litecoin.

I like to compare this paradigm shift to the exchange decentralization which we've seen after all the pain caused by mtgox since April. This time, the pain is caused by the extreme valuation of bitcoin and the perceived unfairness of the early adaptor advantage.

deflation is not a "problem" its a desirable charachteristic designed into btc. Altcoins are to me a group of young boys playing with themselves!. the so called advantages of some of these coins are mostly pre mining on equipment still just affordable from their pocket money-none are durable and will mostly fade away. reg. 
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November 28, 2013, 09:04:35 AM
 #22

Here's something controversial:

It is well known that bubbles need a signal to pop. For example, in 2012 we had the news that pirateat40 would terminate BS&T, and in april this year we had the mtgox DDOS which ignited a selloff. I think that bitcoin is primed for a correction and I think the catalyst this time could be the dramatic growth of LTC/BTC (and other altcoins) over the last few days.

The market is slowly waking up to the idea that in the future, conversion between altcoins (and bitcoin) will become nearly frictionless, removing any barrier for value to shift between altcoins. Due to open source, any improvement to the bitcoin software can instantly be adopted by the altcoins. Moreover, this could be a solution to bitcoin's deflation problem: Altcoins can absorb new money that is seeking to enter the space of virtual currencies, as we have already been witnessing with litecoin.

I like to compare this paradigm shift to the exchange decentralization which we've seen after all the pain caused by mtgox since April. This time, the pain is caused by the extreme valuation of bitcoin and the perceived unfairness of the early adaptor advantage.
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November 28, 2013, 09:49:19 AM
 #23

The market is slowly waking up to the idea that in the future, conversion between altcoins (and bitcoin) will become nearly frictionless, removing any barrier for value to shift between altcoins. Due to open source, any improvement to the bitcoin software can instantly be adopted by the altcoins.

The market caps of alt-ledgers will ultimately reflect their utility - primarily their utility to Bitcoin, thanks to frictionless conversion.

There will be little if any utility in an endless supply of blockchains for merchant adoption (Bitcoin, Litecoin, or another will hit the sweet spot), so in terms of inflation issues we are talking about store of value here. Why on earth would you store your value in any but the most scrutinized, monitored, long-running, stress-tested, brilliant dev-backed blockchain? I could see diversifying into a few alt-ledgers, but not more than a few, and only in proportion to their excellence in terms of dev team and track record. The rest would be speculation based on future promise, but that is even more limited. The marginal utility of each additional alt-ledger very quickly drops off.

All this amounts to very, very little inflation in the grand scheme of things. Even 200% total inflation would be negligible from a present-day perspective. Do you really care if 1 BTC ends up being worth $1,000,000 or $3,000,000? Even if LTC magically kept rising to equal the BTC market cap (which would be insane since it doesn't have nearly the dev support or track record), it would only slow down the average yearly tenfold growth of Bitcoin's price by 3-4 months.

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Moreover, this could be a solution to bitcoin's deflation problem

Deflation is not a problem. At all. Endless inflation would be, but that can't happen for reasons explained above.

I do grant that if, say, LTC rises high enough it could create the perception that altcoins could proliferate endlessly, and that could cause a short-term crash, but long-term not at all. People would soon figure out that it's all about where the development talent, the mining support, and the track record is. The first two gravitate toward the biggest or most useful ledger, and the final one is a permanent advantage Bitcoin has unless a catastrophe happens (and if it survives that, it's track record might be better than ever, with no other ledgers having weathered such a catastrophe).
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November 28, 2013, 09:54:44 AM
 #24

I think bitcoin might end up like a savings account, that can easily be withdrawn into alts, which can then be spent.
The limitation of bitcoin being a bit on the slow side is then less important, and it means that alts will compliment Bitcoins rise and vice versa.


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November 28, 2013, 10:06:47 AM
 #25

I think bitcoin might end up like a savings account, that can easily be withdrawn into alts, which can then be spent.
The limitation of bitcoin being a bit on the slow side is then less important, and it means that alts will compliment Bitcoins rise and vice versa.

