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Author Topic: Why Bitcoin will collapse in price.  (Read 24152 times)
porc
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December 07, 2013, 02:30:32 PM
Last edit: December 17, 2013, 12:50:51 AM by porc
 #1

Bitcoin is going up in price because people believe it will be used as a medium of exchange and store of value. If they realise this wont happen it will collapse in price. So lets look at these two aspects.

1) Medium of exchange.

Bitcoin is only a medium of exchange when merchants accept it and hold onto it. Right now merchants are dumping bitcoin for dollars, so its not being used as a medium of exchange. This btw. also throws the transaction cost benefit argument right out of the window (spread).

Now will merchants ever accept bitcoin and hold onto them?
No.

Why?

a) Governments have already effectively made it impossible for people to use bitcoin as a medium of exchange, as they expect taxes to be paid on bitcoin gains. Thus it cant function as a medium of exchange (same goes for gold btw.). Unless Government loses its control on its money monopoly this law wont be altered.

b) Governments will prohibt merchants from accepting bitcoins. Again: They will never give up their monoply on money.

2) Store of Value

After people realize that merchants are not adopting bitcoin and that it is not used as a medium of exchange, it will collapse in price. Will anybody store significant wealth in Bitcoin after this spectacular collapse? Not likely.

Also Bitcoin is a technology, that can be outcompeted by other altcoins. Your wallet can be hacked. The average citizen cant judge if the code can or can not be hacked and thus more bitcoins created. If you want to store wealth over a long period of time investing in a technology is not the best and easiest option. Also Bitcoin is not useful or wanted. If you ask a Bitcoiner what can I do with it they will say: dump it on the next guy it will go up in price! Gold and Silver where always wanted (jewlery and nowadays industry) and thats why they became MONEY in the first place! They have unique properties and everybody love to hold them in their hand. This will always be the case ensuring significant value and acceptance. Nothing like this can be said for bitcoins. Thus I dont believe bitcoin will function as a store of value in any significant way.

Conclusion:

I predict bitcoin to collapse in price (as it wont be used either as a medium of exchange nor as a store of value).

EDIT: The price increasing shows bitcoin is used as a speculative vehicle. It does not demonstrate bitcoins viability as a store of value or medium of exchange.

(Additional line of attack for governments: Government could come down hard on miners. They could make it illegal to mine bitcoins. Then bitcoin will lose all of its advantages compared to alternative cryptocurrencies. It will be a code like the rest of them.)

EDIT2: Also consider this post (on why bitcoin cant be money):
https://bitcointalk.org/index.php?topic=361037.msg3926046#msg3926046
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December 07, 2013, 02:36:08 PM
 #2

and the FUD begins .....

Bitcoin will show the world what hard money really is.
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December 07, 2013, 03:11:21 PM
 #3

and the FUD begins .....

Thanks for your detailed respone.

State why the above reasoning is false.

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December 07, 2013, 04:55:38 PM
 #4

If I am wrong about these points government will come down hard on miners. They could make it illegal to mine bitcoins. Then bitcoin will lose all of its advantages compared to alternative cryptocurrencies. It will be a code like the rest of them.

What government? All the governments in the world? They could as well make it illegal to sell alcohol or cigarettes, but it doesn't stop people from investing in these branches. You are thinking too much about things you just can't predict.

Just look at technological investment opportunities of the past 20 years, if you threw money into an early Microsoft, Apple, Google, Facebook, you got a lot out of it, if you did the same with Kodak - your loss. In the recent years Nokia and Motorola lost a lot of phone market to Samsung.

porc
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December 07, 2013, 05:03:00 PM
 #5

If I am wrong about these points government will come down hard on miners. They could make it illegal to mine bitcoins. Then bitcoin will lose all of its advantages compared to alternative cryptocurrencies. It will be a code like the rest of them.

What government? All the governments in the world? They could as well make it illegal to sell alcohol or cigarettes, but it doesn't stop people from investing in these branches. You are thinking too much about things you just can't predict.


