drop in btc value

[Bruce Wagner]

The MtGox Orderbook, according to Bitcoin Charts ( http://bitcoincharts.com/markets/mtgoxUSD.html ), leads me to understand that it would only take ONE SINGLE PURCHASE of $40,864.....  to wipe out ALL standing sell orders up to $5.00 per Bitcoin.

A single purchase of more that $251,908   would get Bitcoin selling at $1,500.00 per Bitcoin.

As you can see, it would only take ONE SINGLE ARAB SHEIK to make ONE SINGLE PURCHASE of Bitcoins.... to make the Last Price fluctuate like a roller-coaster.

The same is true of one major sale.

When someone I know bought a large quantity of Bitcoins, we could see clearly the huge jump in price it caused on MtGox.   That's one guy.  One purchase.

So, you see, the economy is still very small.  

It would take ONLY ONE big big player....  Like a rich sheik...   or a big time global money player...   to try to use Bitcoin to transfer money.    He would have to make a big purchase...   Then, I would expect, he'll try to make a large sale on the other end.     This is going to push the price of Bitcoin up up Up UP UP UP!

MY PREDICTION:

(1)  As the price continues to go up rapidly....

(2)  The number of buyers will grow rapidly...  causing...

(3)  The price to grow exponentially....  causing...

(4)  The number of buyers to increase exponentially....   causing...

(5)  An ever-increasing price....  Yet.....  Much more stability in the price....   (more upward growth with fewer downward swings--due to so many more players)  And....

(6)  As the so-called Bitcoin Economy (the total value of all Bitcoins in circulation) explodes up off the top of the charts...

(7)  The online merchants will run, tripping over themselves, to get a piece of that pie...  and will all accept Bitcoin....   And then...

( 8 )  The brick & mortar merchants, having seen Bitcoin's success online, will also run to accept Bitcoin as well....   And then...

(9)  Bitcoin will eventually be used globally by even more users than use Google or Facebook....   That's when...

(10)  Bitcoin will have come of age.

As I tell my friends and loved ones:    

"We are NOT on the ground floor of this thing.   We are in the basement....  one step up the stairs.    Buying Bitcoin TODAY is like buying Google stock when it was first launched in the very beginning.   You will remember this day....    whether with gratitude....for listening to me....   or with regret.... for not listening to me."  

Since I have already been contacted by many many people wanting to know how to BUY Bitcoins...   including ONE GUY what wants to buy approximately $50,000 PER MONTH of Bitcoin....  

When Bitcoin was about $0.20, I predicted that it would be at $1 parity within the year.   Friends laughed at me....  and said, "Maybe within a couple of years."   Of course, I was wrong.  It only took a couple of WEEKS to reach $1.

NOW  My Prediction:    Bitcoin will be at $1000 per Bitcoin before the end of this year.

( I might be wrong.  It might reach $1000 a Bitcoin much faster than that. )

Also...   The growing value of Bitcoin will NOT deter people from using it in commerce.  No one has ever been afraid to ACCEPT something when its value is ever-increasing!   No one is afraid of being paid in Gold.

EVERYONE will happily want to accept Bitcoin!   They can see that its value will grow --- even in the short time they might hold onto it.

There will be NO shortage of merchants -- both online and brick & mortar -- who will ACCEPT Bitcoin.    The only question is:   Will anyone be willing to SPEND them?  

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[Littleshop]

EVERYONE will happily want to accept Bitcoin!   They can see that its value will grow --- even in the short time they might hold onto it.

There will be NO shortage of merchants -- both online and brick & mortar -- who will ACCEPT Bitcoin.    The only question is:   Will anyone be willing to SPEND them?  

Well that last part is the problem.  If a bunch of merchants set up shop (at some kind of expense) and very few people part with coins it will make it very unlikely that the process will continue.   For bitcoins to become a working currency they need to be mobile and fluid.  Rapid bitcoin deflation (bitcoins becoming worth more) will kill that. 

[Garrett Burgwardt]

EVERYONE will happily want to accept Bitcoin!   They can see that its value will grow --- even in the short time they might hold onto it.

There will be NO shortage of merchants -- both online and brick & mortar -- who will ACCEPT Bitcoin.    The only question is:   Will anyone be willing to SPEND them?  

Well that last part is the problem.  If a bunch of merchants set up shop (at some kind of expense) and very few people part with coins it will make it very unlikely that the process will continue.   For bitcoins to become a working currency they need to be mobile and fluid.  Rapid bitcoin deflation (bitcoins becoming worth more) will kill that. 

