Will BTCUSD break the long term trend?

[grod]

Exactly.  Bitcoin value is determined 100% by speculative sentiment.  Bitcoin does not generate any revenue directly, it's impossible to project an ROI or P/E since there ARE no earnings. 

To be precise there are probably some earnings by the Silk Road folks - but I guess this is not significant in any way.

I suspect those are a complete wash.   The dealers sell their received bitcoins as soon as they get them, and customers just buy at the market price.  End income to bitcoin community: nil.

[1715241354]

1715241354

[grod]

A lot has changed. Bitcoin is known by a massively larger number of people than it was before the bubble. It's still fairly small but it has gotten way bigger. For the price this means that there is in general much more demand than there was before, even though the bubble from the hype was massive.

No, it does not mean that.  At the peak of the hype (at $32) we had 60,000 users at mtgox.   Do you think we've gone to 120k?  240k?   A million users?  Ten million users?  A hundred million?  A billion?  I simply don't see the demand you speak of.  The only demand I see is the demand for exchanging bitcoins for dollars.

The $32 price marked peak interest, confirmed by google trends.

But a lot of small investors know about it at least and even some big players, which does make it very unlikely for the price to go very low (by very low I mean where it was in the beginning of this year when Bitcoin was still mostly unknown).

What an olympic logic leap.  Lots of people know about Amway, but for some reason they're not getting in.  Off the top of my head I can name a dozen stocks and commodities currently circling the drain.  Guess what, the same investors, big and small alike, are not buying them either.   And those issues are being traded on legitimate, accountable, regulated exchanges unlike bitcoin.

Bitcoin price absolutely can go lower, and it can even go to effectively zero.  There are far more scenarios where that happens instead of the world population suddenly waking up and going "You know, it's about time we made Satoshi and a bunch of other guys who heard about this internet funbucks pyramid a year before we did multi-billionaires."

This is assuming that Bitcoin stays legal and the technical fundamentals stay robust. As long as this is true I'm quite sure Bitcoin will succeed at least as a niche currency. Which is fine enough for me.

The technicals remain as un-robust at $5 as they did at $32, $24, $20, $17.5, $15, $14, $13, $11, $9 and $6.  We'll talk legality and possible regulation after French courts decide whether bitcoin is currency or not.  As far as being niche -- well, I hope you're into items on pirate WoW servers, wire fraud, illegal drugs and child porn.  When those are the 'niche' use cases for bitcoin your $ exchange rate is not going to pay for a very impressive hash rate.

[zby]

Exactly.  Bitcoin value is determined 100% by speculative sentiment.  Bitcoin does not generate any revenue directly, it's impossible to project an ROI or P/E since there ARE no earnings. 

To be precise there are probably some earnings by the Silk Road folks - but I guess this is not significant in any way.

I suspect those are a complete wash.   The dealers sell their received bitcoins as soon as they get them, and customers just buy at the market price.  End income to bitcoin community: nil.

I agree that this is insignificant now - but in theory this is the mechanism that will make bitcoin profitable.  This is the same mechanism with every money, the exchanges enabled by it makes it globally profitable for humanity even if they do have a cost to produce and is not consumed in any way.

[Technomage]

Weren't you the same one saying there was no way bitcoins could stay below 5 dollars for a period of time?

It's important to note the difference between a stable price and an unstable one. For example, I have stated that if the price stays below $5 for a significant period of time, which is at least a week, it's a sign of the long-term switching to "neutral". A price below $4 for more than a week, then I'd say down. Price below $4 for a month would mean abandon ship.

This is how I've seen it for the past weeks and so far none of those scenarios have happened so the long-term is clearly up. Instead of new lows we've actually had a couple of rallies which is a sign that we are getting closer to a bigger break-out.

[Technomage]

No, it does not mean that.  At the peak of the hype (at $32) we had 60,000 users at mtgox.   Do you think we've gone to 120k?  240k?   A million users?  Ten million users?  A hundred million?  A billion?  I simply don't see the demand you speak of.  The only demand I see is the demand for exchanging bitcoins for dollars.

The $32 price marked peak interest, confirmed by google trends.

Learn how to read. I compared to the situation before the bubble. It's obvious as hell that basically every indicator possible has declined after the peak. This is obvious and irrelevant. What is relevant is that Bitcoin is known by a lot more people, and even Google trends doesn't show this properly. This is because Google trends is interested in how many people search for Bitcoin, it doesn't show us how many people of the ones that searched in the past have remained interested in it.