Its easy to predict that governments wont allow to be outcompeted by bitcoin. They have a money monopoly and thus will prohibit significant competition. Thats different than prohibiting alcohol as the merchant can accept dollars instead. No need to accept bitcoins. However alcohol is something you cant replace. Also alcohol is not where government derives its power from. Money is (inflation to finance its operation). It is already impossible for bitcoin to become a significant medium of exchange due to tax law.

Now regarding store of value I have explained why I think bitcoin is not suitable.
porc
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December 07, 2013, 06:26:24 PM
 #6


2) Store of Value
After people realize that merchants are not adopting bitcoin and that it is not used as a medium of exchange, it will collapse in price. Will anybody store significant wealth in Bitcoin after this spectacular collapse? Not likely.

Your argument is flawed (it's called "begging the question"). You write that bitcoin will crash because it is not a store of value, but your argument is that is is not a store of value because it will crash.


Read my actual text! Hint: The second bolded paragraph goes into detail why bitcoin wont be a store of value.  The first one was just to show that it will start off (trying to gain that status) in a bad position. Not more not less!!

You did not quote the full explanation.



2) Store of Value

After people realize that merchants are not adopting bitcoin and that it is not used as a medium of exchange, it will collapse in price. Will anybody store significant wealth in Bitcoin after this spectacular collapse? Not likely.

Also Bitcoin is a technology, that can be outcompeted by other altcoins. Your wallet can be hacked. The average citizen cant judge if the code can or can not be hacked and thus more bitcoins created. If you want to store wealth over a long period of time investing in a technology is not the best and easiest option. Also Bitcoin is not useful or wanted. If you ask a Bitcoiner what can I do with it they will say: dump it on the next guy it will go up in price! Gold and Silver where always wanted (jewlery and nowadays industry) and thats why they became MONEY in the first place! They have unique properties and everybody love to hold them in their hand. This will always be the case ensuring significant value and acceptance. Nothing like this can be said for bitcoins. Thus I dont believe bitcoin will function as a store of value in any significant way.


As a medium of exchange, whether or not the bitcoins are held is not relevant. Bitcoin works very well as a medium of exchange even if nobody holds them. To avoid holding them you have to exchange them!

A medium of exchange (like dollars, yuan or gold in ancient times) is used to exchange it for goods and services. If the merchant sells for dollars immediatley bitcoin cant be qualified to be a medium of exchange. Look at it this way: The merchant does not want your bitcoin but dollars. He accepts bitcoin only because he can get dollars by selling them. In this case dollar is the currency not bitcoin. If you would have sold for dollars and then used dollars to buy goods from the merchant it would be the same thing. Would you say in this scenario that bitcoin is a medium of exchange? Of course not!

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December 07, 2013, 06:32:44 PM
 #7

Governments have already effectively made it impossible for people to use bitcoin as a medium of exchange, as they expect taxes to be paid on bitcoin gains. Thus it cant function as a medium of exchange (same goes for gold btw.). Unless Government loses its control on its money monopoly this law wont be altered.

I didn't get that point. If you buy something for dollars and then sell it for dollars, you still have to pay taxes. What am I missing here and what is the difference between dollars and bitcoins then?


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porc
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December 07, 2013, 06:38:44 PM
 #8

Governments have already effectively made it impossible for people to use bitcoin as a medium of exchange, as they expect taxes to be paid on bitcoin gains. Thus it cant function as a medium of exchange (same goes for gold btw.). Unless Government loses its control on its money monopoly this law wont be altered.

I didn't get that point. If you buy something for dollars and then sell it for dollars, you still have to pay taxes. What am I missing here and what is the difference between dollars and bitcoins then?

The difference is that the "medium of exchange" is taxed.

For example: If the merchant accepts dollars and holds onto them and eventually uses them to buy new supply (i.e. sells dollars), he doesnt have to pay capital gains taxes on a possible increase in the dollars value. If the dollar trades higher versus the euro, the government does not force you to pay taxes on these exchange rate "gains".

However if the merchant accepts bitcoin and holds on them and eventually uses them to buy new supply (i.e. sells bitcoins), he will have to pay capital gains taxes.