Possibly slow it down, until sellers realize that if they offer things in bitcoin very cheaply, they will grow in value quite quickly as well.

[casascius]

A single purchase of more that $251,908   would get Bitcoin selling at $1,500.00 per Bitcoin.

As you can see, it would only take ONE SINGLE ARAB SHEIK to make ONE SINGLE PURCHASE of Bitcoins.... to make the Last Price fluctuate like a roller-coaster.

If that happened, I would sell off mine.  I could probably part with the 167 bitcoins it would take to pocket $250k at that rate.  Maybe I could part with 1000 BTC and pocket $1,500,000.  It would be great!  The $1.5M would come out of nowhere on a direct flight from fantasy to reality.

The same is true of one major sale.

When someone I know bought a large quantity of Bitcoins, we could see clearly the huge jump in price it caused on MtGox.   That's one guy.  One purchase.

There are over 5 million BTC out there, and only one or two percent of that on the market.

When you throw a nickel between two mirrors facing each other, the resulting row of nickels looks like a dollar.  But twenty people can't come along and each claim a nickel.  One gets a nickel, the rest get nothing.

It would take ONLY ONE big big player....  Like a rich sheik...   or a big time global money player...   to try to use Bitcoin to transfer money.    He would have to make a big purchase...   Then, I would expect, he'll try to make a large sale on the other end.     This is going to push the price of Bitcoin up up Up UP UP UP!

What would motivate this big player to do this?  Where's the money going to come from?

Imagine you and four friends are playing poker, and you each brought $100 to the table.  So, there's $500 at a table.

I'm mister Moneybags, and I have a million dollars.  Would I ever sit down and plunk a million dollars at your table?  The most I stand to leave with is a 1.0005 million.  So, why in my right mind would I ever want to do this?

Consider all the participants in Bitcoins... we "say" Bitcoins have a $5 million market value, but we only arrived there with maybe 1% of that in cash inflow.

Consider the "shiek" example above: if a $250k buy resulted in a $1500/BTC price, the current Bitcoin economy would suddenly be worth 8 billion dollars by that same calculation.  Doesn't anyone see what's wrong with that?  Who's anus does the 8 billion come from?  That is an illusion, no different than what you'd see if you put $250k on a table between two mirrors.

[Bruce Wagner]

Partly an illusion...  Partly real.

Just like the so-called "value" of anything.

Including US dollars.

Or Toyota Camry's.

If everyone on Earth who owned a Toyota Camry.... decided to sell it at the same time... then, I doubt very many of them would get "the blue book value" for it.  

Nevertheless, we have to have some barometer of the value of things.   And one of the best baramoters.... is "what has an identical item been selling for most recently".

This is true of Apartments in Midtown Manhattan....   and of Toyota Camrys....    and of US dollars....    and of Bitcoins.

It's all an illusion.    But at the same time, if I can sell one for $x... then there's also some truth to it too.

[casascius]

Right now, a good way to acquire Bitcoins is to just go build a mining rig and start mining.  So that would be very limiting on the price.

Why would any shiek spend $250k on 43000 Bitcoins at MtGox when if you spent $250k on mining equipment you would have 200 MHash/sec (conservative) and instantly make thousands of BTC per day, you'd have 43000 BTC in a week or two, plus ten or hundreds of times that within months.

The only thing propping up the price of BTC is its artificial scarcity, but even that can't go much higher than the cost of mining.  If a BTC is worth $1500, that means that someone is willing to pay me $75,000 to run my computer to solve a block.  That's about as realistic as Santa Claus calling me for my address so he can bring me a sleigh full of of gold.

I also can't help but notice that the recent "market crash" was caused by someone dumping less than the total BTC that miners create in just one or two days.

[casascius]

MY PREDICTION:

(1)  As the price continues to go up rapidly....

(2)  The number of buyers will grow rapidly...  causing...

(3)  The price to grow exponentially....  causing...

(4)  The number of buyers to increase exponentially....   causing...

This relies on an unlimited supply of buyers with an unlimited supply of money burning a hole in their pocket, that haven't recently been burned in a bubble.  Wealth can only be created by the production of goods and services.

(5)  An ever-increasing price....  Yet.....  Much more stability in the price....   (more upward growth with fewer downward swings--due to so many more players)  And....

It depends on how you define stability.  If the number of potential participants is infinity, then yes sure, stability.  Unfortunately, this is not so on planet Earth.  The only place this would actually be true is in paradise as depicted on Jehovah's Witness pamphlets - you know - the kind where people and lions and tigers sit down together and eat vegetables for dinner.

