Bitcoin's Slumping Value is Proof that the Value is Based on Monetary Expansion

[bitinlet]

It may seem evident to some, but it's clear that it's not evident to many who have an interest in Bitcoin, so it's worth asserting:

The value of Bitcoin is undoubtedly impacted severely by Fed (and other Central Banks) policy.

This fact was obviously shown again today, as the Fed decided to lower QE from $85 to $75 BLN a month.  Bitcoin's value in dollars is certainly impacted by QE because QE expands the money supply of dollars. Nevertheless, prices are also driven by expectations. The fact that the Fed actually did lower QE, albeit slightly, shows an increase in faith in the underlying economy. This, of course, is bad for Bitcoin's exchange rate relative to the dollar because it strengthens the dollar against Bitcoin.

This is why you see Bitcoin hovering below $600.

I still believe Bitcoin will rise back again because there are fundamental problems with the US (and global) economy that are being glossed over with current economic indicators and Fed policy. For example, the Fed claims it will actively alter interest rates once the unemployment rate falls well below 6.5%. Yet, the unemployment rate is skewed by the horrid labor force participation rate. The Fed knows this. Which is why they said today that they won't do this until it falls "well below" 6.5%. In a sense, they ensured that they won't raise rates in the near term. I believe the Fed will either decide to raise QE again in 2014, if the economy shows any sort of slowing, or may actually go through with a full taper. If they do, the value of Bitcoin will plummet. However, the reason I still believe in Bitcoin, is because I don't think the Fed is capable of stepping aside without dramatic consequences to economic growth. When these consequences play out, Bitcoin's value will skyrocket.

I don't like losing value in my Bitcoin, but I think it's good to know why it's happening. Just keep in mind - the value fluctuations are not all demand-driven. Often, supply (Bitcoins/relative to Domestic currency) will be a greater factor.  

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[cypherdoc]

certainly there is some value to what you say.

however, i think it's more than that.  i think what resonates most with Bitcoiners is that it's a provably fair system.  unlike with the Fed, who you never know how they are going to manipulate the system next. these moves are only known by a small insider group who can play the taper/untaper game to their own advantage.  

this corruption is what drives the Bitcoin price primarily IMO.

[Dr Bloggood]

It may seem evident to some, but it's clear that it's not evident to many who have an interest in Bitcoin, so it's worth asserting:

The value of Bitcoin is undoubtedly impacted severely by Fed (and other Central Banks) policy.

This fact was obviously shown again today, as the Fed decided to lower QE from $85 to $75 BLN a month.  Bitcoin's value in dollars is certainly impacted by QE because QE expands the money supply of dollars. Nevertheless, prices are also driven by expectations. The fact that the Fed actually did lower QE, albeit slightly, shows an increase in faith in the underlying economy. This, of course, is bad for Bitcoin's exchange rate relative to the dollar because it strengthens the dollar against Bitcoin.

This is why you see Bitcoin hovering below $600.

I still believe Bitcoin will rise back again because there are fundamental problems with the US (and global) economy that are being glossed over with current economic indicators and Fed policy. For example, the Fed claims it will actively alter interest rates once the unemployment rate falls well below 6.5%. Yet, the unemployment rate is skewed by the horrid labor force participation rate. The Fed knows this. Which is why they said today that they won't do this until it falls "well below" 6.5%. In a sense, they ensured that they won't raise rates in the near term. I believe the Fed will either decide to raise QE again in 2014, if the economy shows any sort of slowing, or may actually go through with a full taper. If they do, the value of Bitcoin will plummet. However, the reason I still believe in Bitcoin, is because I don't think the Fed is capable of stepping aside without dramatic consequences to economic growth. When these consequences play out, Bitcoin's value will skyrocket.

I don't like losing value in my Bitcoin, but I think it's good to know why it's happening. Just keep in mind - the value fluctuations are not all demand-driven. Often, supply (Bitcoins/relative to Domestic currency) will be a greater factor.  

Fed-policy is severely impacting BTC-price: Short-term, you were proven wrong today.

However, in the long run, I think you are spot on. Right now, there are only very few people in the know about what's coming - this is why you see the prices for art, dimonds, etc. skyrocket to record highs.

However, once the sheeple start to understand, the herd will try to flee anywhere they can - gold, silver, real assets and BTC!

[luqash3]

bitinlet everyone has its own opinion I respect your opinion but from my point of view in long run bitcoin is in big dangerous due to strict policies against bitcoin it has already became too volatile these days so if in case world powers continue to push it then it might fall forever. At the end I must say it’s just an opinion but not a fact yet

[EuroTrash]

bitinlet everyone has its own opinion I respect your opinion but from my point of view in long run bitcoin is in big dangerous due to strict policies against bitcoin it has already became too volatile these days so if in case world powers continue to push it then it might fall forever. At the end I must say it’s just an opinion but not a fact yet

Here son, take some: ; . , : ; ; . , . . .

And do breathe more often. It's a healthy habit.

 

[phoenix1]

I certainly believe that QE has helped to pump the BTC price, but given the current precarious nature of the global financial system I doubt that the Fed can go through with much 'taper' and time soon. Reduced from $85Bn to $75Bn ... LOL. So they are expanding their balance sheet every month, but by 15% less <round of applause>

The fed is currently leveraged at more than 70:1 ... yes 70:1. And it is still increasing. This is the reason they are 'tapering' ... they are more leveraged than any bank at the height of the Lehman's crisis. They are the biggest hedge fund in the world. And they have called this one wrong. QE on this scale does not work. Unfortunately they have realised this too late and the machine is now out of control.
Labour market ... blah blah blah ... this is just a smokescreen to give them the flexibility to do what they need to do to survive.

This is propping up prices in all markets, but for how long is anyone's guess. We could yet see another blow off top in all risk assets, including BTC, before the final fall. Smart people are trying to get their money into hard assets and this is driving those prices sky high due to supply constraints. And fund managers are forced to put money into assets they know are the too expensive as the Fed has them in a headlock and is forcing them to. But there is a limit to how long this will last. What will be the tipping point? The first card to fall? Don't know. Could be an exogenous shock. But when it happens its going to snowball real fast.
Personally I would be surprised if we get through the the first half of next year before things start to fall apart.

I expect that when the house of cards does eventually start falling BTC will go with it in the initial stages as many banks/funds/individuals are forced to sell whatever they can in order to meet margin calls and reduce leverage. In fact, I would go further and say that due to it's illiquidity it could get hit harder. The riskier and less liquid, the harder things get hit.

From there however, I think it will catch a very strong bid that will take us to the Oort cloud. The first whiff of bail-ins and up we go, never to come down.

This is not a call on current price levels, just my version of how I think things will play out IF we don't see widespread adoption for the right reasons (sound money, safe haven) before the first card falls.

We are going to see a lot of fireworks in 2014 ...

And do breathe more often. It's a healthy habit.

 

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