The same is true for your average bitcoin holder. If he buys one bitcoin for 100 dollars and eventually buys products with the same bitcoin (which is now worth 500 dollars) he will have to pay capital gains taxes on the 400 dollar increase. He wont have to do this if dollars increase in value in comparison to bitcoins, euros or any other currency.
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December 07, 2013, 06:51:51 PM
 #9



Conclusion:

If I am wrong about these points government will come down hard on miners. They could make it illegal to mine bitcoins. Then bitcoin will lose all of its advantages compared to alternative cryptocurrencies. It will be a code like the rest of them.

I predict bitcoin to collapse in price.

EDIT: The price increasing shows bitcoin is used as a speculative vehicle. It does not demonstrate bitcoins viability as a store of value or medium of exchange.

How can you make it illegal to mine?

porc
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December 07, 2013, 06:57:22 PM
 #10



Conclusion:

If I am wrong about these points government will come down hard on miners. They could make it illegal to mine bitcoins. Then bitcoin will lose all of its advantages compared to alternative cryptocurrencies. It will be a code like the rest of them.

I predict bitcoin to collapse in price.

EDIT: The price increasing shows bitcoin is used as a speculative vehicle. It does not demonstrate bitcoins viability as a store of value or medium of exchange.

How can you make it illegal to mine?

Governments can pass laws that make it illegal to mine bitcoins. Simple. They can raide miners houses if need be. They can threaten you with death penalities if you mine despite it being prohibited. Again its just another line of attack that is unnecessary as you already have two major lines of attack (with one already being law, ie capital gains) to make sure it wont become a major medium of exchange as I discussed in the OP.
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December 07, 2013, 07:04:09 PM
Last edit: December 07, 2013, 07:16:47 PM by deisik
 #11

The difference is that the "medium of exchange" is taxed.

For example: If the merchant accepts dollars and holds onto them and eventually uses them to buy new supply (i.e. sells dollars), he doesnt have to pay capital gains taxes on a possible increase in the dollars value. If the dollar trades higher versus the euro, the government does not force you to pay taxes on these exchange rate "gains".

However if the merchant accepts bitcoin and holds on them and eventually uses them to buy new supply (i.e. sells bitcoins), he will have to pay capital gains taxes.

Now I see your point, but I don't think it would be serious obstacle really, if any. You will pay only if the exchange rate has increased, i.e. the exchange rate difference would only be taxed, right? If the exchange rate doesn't change, there is no additional taxation as I understand it...


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niothor
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December 07, 2013, 07:06:23 PM
 #12



Conclusion:

If I am wrong about these points government will come down hard on miners. They could make it illegal to mine bitcoins. Then bitcoin will lose all of its advantages compared to alternative cryptocurrencies. It will be a code like the rest of them.

I predict bitcoin to collapse in price.

EDIT: The price increasing shows bitcoin is used as a speculative vehicle. It does not demonstrate bitcoins viability as a store of value or medium of exchange.

How can you make it illegal to mine?

Governments can pass laws that make it illegal to mine bitcoins. Simple. They can raide miners houses if need be. They can threaten you with death penalities if you mine despite it being prohibited. Again its just another line of attack that is unnecessary as you already have two major lines of attack (with one already being law, ie capital gains) to make sure it wont become a major medium of exchange as I discussed in the OP.

You have no clue how this works , do you?
Do you think that a government imposing the death penalty for mining will last more than 1 week ?

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December 07, 2013, 07:11:55 PM
 #13



Conclusion:

If I am wrong about these points government will come down hard on miners. They could make it illegal to mine bitcoins. Then bitcoin will lose all of its advantages compared to alternative cryptocurrencies. It will be a code like the rest of them.

I predict bitcoin to collapse in price.

EDIT: The price increasing shows bitcoin is used as a speculative vehicle. It does not demonstrate bitcoins viability as a store of value or medium of exchange.

How can you make it illegal to mine?