(6)  As the so-called Bitcoin Economy (the total value of all Bitcoins in circulation) explodes up off the top of the charts...

Of course, I think we agree that this number is pure fantasy.  It would be different if a Bitcoin had intrinisic value like a Toyota Camry, like if it could get you around town.

(7)  The online merchants will run, tripping over themselves, to get a piece of that pie...  and will all accept Bitcoin....   And then...

( 8 )  The brick & mortar merchants, having seen Bitcoin's success online, will also run to accept Bitcoin as well....   And then...

To a certain extent, I believe in this, except for the "tripping" part.  Nobody is going to be "tripping" to accept Bitcoin as a get-rich-quick scheme, any more than the local supermarket is tripping on its way to carry Amway.

Unfortunately, other than for Libertarian-like merchants, and the very few people holding substantial Bitcoins and wanting them to appreciate, the appeal isn't quite there.  On the other hand, there is plenty of appeal to gangs and drug dealers.  I would be willing to bet they will be more responsible for Bitcoin's success and notoriety.  Want to see Bitcoin move forward?  Go post about it in some marijuana forums.

(9)  Bitcoin will eventually be used globally by even more users than use Google or Facebook....   That's when...

(10)  Bitcoin will have come of age.

Gold has been "of age" for tens of thousands of years, and yet I can't even get a babysitter for it - even if I have a piece that's small enough to represent the value of the babysitting.

NOW  My Prediction:    Bitcoin will be at $1000 per Bitcoin before the end of this year.

( I might be wrong.  It might reach $1000 a Bitcoin much faster than that. )

What will be the mining difficulty by then?  Do you mean that I'll be able to buy a new SUV if I solve a block?

Also...   The growing value of Bitcoin will NOT deter people from using it in commerce.  No one has ever been afraid to ACCEPT something when its value is ever-increasing!   No one is afraid of being paid in Gold.

NOt even the 16-year old who babysits my kids?  She will wonder what to do with her gold.

EVERYONE will happily want to accept Bitcoin!   They can see that its value will grow --- even in the short time they might hold onto it.

There will be NO shortage of merchants -- both online and brick & mortar -- who will ACCEPT Bitcoin.    The only question is:   Will anyone be willing to SPEND them?   

Isn't that a bit of a contradiction?  that merchants will be tripping over themselves to accept a method of payment no one is willing to use?

[no to the gold cult]

MY PREDICTION:

(1)  As the price continues to go up rapidly....

(2)  The number of buyers will grow rapidly...  causing...

(3)  The price to grow exponentially....  causing...

(4)  The number of buyers to increase exponentially....   causing...

This relies on an unlimited supply of buyers with an unlimited supply of money burning a hole in their pocket, that haven't recently been burned in a bubble.  Wealth can only be created by the production of goods and services.

(5)  An ever-increasing price....  Yet.....  Much more stability in the price....   (more upward growth with fewer downward swings--due to so many more players)  And....

It depends on how you define stability.  If the number of potential participants is infinity, then yes sure, stability.  Unfortunately, this is not so on planet Earth.  The only place this would actually be true is in paradise as depicted on Jehovah's Witness pamphlets - you know - the kind where people and lions and tigers sit down together and eat vegetables for dinner.

(6)  As the so-called Bitcoin Economy (the total value of all Bitcoins in circulation) explodes up off the top of the charts...

Of course, I think we agree that this number is pure fantasy.  It would be different if a Bitcoin had intrinisic value like a Toyota Camry, like if it could get you around town.

(7)  The online merchants will run, tripping over themselves, to get a piece of that pie...  and will all accept Bitcoin....   And then...

( 8 )  The brick & mortar merchants, having seen Bitcoin's success online, will also run to accept Bitcoin as well....   And then...

To a certain extent, I believe in this, except for the "tripping" part.  Nobody is going to be "tripping" to accept Bitcoin as a get-rich-quick scheme, any more than the local supermarket is tripping on its way to carry Amway.

Unfortunately, other than for Libertarian-like merchants, and the very few people holding substantial Bitcoins and wanting them to appreciate, the appeal isn't quite there.  On the other hand, there is plenty of appeal to gangs and drug dealers.  I would be willing to bet they will be more responsible for Bitcoin's success and notoriety.  Want to see Bitcoin move forward?  Go post about it in some marijuana forums.

(9)  Bitcoin will eventually be used globally by even more users than use Google or Facebook....   That's when...

(10)  Bitcoin will have come of age.

Gold has been "of age" for tens of thousands of years, and yet I can't even get a babysitter for it - even if I have a piece that's small enough to represent the value of the babysitting.

