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Author Topic: Could price collapse cause btc businesses to go belly up?  (Read 1917 times)
cunicula
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August 07, 2011, 05:30:12 AM
 #1

Presumably btc businesses have liabilities in USD/EUR primarily. To the extent that they don't immediately convert sales revenue to USD\EUR, they have assets in btc. If there is any leverage in the system, then businesses may need to liquidate larger volumes of btc to pay of their debts. Could we see a minsky style collapse in the btc real economy? (a feedback loop where a price fall -> sale of. Extra btc to get same amount of USD to pay debts -> price fall -> repeat -> catostrophic collapse a la banking crisis of 2008)

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lemonginger
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August 07, 2011, 05:32:50 AM
 #2

No but only b/c bitcoin "merchant economy" is so tiny compared to btc economy. but thats one of the reasons for the wild fluctuations anyway.
cunicula
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August 07, 2011, 05:44:39 AM
 #3

I mostly agree with you, but i think a plausible case can be made for some banking crisis effect.

Consider mybitcoin. Many businesses are supposed to have held deposits there. If mybitcoin sells off their btc, then price will fall. If the busnisses need to sell btc to pay off USD debts, then price will fall some more. Granted the volumes involved are small compared to the total supply of btc, but the volume of btc actively traded on exchanges is also small.

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August 07, 2011, 05:56:45 AM
 #4

I mostly agree with you, but i think a plausible case can be made for some banking crisis effect.

Consider mybitcoin. Many businesses are supposed to have held deposits there. If mybitcoin sells off their btc, then price will fall. If the busnisses need to sell btc to pay off USD debts, then price will fall some more. Granted the volumes involved are small compared to the total supply of btc, but the volume of btc actively traded on exchanges is also small.

If folks are smart they won't drop their btc, but hold on to their btc so that when the market comes back they'll be rich. Just my 2 cents.
repentance
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August 07, 2011, 06:44:25 AM
 #5

I mostly agree with you, but i think a plausible case can be made for some banking crisis effect.

Consider mybitcoin. Many businesses are supposed to have held deposits there. If mybitcoin sells off their btc, then price will fall. If the busnisses need to sell btc to pay off USD debts, then price will fall some more. Granted the volumes involved are small compared to the total supply of btc, but the volume of btc actively traded on exchanges is also small.

If folks are smart they won't drop their btc, but hold on to their btc so that when the market comes back they'll be rich. Just my 2 cents.


It's pretty clear from the number of posts from people complaining when their withdrawals are delayed that a significant number of people do rely on selling Bitcoins and having rapid access to the proceeds of those sales.  People in that situation probably can't afford to hold in anticipation of a rebound, whether they're businesses or individuals.

All I can say is that this is Bitcoin. I don't believe it until I see six confirmations.
logansryche
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August 07, 2011, 07:01:00 AM
 #6

I mostly agree with you, but i think a plausible case can be made for some banking crisis effect.

Consider mybitcoin. Many businesses are supposed to have held deposits there. If mybitcoin sells off their btc, then price will fall. If the busnisses need to sell btc to pay off USD debts, then price will fall some more. Granted the volumes involved are small compared to the total supply of btc, but the volume of btc actively traded on exchanges is also small.

If folks are smart they won't drop their btc, but hold on to their btc so that when the market comes back they'll be rich. Just my 2 cents.


It's pretty clear from the number of posts from people complaining when their withdrawals are delayed that a significant number of people do rely on selling Bitcoins and having rapid access to the proceeds of those sales.  People in that situation probably can't afford to hold in anticipation of a rebound, whether they're businesses or individuals.

I guess not everyone's like me then lol.
I have something like 0.875 btc total to my name and I plan on holding on to it.
My domain thebitcardstore.com is covered for a year and my webhosting is taken care of also.
I guess when everything's paid for, you don't have anything to loose so everything from the start is profit.
NetTecture
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August 07, 2011, 07:04:27 AM
 #7

But this is not a bitcoin specific phenomenon. Any business without sound financial undepinnings is in a high risk of folding. Seems some people here are running busiensses other people consider pocket money for children in size... and then have to finance that with a credit.
miscreanity
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August 07, 2011, 07:40:44 AM
 #8

Yes, BTC oriented business could easily become defunct.

Mining is the perfect situation to take as an example, as it is purely Bitcoin related and depends upon currency conversion to cover operating costs. It becomes unprofitable around the $2-6 range if electricity costs are incurred and depending on efficiency. If the hardware costs haven't been recouped yet and the price drops below operating costs, the "business" either shuts down or runs at a deficit until all supporting funds are depleted. Either that or the currency price rises.

A Minskian collapse is a possibility. However, I think the difference between Bitcoin and contemporary currencies controlled by a central authority preclude complete failure. My thinking is that the decentralization coupled with self-regulatory aspects and the Satoshi unit being effectively indestructible (a la gold) mean that the decline is limited in a similar manner to stock liquidation.