I've been interested in it for months now and I don't go searching google for "bitcoin", not anymore at least. It doesn't mean I'm any less interested in it right now. Google trends is mostly an indicator of current new interest level, it doesn't really tell us much about the accumulated interest so far.

And the truth is, which you conveniently didn't comment on, that actual merchant activity has gone up after the bubble. We have way more exchanges, way more businesses and way more anything. It's true that the amount of users and usage of Bitcoin has declined from the peak but that is not a long-term view. The usage of Bitcoin has grown massively from the start of the year and is still at levels way higher than it was back then, which is a very robust indicator telling us that the price won't drop super low, not in a stable fashion at least, until the Bitcoin-economy declines way more. And this is unlikely to happen.

The technicals remain as un-robust at $5 as they did at $32, $24, $20, $17.5, $15, $14, $13, $11, $9 and $6.  We'll talk legality and possible regulation after French courts decide whether bitcoin is currency or not.  As far as being niche -- well, I hope you're into items on pirate WoW servers, wire fraud, illegal drugs and child porn.  When those are the 'niche' use cases for bitcoin your $ exchange rate is not going to pay for a very impressive hash rate

Well, nothing I can say to this other than you're greatly underestimating the usage Bitcoin has. You forgot one from the list which is one of the most potential possibilities for Bitcoin, by far, which is gambling. I'm a semi-professional poker player actually so this is interesting to me, those other things are not.

You also forgot the most important usage for Bitcoin, which is as a store of value. It's like gold, just more practical. Currently this functionality of Bitcoin is clouded by the fact that the market is small and speculation has caused the price to go all over the place, but in the long term Bitcoin will be very robust as a store of value, meaning very-long-term savings will be kept partly as Bitcoins, and this will raise the price very significantly.

Plus, I would happily use Bitcoin for my day-to-day purchases from physical stores, if that were possible and convenient. The advantage of only needing a phone, having low fees, having more anonymity and the fact that by using a fundamentally better monetary system (compared to fiat) I'd be supporting something good, if I used it. It's just a matter of getting stores to accept Bitcoin and make it as convenient as possible.

[Gerken]

Weren't you the same one saying there was no way bitcoins could stay below 5 dollars for a period of time?

It's important to note the difference between a stable price and an unstable one. For example, I have stated that if the price stays below $5 for a significant period of time, which is at least a week, it's a sign of the long-term switching to "neutral". A price below $4 for more than a week, then I'd say down. Price below $4 for a month would mean abandon ship.

This is how I've seen it for the past weeks and so far none of those scenarios have happened so the long-term is clearly up. Instead of new lows we've actually had a couple of rallies which is a sign that we are getting closer to a bigger break-out.

An optimistic view, I just don't see the demand though.  No new lows certainly (what was it, down to 4.20ish last week?), however the price hasn't stayed below 5 for this long before, it's always seen a lot of buying activity once it drops a bit, but not seeing it this time.  I think the stagnant pricing lately is scaring off investors.  

One more thing though, by your comment of abandon ship at below 4 dollars, are you into bitcoin as speculation or as a currency?  The price of bitcoin in fiat is irrelevant as a currency, it still works even if its a dollar each.  Just curious where your mindset is, nothing wrong with playing the markets while you can.  

[Technomage]

An optimistic view, I just don't see the demand though.  No new lows certainly (what was it, down to 4.20ish last week?), however the price hasn't stayed below 5 for this long before, it's always seen a lot of buying activity once it drops a bit, but not seeing it this time.  I think the stagnant pricing lately is scaring off investors.  

One more thing though, by your comment of abandon ship at below 4 dollars, are you into bitcoin as speculation or as a currency?  The price of bitcoin in fiat is irrelevant as a currency, it still works even if its a dollar each.  Just curious where your mindset is, nothing wrong with playing the markets while you can.

Well, I'm an optimist as it comes to Bitcoin, that's for sure. As far as my market activity goes, I'm simply a long-term investor most of the time, but when I smell a really clear trend I do make moves. I've made a few and I'm up from those, enough that I'm actually at break even in $ for my Bitcoin investments. And this I consider a very good result, could be much worse. Considering that I've mostly been just holding.