NOW  My Prediction:    Bitcoin will be at $1000 per Bitcoin before the end of this year.

( I might be wrong.  It might reach $1000 a Bitcoin much faster than that. )

What will be the mining difficulty by then?  Do you mean that I'll be able to buy a new SUV if I solve a block?

Also...   The growing value of Bitcoin will NOT deter people from using it in commerce.  No one has ever been afraid to ACCEPT something when its value is ever-increasing!   No one is afraid of being paid in Gold.

NOt even the 16-year old who babysits my kids?  She will wonder what to do with her gold.

EVERYONE will happily want to accept Bitcoin!   They can see that its value will grow --- even in the short time they might hold onto it.

There will be NO shortage of merchants -- both online and brick & mortar -- who will ACCEPT Bitcoin.    The only question is:   Will anyone be willing to SPEND them?  

Isn't that a bit of a contradiction?  that merchants will be tripping over themselves to accept a method of payment no one is willing to use?

Thanks for that, if something sounds too good to be true it probably is. I don't want bitcoins to be too good to be true. Cooler heads prevail and all that.

Still, fun to frenzy-up the speculators some, remember the dotcom boom...

[Bimmerhead]

While Bruce's prediction seems wildly optimistic, almost anything could happen given the very small float of btc that are out there.  The virality of the web can cause astounding things to happen.

Forget a shiek.  If just one medium-sized virtual goods company, or a tipping company like Flattr or Kachingle, or a second-tier social network like Friendster or Hi5 started using bitcoin who knows where the price could go.

Or if bitcoin suddenly caught the attention of some forex traders on one of the forums, or if a mildly wealthy retiree who was fascinated by the technology started telling his mildly wealthy buddies, or better yet if we got an article in Wired, Fast Company, BusinessWeek or other mainstream publication... any of these reasonable possibilities could send it skyward.

On the other hand, if a sizeable player like Zynga liked what they saw but instead of adopting bitcoin forked the project... I think that could be the end of this bitcoin.

Another monkey wrench could be a credit collapse.  At that point people will sell everything, even gold and bitcoin, to pay their debts.

[jgarzik]

While Bruce's prediction seems wildly optimistic, almost anything could happen given the very small float of btc that are out there.  The virality of the web can cause astounding things to happen.

Forget a shiek.  If just one medium-sized virtual goods company, or a tipping company like Flattr or Kachingle, or a second-tier social network like Friendster or Hi5 started using bitcoin who knows where the price could go.

Quite true, though I really wonder now if bitcoin will ever be used for micro-transactions or in-game / in-network simple currency.  If bitcoin becomes remotely popular, you're looking at amounts such as 0.0001 BTC.

I imagine that people will create their own micro-currencies (like Microsoft or Facebook Points) backed by bitcoin, rather than directly using bitcoin, simply for user interface issues such as presenting "400.00 points" rather than "0.00000385 BTC".

[marcus_of_augustus]

Bitcoins major problem right now is the market is highly illiquid and getting in and out of BTC to other currencies is a slow, difficult and expensive process. While this is the case the market price will swing wildly, relative to other currencies, making it less attractive to merchants to peg a fixed BTC price on their goods. However, as the exchange process becomes more efficient a solid clearing of BTCs and other currencies should bring the spreads much tighter.

As bottom end reference (lower bound), the current production costs of bitcoins is running around about 5 to 10 UScents per bitcoin.

There are currently 546 trillion satoshis in existence (100 million satoshi = 1 bitcoin), the smallest denomination.

[Dude65535]

I assume for your lower bound production cost you would be talking about an enthusiast miner who bought his gpu for other reasons and has his pc on 24/7 anyway. So the only cost is the difference in gpu power consumption between idle and full use. That's about the only way I can see to get costs that low.

[mcdett]

As bottom end reference (lower bound), the current production costs of bitcoins is running around about 5 to 10 UScents per bitcoin.

@moa How did you come up with that?

[marcus_of_augustus]

Several of the miners with high-end, efficient rigs have stated that at 1 USD= 1 BTC, for mining to become unprofitable difficulty would have to increase 20-fold.

Alternately, 0.05 USD = 1 BTC would also be the limit on profitable at current difficulty, i.e. the current cost of electricity hardware amortisation, admin overheads, etc. I think it is probably around 0.1 USD = 1 BTC since these guys are putting in a lot of unpaid "geek" hours for their pleasure that probably don't get accounted for in costs.

[casascius]

Several of the miners with high-end, efficient rigs have stated that at 1 USD= 1 BTC, for mining to become unprofitable difficulty would have to increase 20-fold.