Even if a company's stock goes to zero, the corporate assets still retain some value. Likewise, even if Bitcoin goes to zero on a foreign exchange basis, it will still retain some value within the Bitcoin economy. Granted, that would be extremely limited, but it simply refuses to die.

The intriguing prospect for this is that with such a reduction in perceived value, the participants will be thinned out heavily. That will make changes to the system much easier to propagate. Whether that involves adjusting the base inflation rate, raising the cumulative total or other modifications. It becomes a phoenix - reborn, as many times as needed... and the BTCs held continue to exist.

But this is not a bitcoin specific phenomenon.

True, but the underlying currency used is the issue here, not so much the particular business. Typical fiat currencies can experience complete loss of confidence and no longer have use. Bitcoin can experience the same, but it still doesn't cease to exist; it just temporarily goes to zero in relative valuation so long as the system integrity remains.

Think of a machine tooling company that goes out of business because the currency has gone into hyperinflation. It may have had to close its doors because of the situation, but a lathe or ceramic saw is still useful. Bitcoin's value could go to zero, but the system itself is still sound.

Or a car with a dead engine - the gas is still good...

Who knows, maybe Bitcoin is just a few years too early in trying to fill a void that hasn't fully presented itself yet.
cunicula
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August 07, 2011, 07:47:27 AM
 #9

But this is not a bitcoin specific phenomenon. Any business without sound financial undepinnings is in a high risk of folding. Seems some people here are running busiensses other people consider pocket money for children in size... and then have to finance that with a credit.

Crisis risk is much greater with btc businesses because there is a currency mismatch between assets and liabilities. This risk does not exist for the vast majority of small business.

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August 07, 2011, 08:09:20 AM
 #10

Presumably btc businesses

both of them?

the only businesses hurt by the exchange rate drop are those who were hoarding (e.g., miners who weren't selling) and those who had been counting on a cache of bitcoins to fund operations or future expenses.

those who already spent their bitcoins are probably not unhappy because that spending came at higher exchange rates.

as far as the miners that would drop out, the same number of bitcoins are issued, regardless of 10 miners or 10,000 (i.e., for the bitcoin economy, fewer miners has no effect).
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August 07, 2011, 08:09:28 PM
 #11

Presumably btc businesses have liabilities in USD/EUR primarily. To the extent that they don't immediately convert sales revenue to USD\EUR, they have assets in btc. If there is any leverage in the system, then businesses may need to liquidate larger volumes of btc to pay of their debts. Could we see a minsky style collapse in the btc real economy? (a feedback loop where a price fall -> sale of. Extra btc to get same amount of USD to pay debts -> price fall -> repeat -> catostrophic collapse a la banking crisis of 2008)
I have no respect at all for people who call themselves bitcoin merchants, but yet fail to understand the basics of gaining ground on a new market. I hope some of them will learn from bitcoin, without causing all too much damage to the BTC economy. Please do also see https://bitcointalk.org/index.php?topic=34874.0 for my thoughts on this.

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BitPorium
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August 08, 2011, 02:44:14 AM
 #12

As a merchant dealing with BTC, I think a price collapse may hurt but wont destroy me. I have never used anything like mybitcoin for my business, I always found running my own server to be more practical. To tell you the truth, the biggest issue I have faced with the price dropping down is that people are unwilling to spend or unable. It seems most people using BTC are here just to horde them, which I believe could be a problem, Also since the only way to get BTC is either to mine or to buy them at exchange it has become difficult to get lots of coins for some people. I have seen that people want to hold on to coins as if they were investments. I think the only way this economy will flourish is if we spend more. to much currency trading is hurting. If there were more personal transactions instead of exchange transactions prices would be even more stable. But most people want to just pull out cash. I think more non volatile currency exchanges need to open, where someone can get coins or cash without moving the market. I hope I can ride out the rough patches and emerge out the other side where bitcoins are more than just a novelty. Also, if you only deal with BTC then you are bound to loose, if you care about the exchange rates. 
One of the main problems I see is that people are shouting that businesses should have a set bitcoin value that is not linked to USD price but also scream when the value of btc goes up and then state prices are high. Either you set the price of a product to 5 btc or 5 usd, you cant have both. I am tired of people saying my prices are high because my value of btc is a few cents off mtgox price.
I have a lot to be thankful for now, I can live without debt looming over my head ,I can enjoy my life and not worry about bills. All thanks to bitcoins and the wonderful community behind it. I was able to start something and people instantly gave me the benefit of the doubt. With 0 feedback and no track record I generated over 500BTC(when they were valued at 17-30) within a few days. The community gave me a kick start and finally gave me a job. Now that things are a little tougher it gives me all the more incentive to stay here. I have to take the good and the bad.
So to answer your question, Only businesses who don't care about BTC will go belly up, Those looking for the quick buck and the easy money. Those who say, Bitcoins are fake and worthless because you get them by mining. Those who think Bitcoins are a pyramid scheme, those will go belly up. Businesses like mine, which are here for the long haul are here to stay till the bitter end if it comes to that. A little statement I made to my sister who is an accountant stating that Bitcoins are a joke and have no chance, I said, Bitcoins today, Bitcoins everyday.
Just a little heads up. BitPorium is going to open a store front in the near future, I don't know where or when. But there will be a physical store by the end of this year.Just to show that the Bitcoin economy is still strong as ever and here to stay.
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August 08, 2011, 04:23:57 AM
 #13