Governments can pass laws that make it illegal to mine bitcoins. Simple. They can raide miners houses if need be. They can threaten you with death penalities if you mine despite it being prohibited. Again its just another line of attack that is unnecessary as you already have two major lines of attack (with one already being law, ie capital gains) to make sure it wont become a major medium of exchange as I discussed in the OP.

You have no clue how this works , do you?
Do you think that a government imposing the death penalty for mining will last more than 1 week ?

No you have no clue how the world works. The monopoly of money is the most important power tool governments have. Wars have been fought to protect it. Again stop focusing on miners: Taxes on bitcoin are enough to kill its use as a medium of exchange.
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December 07, 2013, 07:17:01 PM
 #14



Conclusion:

If I am wrong about these points government will come down hard on miners. They could make it illegal to mine bitcoins. Then bitcoin will lose all of its advantages compared to alternative cryptocurrencies. It will be a code like the rest of them.

I predict bitcoin to collapse in price.

EDIT: The price increasing shows bitcoin is used as a speculative vehicle. It does not demonstrate bitcoins viability as a store of value or medium of exchange.

How can you make it illegal to mine?

Governments can pass laws that make it illegal to mine bitcoins. Simple. They can raide miners houses if need be. They can threaten you with death penalities if you mine despite it being prohibited. Again its just another line of attack that is unnecessary as you already have two major lines of attack (with one already being law, ie capital gains) to make sure it wont become a major medium of exchange as I discussed in the OP.

You have no clue how this works , do you?
Do you think that a government imposing the death penalty for mining will last more than 1 week ?

No you have no clue how the world works. The monopoly of money is the most important power tool governments have. Wars have been fought to protect it. Again stop focusing on miners: Taxes on bitcoin are enough to kill its use as a medium of exchange.

Then why did you mentioned it? Just to make you post look smarter?

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December 07, 2013, 07:20:12 PM
 #15

What a load of BS in the TT....

1a:
What's wrong with paying taxes and why will it kill bitcoin?
A country must get taxes to build roads and run the country. Taxes system might need an overhaul but it won't kill bitcoin.

1b:
This will change once the government understands bitcoin and has new methods of getting taxes to keep countries running.
Not all countries limit the use of bitcoin so this is nonsense. I can still buy pizza here in europe with bitcoin.
Also bitcoin is volatile, maybe they are protecting their merchants and economy. If a company or bank loses 50% of their money due to the bitcoin taking a dive it can easily kill a company. Who says they're doing it to keep their money "monopoly".

2:
Is 1b in different words.

3:
Bitcoin can only be hacked if public key cryptography is hackable. This can be done once quantum entangled quantum computers become mainstream.
If this happens every bank on the planet can be hacked with ease.
Since the greeks hundreds of years ago people have tries to solve the factorization of big numbers. No one has succeeded since so it's safe if you use it correctly.
The fun thing is that a bitcoin account, when no money has been spent from it, is even more secure. You will have to be able to find SHA-256 collisions too to find the public key.
On the other side bitcoin hasn't been hacked but nearly all banks in the world have.
And we can easily modify virtual currencies to withstand quantum computers. Look at Quark-coin.


Bitcoin is like a box of chocolates. You never know what you're gonna get !!
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December 07, 2013, 07:26:32 PM
 #16

No you have no clue how the world works. The monopoly of money is the most important power tool governments have. Wars have been fought to protect it. Again stop focusing on miners: Taxes on bitcoin are enough to kill its use as a medium of exchange.

Hey, you seem to have failed to address my point on taxation. If taxes on bitcoin you are talking about here boil down to the taxation of foreign exchange rate differences between Bitcoin and, say, dollar, this will surely not kill its use as a medium of exchange. I see no problem here and am waiting for your constructive answer..


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December 07, 2013, 07:29:20 PM
 #17

Most govenments have banned hard-drugs .... look at the price Tongue

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December 07, 2013, 07:35:20 PM
 #18

You are just babbling and have not read the thread.


What a load of BS in the TT....

1a:
What's wrong with paying taxes and why will it kill bitcoin?
A country must get taxes to build roads and run the country. Taxes system might need an overhaul but it won't kill bitcoin.


