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Author Topic: The Dramatic Decline in the Bitcoin/Dollar Exchange Rate is Good for Bitcoin  (Read 1428 times)
Mt.Fun
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September 09, 2011, 07:10:04 PM
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As the title states, the decline is good for Bitcoin as a currency moving forward. Why?

Initial investors in Bitcoin were able to generate a fortune because of the fact they were in on it before anyone else. These investors were holding back the Bitcoin community by holding onto their Bitcoins to generate as much profit as possible. With this current decline it is all but certain that all of the early investors have cleaned out by now, thereby allowing the currency to stabilize by being more evenly distributed.

Another reason this event is good for Bitcoin is that the exchange rate of Bitcoins to Dollars is less important than the stability of the exchange rate. It doesn't matter much whether Bitcoins are $5 or $50 if they are being used as a currency as originally intended. This is because if you are using Bitcoins for transactions then you will pay the amount of Bitcoins that an item you are buying is worth. It is not the Bitcoins that have intrinsic worth. Their worth is derived from the goods and services they can buy. Because of this it doesn't matter if you are paying 5 Bitcoins for a t-shirt or 50 for the same shirt. What is important is that the Bitcoin/Dollar ratio is stable so that you can hold the Bitcoins and they will be able to buy about the same amount as they did a week ago, a month ago etc. With this price decline I hypothesize we are seeing the value of Bitcoins correct to reflect the actual transaction supply/demand. This is good.

Yet another reason this decline is helpful is in relation to mining. Mining attracted a fair bit of amateurs and a lot of neophyte excitement (get rich quick). The amateurs and people who view it as a fad or hobby also hobble Bitcoin as a currency. Bitcoin must be taken seriously if it is to survive. The kids, bless them, are certainly welcome to participate but if they are the ones running things Bitcoin would go nowhere. Because it is now not feasible for an amateur to make money mining and the "get rich quick on the internet" aspect of Bitcoin has fallen away, Bitcoin can now start to be taken more seriously as a transaction oriented currency.

Lastly, the best reason the decline is good for Bitcoin is that we need more doubters. Bitcoin, like any commodity, attracts too much attention when it is going up non-stop and turns into a bubble. Bubbles are bad. Very Bad. The devious senators and establishment types become concerned and start to crack down to get their cut. The rise draws attention from people who do not care about Bitcoin but just want to make money (institutional investors) which sets the stage for volatility and a giant collapse in the end. With Bitcoin making this move down I hope that it can resume its low profile and strengthen and grow internally to the point where it is ready before it becomes mainstream. Mainstreaming an idea before it is ready can spell doom for a new technology or product. If unsuccessful it leaves a bad taste in people's mouths for a long time. So the best reason for the price decline is that Bitcoin can stay underground.
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Piper67
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September 09, 2011, 07:12:53 PM
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Yes, the problem with the theory is that it could be precisely the other way around. The last time we had a big drop, it was followed by a sudden buying spree, which leads one to believe just one person was making back the vast majority of the BTC that had been sold out of fear. The opposite of distribution, more consolidation into the hands of a few.

If we were to see a sudden rise in prices now, because someone is out there trying to buy 30,000 BTC at rock bottom prices, will that be greater or lesser distribution of Bitcoin?
Mt.Fun
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September 09, 2011, 07:20:30 PM
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Yes, the problem with the theory is that it could be precisely the other way around. The last time we had a big drop, it was followed by a sudden buying spree, which leads one to believe just one person was making back the vast majority of the BTC that had been sold out of fear. The opposite of distribution, more consolidation into the hands of a few.

If we were to see a sudden rise in prices now, because someone is out there trying to buy 30,000 BTC at rock bottom prices, will that be greater or lesser distribution of Bitcoin?

It is extraordinarily unlikely that one, or a few, people could manage to corner a large amount of Bitcoin at these prices without sparking thousands of others to return to buying. At this point in the game no one can surprise the Bitcoin markets in this way because we can all see the orders and only a few Bitcoins are sold at a time meaning as soon as the price starts to rise you will see a frenzy.

If this frenzy did happen, however, it would be natural as most corrections need to test upper and lower bounds before stabilizing.
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September 09, 2011, 07:24:05 PM
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@Mt.Fun

I agree with most of your points.

Despite some heavy criticism, fluctuations and scams, Bitcoin is definately staying.
Why is that ? It's because it is an Open Source project. Open source projects never die, as long as there is at least one developer who wants to develop them. Some projects get revived even after years of code not being changed, but i highly doubt that will be the case with Bitcoins, as the development will never completely die.

Until today, everybody treated Bitcoin as a get-quick-rich scheme and a way to scam other people. That was the initial level. Now, we are moving into the next level: slow stabilization. The 3rd level is, i hope, fast but stable growth.

EDIT:
Also, another argument:

No technical weakness has been discovered to this day in BTC and it is still superior to any other currency known to mankind before. Nothing has changed really.
What we are observing now is just negative parts of human nature exploiting the occasion.

nighteyes
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September 09, 2011, 07:37:22 PM
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Bitcoin must be taken seriously if it is to survive. The kids, bless them, are certainly welcome to participate but if they are the ones running things Bitcoin would go nowhere. Because it is now not feasible for an amateur to make money mining and the "get rich quick on the internet" aspect of Bitcoin has fallen away, Bitcoin can now start to be taken more seriously as a transaction oriented currency.

I would certainly agree that the problem is people who aren't sticking to their value added expertise...if any. So what are your credentials to be taken seriously? Do you have at least a business education to be talking about this subject?
Mt.Fun
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September 09, 2011, 07:47:46 PM
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Bitcoin must be taken seriously if it is to survive. The kids, bless them, are certainly welcome to participate but if they are the ones running things Bitcoin would go nowhere. Because it is now not feasible for an amateur to make money mining and the "get rich quick on the internet" aspect of Bitcoin has fallen away, Bitcoin can now start to be taken more seriously as a transaction oriented currency.

I would certainly agree that the problem is people who aren't sticking to their value added expertise...if any. So what are your credentials to be taken seriously? Do you have at least a business education to be talking about this subject?

While I don't put much "cred" in credentials in general, I have business experience and will be graduating this Fall from a top business school. I won my finance class's stock market competition by a landslide and have a moderately high GPA. My Bachelor of Science will be in Accounting.
Mt.Fun
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September 09, 2011, 07:54:43 PM
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EDIT:
Also, another argument:

No technical weakness has been discovered to this day in BTC and it is still superior to any other currency known to mankind before. Nothing has changed really.
What we are observing now is just negative parts of human nature exploiting the occasion.


I agree with this. This is one of the most important features of Bitcoin-the strength of its technical functionality.
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