The speed thing is a total myth. Bitcoin is far and away the fastest at achieving a given level of secure confirmation. Not only does it enjoy vastly more mining power, it also is way more closely monitored and has a tremendously stronger dev team. "Faster" confirmations are only a matter of granularity anyway, so only the first confirmation is faster in, say, Litecoin. Except it's only 1/4 as secure as the first Bitcoin confirmation...at best! In reality it's way less than that because Bitcoin is far more secure fundamentally because it has almost all the talent monitoring it for irregularities, as well as almost all the mining power.

Now assuming a scenario where Litecoin were to take over as #1 and attract all the talent and mining power, it might be superior because of the faster first confirmation, but this also means more orphan blocks. Whether this trade-off makes Litecoin slightly better on balance is unknown. It may make it disastrously less secure for all anyone knows; it's never been stress tested anything like Bitcoin has.

Litecoin has a huge amount of catching up to do in terms of its track record, and the rest of the alt-ledgers are even farther behind. It will be a long time before the smart money puts its faith in Litecoin as a store of value; it's truly all speculative at this point, in the truest sense of the word. With Bitcoin there is actually store of value functionality created by its track record, much like gold. The alt-ledgers are sorely lacking there, and moreover additional stores of value aren't very helpful when the only difference in that aspect is volatility (whoever you believe on the confirmation speed issue, it's largely irrelevant when it comes to store of value).
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November 28, 2013, 10:25:20 AM
 #26

Any coin is valuable only as much as its infrastructure is developed (user base, hashing speed, merchant support).

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November 28, 2013, 10:44:57 AM
 #27

Any coin is valuable only as much as its infrastructure is developed (user base, hashing speed, merchant support).

There should be something analogous to the P/E ratio. Basically:

MarketCap/(Infrastructure+Devteam+TrackRecord+Userbase+MerchantAdoption+Advantages-Disadvantages)

All else is speculation in the purest sense: merely speculating that this particular alt-ledger with its particular trade-offs will gain the infrastructure, dev team, track record, userbase, and merchant adoption to warrant a given market cap or given ratio to Bitcoin's market cap. Moreover, that it will do so at the speed of crypto. This leaves prospective alt-ledgers with a tough choice: just be a minor tweak of Bitcoin and ride on the coattails of its dev team as much as possible, or do something really innovative that Bitcoin can't ever do and find yourself so far behind that the world moves to the Bitcoin Standard long before your alt-ledger can really get out of the gate.

The altcoins had better get cracking if they want a chance at the table to divvy up Bitcoin's crumbs. Litecoin is positioned well due to getting in early, Namecoin has neat potential, and Peercoin might have something to it, but besides a few novelties there's so far very little to be impressed by in the alt-ledger world. Time is running out.
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November 28, 2013, 03:43:55 PM
 #28

Why on earth would you store your value in any but the most scrutinized, monitored, long-running, stress-tested, brilliant dev-backed blockchain? I could see diversifying into a few alt-ledgers, but not more than a few, and only in proportion to their excellence in terms of dev team and track record. The rest would be speculation based on future promise, but that is even more limited. The marginal utility of each additional alt-ledger very quickly drops off.

The fundamental value in parallel blockchains each having a different hashing algorithm is that it mitigates some of the risk of one of the hashing algorithms getting broken. Altcoin software with such trivial tweaks can be effortlessly kept in sync with the latest bitcoin developments through build scripts, so I disagree with your dev-team and track record argument. I do however agree with the computation power argument, it is hard to bootstramp a new altcoin into existence without a powerful enough community of miners, and I guess that's where part of the value of bitcoin (and litecoin) stems from. This might be a clue on how to value new altcoins: Is the hashing algorithm different enough from the existing ones?