Alternately, 0.05 USD = 1 BTC would also be the limit on profitable at current difficulty, i.e. the current cost of electricity hardware amortisation, admin overheads, etc. I think it is probably around 0.1 USD = 1 BTC since these guys are putting in a lot of unpaid "geek" hours for their pleasure that probably don't get accounted for in costs.

I too originally bought some BTC, and then sold most of it at a small profit.  I formed the opinion (as you can probably tell) that BTC are presently way overpriced and I went and sunk that same money into some modest mining gear.  I am betting that I will end up with more BTC in the long run - and either way, I have some perfectly good computer equipment if I don't.  Right now, BTC's are way undermined.

Here is another way to look at it.  For $10,000, you can own 0.2% of all the Bitcoins out there.  Or you can go buy sixteen ATI 5970's and own over 3% of the present total hash power of the network, with an overwhelming probability that the equipment will half pay for itself within 4 weeks (even including a 30% rise in difficulty every 2016 blocks), completely pay for itself in three months, and continue to produce some sort of meaningful gravy thereafter.  (And after all that, you still own perfectly good graphics cards that, if eBay is any help - USED ones are selling for over $500 and sometimes $600 USD nowadays - are still likely going to be worth at least half of what was paid for them).

[mcdett]

Several of the miners with high-end, efficient rigs have stated that at 1 USD= 1 BTC, for mining to become unprofitable difficulty would have to increase 20-fold.

Alternately, 0.05 USD = 1 BTC would also be the limit on profitable at current difficulty, i.e. the current cost of electricity hardware amortisation, admin overheads, etc. I think it is probably around 0.1 USD = 1 BTC since these guys are putting in a lot of unpaid "geek" hours for their pleasure that probably don't get accounted for in costs.

then obviously you would short this market?  RIGHT?  Your money where your mouth is?

[marcus_of_augustus]

then obviously you would short this market?  RIGHT?  Your money where your mouth is?

Not necessarily, I'm just stating where I think the absolute floor is in the BTC/USD market, i.e. cost of production.

The range of intangible premiums, over and above cost of production, that people may place on BTC are innumerable. Uniqueness as private, simple electronic exchange medium will likely have a huge premium placed on BTC in the current world of authoritarian monetary authorities jealously guarding their legislated monopoly on money issuance. These kinds of value estimations are fickle perceptions, much of it confidence based, and as impossible to predict as where a stampeding herd will run.

So, no not short, yet.

[bitcool]

I too originally bought some BTC, and then sold most of it at a small profit.  I formed the opinion (as you can probably tell) that BTC are presently way overpriced and I went and sunk that same money into some modest mining gear.  I am betting that I will end up with more BTC in the long run - and either way, I have some perfectly good computer equipment if I don't.  Right now, BTC's are way undermined.

Here is another way to look at it.  For $10,000, you can own 0.2% of all the Bitcoins out there.  Or you can go buy sixteen ATI 5970's and own over 3% of the present total hash power of the network, with an overwhelming probability that the equipment will half pay for itself within 4 weeks (even including a 30% rise in difficulty every 2016 blocks), completely pay for itself in three months, and continue to produce some sort of meaningful gravy thereafter.  (And after all that, you still own perfectly good graphics cards that, if eBay is any help - USED ones are selling for over $500 and sometimes $600 USD nowadays - are still likely going to be worth at least half of what was paid for them).

I think your estimate on mining prospect is a bit too optimistic. Currently the cheapest in-stock 5970 you can find are around $750, even used one cost $600 on ebay. Just having 16 cards won't give you those hashing power either, you have to add 50%~100% extra cost on MOBO/CPU/PSU/Case/etc.

I have been a miner for a few weeks now but yet made profit by any calculation. I happen to think now it's better time buying BTC than mining rigs. I am actually considering exchange my 5970s for BTC at the moment.

[casascius]

I think your estimate on mining prospect is a bit too optimistic. Currently the cheapest in-stock 5970 you can find are around $750, even used one cost $600 on ebay. Just having 16 cards won't give you those hashing power either, you have to add 50%~100% extra cost on MOBO/CPU/PSU/Case/etc.

I have been a miner for a few weeks now but yet made profit by any calculation. I happen to think now it's better time buying BTC than mining rigs. I am actually considering exchange my 5970s for BTC at the moment.

How much do you want for them, how many, and where are you at?  The last one I bought brand new cost me just over $600.  I bought it from Provantage.com, drop shipped.

[Garrett Burgwardt]

I just bought one for 415 on craigslist, check around. Good deals hide everywhere