Governments have already effectively made it impossible for people to use bitcoin as a medium of exchange, as they expect taxes to be paid on bitcoin gains. Thus it cant function as a medium of exchange (same goes for gold btw.). Unless Government loses its control on its money monopoly this law wont be altered.

I didn't get that point. If you buy something for dollars and then sell it for dollars, you still have to pay taxes. What am I missing here and what is the difference between dollars and bitcoins then?

The difference is that the "medium of exchange" is taxed.

For example: If the merchant accepts dollars and holds onto them and eventually uses them to buy new supply (i.e. sells dollars), he doesnt have to pay capital gains taxes on a possible increase in the dollars value. If the dollar trades higher versus the euro, the government does not force you to pay taxes on these exchange rate "gains".

However if the merchant accepts bitcoin and holds on them and eventually uses them to buy new supply (i.e. sells bitcoins), he will have to pay capital gains taxes.

The same is true for your average bitcoin holder. If he buys one bitcoin for 100 dollars and eventually buys products with the same bitcoin (which is now worth 500 dollars) he will have to pay capital gains taxes on the 400 dollar increase. He wont have to do this if dollars increase in value in comparison to bitcoins, euros or any other currency.

Thats why you dont have competition in medium of exchanges. Everybody using alternatives has to pay taxes on the medium of exchange! That obligation also kills any anonymity you might have btw.!


1b:
This will change once the government understands bitcoin and has new methods of getting taxes to keep countries running.
Not all countries limit the use of bitcoin so this is nonsense. I can still buy pizza here in europe with bitcoin.
Also bitcoin is volatile, maybe they are protecting their merchants and economy. If a company or bank loses 50% of their money due to the bitcoin taking a dive it can easily kill a company. Who says they're doing it to keep their money "monopoly".


No it will not change. Inflation is the most powerful way to tax. Inflation is only possible if government has control over money. Read your history.

3:
Bitcoin can only be hacked if public key cryptography is hackable. This can be done once quantum entangled quantum computers become mainstream.
If this happens every bank on the planet can be hacked with ease.
Since the greeks hundreds of years ago people have tries to solve the factorization of big numbers. No one has succeeded since so it's safe if you use it correctly.
The fun thing is that a bitcoin account, when no money has been spent from it, is even more secure. You will have to be able to find SHA-256 collisions too to find the public key.
On the other side bitcoin hasn't been hacked but nearly all banks in the world have.
And we can easily modify virtual currencies to withstand quantum computers. Look at Quark-coin.

Not very convincing for the average joe who wants to either store wealth in gold or bitcoins. Again you say it cant be hacked but you overestimate your own intelligence.

Also address theses points for the average joe: 1) What if my money is outcompeted by a different altcoin? 2) What can I do with Bitcoin except dumping it on the next guy? Silver I like, I can touch it, its used in industry, it looks great. 3) I cant be sure that the limit cant be broken. I have no trust. 5) I rather choose something stable thats not a technology to store wealth over long periods of time.

See you arrogantly assume bitcoin is the best way without ever considering that there are safer alternatives.

porc
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December 07, 2013, 07:37:48 PM
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No you have no clue how the world works. The monopoly of money is the most important power tool governments have. Wars have been fought to protect it. Again stop focusing on miners: Taxes on bitcoin are enough to kill its use as a medium of exchange.

Hey, you seem to have failed to address my point on taxation. If taxes on bitcoin you are talking about here boil down to the taxation of foreign exchange rate differences between Bitcoin and, say, dollar, this will surely not kill its use as a medium of exchange. I see no problem here and am waiting for your constructive answer..

I have already replied to you see post above.

Again merchants cant use bitcoin as media of exchange because they would have to pay taxes on any gain in value of bitcoin itself which is much to cumbersome as it involves enormous paperwork. Thats why we have no competition in media of exchange. Again its one way the government makes sure only dollars are used, there are other ways as I have explained.
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December 07, 2013, 07:48:47 PM
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It's good that after 4 years someone finally stepped in and explained to us why bitcoin will fail. Thank you OP!  Kiss
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