By the way, as we're getting closer and closer to the (artificial) limit of 7 transactions per second on the bitcoin blockchain, spreading transactions over several blockchains can be a partial solution to the scalability issue. So at least they serve the (short-term) purpose of being a fallback mechanism.
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November 28, 2013, 03:52:26 PM
 #29

One may be able to cut short Winklevoss' ETF plans by starting a cryptocurrency index fund.

this sounds like a good idea that i may buy
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November 28, 2013, 03:53:23 PM
 #30

This could be how the altcoin bootstrapping cycle will work (as observed from litecoin):

1) CPU/GPU miners move on to a new altcoin due to miner saturation of their current favourite altcoin (possibly due to ASICs)
2) security of new altcoin increases due to computation power
3) valuation of new altcoin rises and warrants the development of ASICs
4) repeat

So the trick would be to follow the CPU/GPU miners.
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November 28, 2013, 04:43:01 PM
 #31

The logic of litecoin advocates is self-defeating: for litecoin to prosper, it must wrest its market share from bitcoin (remember it is almost a carbon copy with minimal changes).
  • If this is not possible, then litecoin is worthless.
  • If, on the other hand, this is possible, then litecoin is also worthless (along with all other cryptocurrencies), because hundreds of new altcoins will appear every year, diluting the market share of bitcoins, litecoins and all other altcoins.

In other words, Litecoin is an interesting experiment on indirectly bypassing the Bitcoin emission limits. If this experiment succeeds, this means that emission cannot be meaningfully controlled in a decentralized way and all cryptocurrencies are therefore worthless.
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November 28, 2013, 04:51:04 PM
 #32

The logic of litecoin advocates is self-defeating: for litecoin to prosper, it must wrest its market share from bitcoin (remember it is almost a carbon copy with minimal changes).
  • If this is not possible, then litecoin is worthless.
  • If, on the other hand, this is possible, then litecoin is also worthless (along with all other cryptocurrencies), because hundreds of new altcoins will appear every year, diluting the market share of bitcoins, litecoins and all other altcoins.

In other words, Litecoin is an interesting experiment on indirectly bypassing the Bitcoin emission limits. If this experiment succeeds, this means that emission cannot be meaningfully controlled in a decentralized way and all cryptocurrencies are therefore worthless.


Since there is a fundamental demand for virtual currencies, I think the second point is not likely. I believe that the truth is somewhere in the middle, as I tried to explain in my first post.
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November 28, 2013, 04:57:27 PM
 #33

Bitcoin is the only one with truly intrinsic value (sorry alt coin lovers).
They all have a "little something something" neat about them, I do admit.
But the money will pour in for one reason, and one reason alone:   People are starting to see the alt coin market as a way to get rich.  Multiple times over.
And that's fine.  I plan to ride the roller coaster myself.
These coins don't have much to offer the world as far as utility. 
Most of them are novelties (again no offense).
But Namecoin going to $25 is for one reason:  People are pumpuing up the price, getting a quick $50,000 and cashing out.
And this cycle will continue (i hope) through all the alt coins, one by one, as the smart people get in early, make a killing, and get out.

If any of the alt coins ends up making a difference in the world, well, now they'll have funds to do so.
Disclaimer:  I dont intend to sound vicious or condescending towards alt coins.  But I do believe this is going to be a new gambling market.
And one that everyone should get in early on.

Bitcoin's true purpose defined in Satoshi's message on the Genesis Block:
"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"
View it on the Blockchain | Genesis Block Newspaper Copies
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November 28, 2013, 05:10:16 PM
 #34

btc, ltc......

Watch Deutsche e Mark  DEM !!
 Cool Cool Cool Cool Cool Cool


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ImI
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November 28, 2013, 07:31:38 PM
 #35

Here's something controversial:

It is well known that bubbles need a signal to pop. For example, in 2012 we had the news that pirateat40 would terminate BS&T, and in april this year we had the mtgox DDOS which ignited a selloff. I think that bitcoin is primed for a correction and I think the catalyst this time could be the dramatic growth of LTC/BTC (and other altcoins) over the last few days.

The market is slowly waking up to the idea that in the future, conversion between altcoins (and bitcoin) will become nearly frictionless, removing any barrier for value to shift between altcoins. Due to open source, any improvement to the bitcoin software can instantly be adopted by the altcoins. Moreover, this could be a solution to bitcoin's deflation problem: Altcoins can absorb new money that is seeking to enter the space of virtual currencies, as we have already been witnessing with litecoin.