ironically, if the set back in the btc economy ends up being temporary, every btc that could have been received in exchange for goods or services will be worth much more tomorrow than today.   this is not the time to get squeamish.
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August 08, 2011, 06:08:15 AM
 #14

ironically, if the set back in the btc economy ends up being temporary, every btc that could have been received in exchange for goods or services will be worth much more tomorrow than today.   this is not the time to get squeamish.

Yes, this is the upside. If btc goes up then business may have a windfall of extra earnings to invest in projects. Still, stability is more conducive to growth than volatility.

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August 08, 2011, 01:31:44 PM
 #15

One of the main problems I see is that people are shouting that businesses should have a set bitcoin value that is not linked to USD price but also scream when the value of btc goes up and then state prices are high. Either you set the price of a product to 5 btc or 5 usd, you cant have both. I am tired of people saying my prices are high because my value of btc is a few cents off mtgox price.
With the exchange rates being volatile for a while, some people will learn from the situation, others will leave bitcoin (those who think of bitcoins as an investment rather than a currency), and yet other people will be attracted.

There will always be people who are unhappy with something, but it is still your own decision what consequences to draw from it, if at all.

I think there is nothing wrong with set bitcoin prices. Then, when bitcoins are cheap, it is the time to advertise to non-bitcoiners (who will make a good deal by buying bitcoins and using them to pay for your service then), and when bitcoins are expensive, it is the time to advertise to bitcoiners (who will probably have bitcoins they got somehow cheaper).

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August 08, 2011, 07:03:14 PM
 #16

If there were more personal transactions instead of exchange transactions prices would be even more stable.

See my sig for help with that.

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August 08, 2011, 08:28:27 PM
 #17

ironically, if the set back in the btc economy ends up being temporary, every btc that could have been received in exchange for goods or services will be worth much more tomorrow than today.   this is not the time to get squeamish.

Yes, this is the upside. If btc goes up then business may have a windfall of extra earnings to invest in projects. Still, stability is more conducive to growth than volatility.

What investment? Thats the problem here...few if any businesses are investing in the bitcoin deliverying on 'the vision' or the promise, whatever you want to call it....the programmers who are doing the heavy lifting are pretty much donating themselves. Thats one thing I guarantee the bitcoin will not tolerate is business leaching off the 'taxpayer'. A business needs to help "building the roads", even if it doesnt make short-term financial sense. In order for the new boss not to end up being the same old boss, there are new rules. #1 is that a business wants to survive, they have to provide value. And #2 is that they have to pay at least their fair share of costs. None of this someone steals a $1 candybar and we spend $50,000 a year locking them up for you BS. You dont want your candybar being stolen, then pay for security.

Those who want to get behind the 'businesses' are trying to kill the good-willed programmers....and at some point, the programmers will lose interest since no one else is caring and everyone is interested in adopting corporate slavery.
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August 08, 2011, 10:29:49 PM
 #18

ironically, if the set back in the btc economy ends up being temporary, every btc that could have been received in exchange for goods or services will be worth much more tomorrow than today.   this is not the time to get squeamish.

Yes, this is the upside. If btc goes up then business may have a windfall of extra earnings to invest in projects. Still, stability is more conducive to growth than volatility.


^this 

let me rephrase what the above posters are saying.
it's not a bad time right now to be selling goods or services for bitcoins even at the low coin value. if you make sure you are getting the USD equivalent in bitcoins for your product or service, and then the price of bitcoin
shoots back up to $14 or $15 from where it is now, you have doubled your money by doing nothing other than hanging on to your coins and conducting your business as you would have done anyways.

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May 02, 2013, 06:33:01 PM
 #19

In theory, yes.  Actually, If I ever get a game up and running, I'll accept altcoins because the goods are virtual anyway.  For a real retailer, however, there is definite risk.  Grocery stores operate on a slim 4% margin.  Meaning that if they accepted BTC and converted it to USD and it dropped in the interim or was fake, they would lose money.

Additionally, adding a 10 minute wait while the transaction was verified would be a problem for most retailers.  Even a company charging a credit card like processing fee might have issues.  Fun.
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