[CHART] Market Price vs Number of Transactions. Why it's a speculative bubble

[kallekoll]

https://i.imgur.com/92o8eqR.png

Data taken from http://blockchain.info/charts

In the past 60 days bitcoin market price has increased by 800%. If the cause of increase was widespread adoption of bitcoin as a currency, people would be making transactions. The number of transactions should increase by a similar percentage taking it to around 300000 transactions per day. The current number of transactions is only around 75000 per day.

My take from the data is that bitcoin is in a massive speculative bubble. People are hoarding and not using bitcoin as a currency.

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[traderCJ]

You are wrong for one reason.  You assume that bitcoin's only use is for point of sale transactions.  It serves many other purposes.  Why bother with bank wires anymore?  Or traditional banks for that matter?

[kallekoll]

You are wrong for one reason.  You assume that bitcoin's only use is for point of sale transactions.  It serves many other purposes.  Why bother with bank wires anymore?  Or traditional banks for that matter?

Sure, bitcoin can be useful as a replacement for bank wire transfers. But after the transfer the reciever will probably sell the bitcoins on an exchange for a more well established currency, and so then the bitcoin market price would drop back to where it was before the sender bought the coins. That kind of use would not cause the market price to go up.

The reciever could keep the coins, but what for? Either hoarding (speculation), or for actually using it as a currency.

A currency is "used as a way to pay for goods and services and to pay people for their work" (Merriam-Webster definition). We would see these transactions for goods and services in the blockchain, but we dont.

[conspirosphere.tk]

btc value is first of all as a reserve of value imho.
actually private property, U know? About .dat it haz no competition.

[traderCJ]

You are wrong for one reason.  You assume that bitcoin's only use is for point of sale transactions.  It serves many other purposes.  Why bother with bank wires anymore?  Or traditional banks for that matter?

Sure, bitcoin can be useful as a replacement for bank wire transfers. But after the transfer the reciever will probably sell the bitcoins on an exchange for a more well established currency, and so then the bitcoin market price would drop back to where it was before the sender bought the coins. That kind of use would not cause the market price to go up.

The reciever could keep the coins, but what for? Either hoarding (speculatin), or for actually using it as a currency.

A currency is used used as a way to pay for goods and services and to pay people for their work. We would see these transactions for goods and services in the blockchain, but we dont.

Currency has value because people store it.  That is, it has value because people do not immediately liquidate units of A to get units of X.  If no one wants to hold A, A has no value.  People hold currency/gold/shells because they anticipate that it will have value in the future.  Collectively, this gives something a global value.  So, I reject the notion that value comes solely from ease of convertibility.  Gold is a perfect example.

[kallekoll]

Currency has value because people store it.  That is, it has value because people do not immediately liquidate units of A to get units of X.  If no one wants to hold A, A has no value.  People hold currency/gold/shells because they anticipate that it will have value in the future.  Collectively, this gives something a global value.  So, I reject the notion that value comes solely from ease of convertibility.  Gold is a perfect example.

I disagree. Something has value because people will buy it. A currency has value because people will buy it in exchange for goods and services, or other currencies. People are willing to buy gold, thats is the reason it has value.

[traderCJ]

Currency has value because people store it.  That is, it has value because people do not immediately liquidate units of A to get units of X.  If no one wants to hold A, A has no value.  People hold currency/gold/shells because they anticipate that it will have value in the future.  Collectively, this gives something a global value.  So, I reject the notion that value comes solely from ease of convertibility.  Gold is a perfect example.

I disagree. Something has value because people will buy it. A currency has value because people will buy it in exchange for goods and services, or other currencies. People are willing to buy gold, thats is the reason it has value.

Yes, value comes from people.  And people are willing to buy Bitcoin, gold, and many other currencies/assets.  Buying things with gold via point of sale is extremely rare, however it still has value.  I believe you are confusing point of sale transactions (basically, barter transactions) with currency transactions.  Barter transactions are not necessarily a good indicator of the value of an asset (as is the case with gold, barrels of oil, porkbellies, etc).

[PenAndPaper]

The fact that the price grew 6 times in a month explains why transactions aren't so pumped after all. People think that if they spend 1 coin today the same coin will worth twice the next so they just hoard. Expect a growth in transactions when and if the price stabilize.

[zimmah]

Not everyone buys stuff every day.

[Impaler]

Not to mention much of the increased transaction volume is the speculative trading itself, we saw the same thing in the last bubble.

[zimmah]

[johnyj]

Check this chart:

Comparing to April rally, although this time the price also spiked up sharply, the amount of ask order at MTGOX is constantly shrinking, it means people are not selling when price is rising


It seems that number of transactions will get less and less with the price rising higher and higher. With a steady rising price, more and more people will hold bitcoin indefinitely. It is wonderful to look at their asset appreciate many folds per year, year after year, year after year

For spending, they will get a loan (good to get some tax deduction on the interest too), and when they need to repay that loan, they cash out some coins at a much later time. Or, they get a newer larger loan to repay the previous loan, since by then their bitcoins are worth 10 times or 100 times much more and they can easily sign a message with their private key to prove to a bank that they own certain amount of coins and get a much larger loan.

Of course this will inevitably lead to another crash if they are running out of loans from banks. But I think by then bitcoins will be accepted by all the people as the most credible store of value, thus won't need to be sold for fiat money at all, they can just spend it

[traderCJ]

Not to mention much of the increased transaction volume is the speculative trading itself, we saw the same thing in the last bubble.

Gosh golly, if the speculators are into it, it is sure to crash.  

[Ibian]

You guys wanna use logarithmic charts for this shit.

[Mondy]

Maybe itll crash then?