I like to compare this paradigm shift to the exchange decentralization which we've seen after all the pain caused by mtgox since April. This time, the pain is caused by the extreme valuation of bitcoin and the perceived unfairness of the early adaptor advantage.

i agree.

only ONE thing where i differ. why do you suggest that the altcoin-rise could spark a crash like 2011/2012/April?

i mean those were more corrections in terms a longterm approach not crashes.

but given your thought process altcoins could possibly KILL the value of bitcoin completly and not just a correction.
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November 28, 2013, 07:37:28 PM
 #36

During the last bubble in March I bought LTC and PPC just to diversify and hedge my BTC a little bit. The Bitcoin price was so high that I was not comfortable buying at such a high price but I did not want my money in dollars.

Didnt LTC fall just as hard as bitcoin in april?
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November 28, 2013, 07:39:49 PM
 #37

Any coin is valuable only as much as its infrastructure is developed (user base, hashing speed, merchant support).

merchant support isnt needed.

imagine a service/website/whatever that exchanges innert milliseconds every cryto into another crypto for near zero fees. not likely? oh yes it is very likely to happen.

that would lead to the situation that a webshop would have to accept only ONE cryptocurrency and would therefore equally accept ALL cryptocurrencies.

why? pretty simple. the user with currency B comes to the webshop that uses currency A. his browser could automatically show him prices in crypto B and when he pays the merchant gets instantly currency A . just like at the moment the merchant gets instantly dollars instead of bitcoins.

so you dont need a merchant to accept your cryto. ist enough if he accepts one of hundreds.

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November 28, 2013, 07:55:27 PM
 #38

I am ok with clonecoins as long as they don't come close to the bitcoin market cap for a prolonged period of time, because that would be destructive for the scarcity argument.  I am hoping most people realize this and psychological/social responses will be adequate to mediate the problem.

If an altcoin gets developed that provides a serious advantage over bitcoin, then bring it on (although a lot of switches cryptocurrency space fast after each other would hurt cryptos in general too I think).

These are very cool economical / psychological experiments we are watching in real time.
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November 28, 2013, 08:23:51 PM
 #39

i see alts like btc: both as an insurance and as weapons of mass speculation.
insurance against any btc shtf first of all. And the biggest threats to btc imho are an high and probably increasing concentration in mining power, and an increasing attention/interest by TPTB.
What i like most of alt.coins is that their mining is way more decentralized, until there are no asics for them.  
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November 28, 2013, 09:50:35 PM
 #40

Here's something controversial:

It is well known that bubbles need a signal to pop. For example, in 2012 we had the news that pirateat40 would terminate BS&T, and in april this year we had the mtgox DDOS which ignited a selloff. I think that bitcoin is primed for a correction and I think the catalyst this time could be the dramatic growth of LTC/BTC (and other altcoins) over the last few days.

The market is slowly waking up to the idea that in the future, conversion between altcoins (and bitcoin) will become nearly frictionless, removing any barrier for value to shift between altcoins. Due to open source, any improvement to the bitcoin software can instantly be adopted by the altcoins. Moreover, this could be a solution to bitcoin's deflation problem: Altcoins can absorb new money that is seeking to enter the space of virtual currencies, as we have already been witnessing with litecoin.

I like to compare this paradigm shift to the exchange decentralization which we've seen after all the pain caused by mtgox since April. This time, the pain is caused by the extreme valuation of bitcoin and the perceived unfairness of the early adaptor advantage.

i agree.

only ONE thing where i differ. why do you suggest that the altcoin-rise could spark a crash like 2011/2012/April?

i mean those were more corrections in terms a longterm approach not crashes.

but given your thought process altcoins could possibly KILL the value of bitcoin completly and not just a correction.

Good point, I should have been more careful using the terms correction (e.g. April) and crash (e.g. 2011). I'm speculating that both scenarios are possible at this point. If it becomes widely accepted that bitcoin is losing value to litecoin, then this will have a reinforcing effect, and a crash is definitely in the cards and might kill the speculative appeal of cryptocurrencies for a long time. At that point we can hopefully start actually using them as money instead of an investment.
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