So if I see very strong technical indicators that the price is going down I will sell. And buy back when it has gone down. But other than that I will remain optimistic as long as the legal and technical fundamentals of Bitcoin stay solid and the infrastructure continue to be improved. In fact I'm very surprised if my "abandon ship" scenario happens if all of these requirements are still valid.

And I do know that Bitcoin will function as a medium of exchange just as well with any price, but a constantly lowering price is not good. Merchants have said that they get more customers when the price is going up, this is probably related to the fact that price going up often indicates increased interest in Bitcoin.

Also, price going to really low levels would further undermine Bitcoin's functionality as a store of value. Even though I know that from a technical and economic perspective Bitcoin is really good as a store of value, and this will be evident in the long-term as long as the fundamentals stay solid, but the adoption of Bitcoin due to this feature will be slow and much delayed the longer it just keeps going down.

The market needs to be massively larger for people to be able to look at the price and see it's good as a store of value though, massive speculation creates so wild price swings. But the economic model of Bitcoin makes it very good in that respect so in the long-term it's going to be very successful as a store of value as long as one doesn't buy at the peak of a speculation super bubble.

So the price going to lower levels wouldn't really crush Bitcoin's very-long-term prospects, it would simply take longer to really recover, the lower we go. So far we've only declined to levels before the bubble. That's just a few months. If we decline to the levels of early 2011, it'll be a longer road back up.

[zby]

"technical fundamentals" - isn't that an oxymoron?

[grod]

I agree that this is insignificant now - but in theory this is the mechanism that will make bitcoin profitable.  This is the same mechanism with every money, the exchanges enabled by it makes it globally profitable for humanity even if they do have a cost to produce and is not consumed in any way.

Incorrect.  Money exists to provide a revenue stream to governments which issue the currency in the first place.  It'd be very hard to tax commerce without money.  So unlike bitcoin, yes, other currencies (or, more correctly, governments) DO have a business model.  At the moment the only way to fuel the bitcoin network is by fresh infusions of investor cash.

[S3052]

So the price going to lower levels wouldn't really crush Bitcoin's very-long-term prospects, it would simply take longer to really recover, the lower we go. So far we've only declined to levels before the bubble. That's just a few months. If we decline to the levels of early 2011, it'll be a longer road back up.

I agree and disagree with you at the same time. A break of the longterm trend could lead to a total "crash" of bitcoin interest and wipe it out from the landscape (apart from a few thousand of hardcore bitcoin-lovers.
Even if I do not like it - in the current world-, price development plays a dominant role, and if we enter a vicious cycle with bitcoins, it may never come up again.

[zby]

I agree that this is insignificant now - but in theory this is the mechanism that will make bitcoin profitable.  This is the same mechanism with every money, the exchanges enabled by it makes it globally profitable for humanity even if they do have a cost to produce and is not consumed in any way.

Incorrect.  Money exists to provide a revenue stream to governments which issue the currency in the first place.  It'd be very hard to tax commerce without money.  So unlike bitcoin, yes, other currencies (or, more correctly, governments) DO have a business model.  At the moment the only way to fuel the bitcoin network is by fresh infusions of investor cash.

Money existed long before any governments: http://szabo.best.vwh.net/shell.html

[Technomage]

I agree and disagree with you at the same time. A break of the longterm trend could lead to a total "crash" of bitcoin interest and wipe it out from the landscape (apart from a few thousand of hardcore bitcoin-lovers.
Even if I do not like it - in the current world-, price development plays a dominant role, and if we enter a vicious cycle with bitcoins, it may never come up again.

This is possible, I agree. That is the risk all Bitcoin-investors take. And even I will sell if the long term trend is clearly broken. Then I'd buy back much later if it looks like Bitcoin can still recover.

However I think it's very unlikely for the long term trend to break decisively unless there is something wrong with Bitcoin on a fundamental level. Bitcoin is only a couple of years old and has been growing very fast, with no really serious problems (legal or technical) yet, so I see no real reason for the confidence to drop that low. All the issues have been with 3rd parties so far. And 3rd parties are also becoming more robust because people are learning from the mistakes that have been made so far.

The bottom line is that I don't really believe in this vicious cycle of doom unless there are serious issues with the legality, reliability or functionality of Bitcoin. Price development does play a big role but it's not something that works in a vacuum, the real state of Bitcoin does matter. We have had serious decline from the peak, but it's not like things are looking any worse than they have before.

Even if the worst case happens where all we have left are hardcore Bitcoiners, it can still come up again if there are uses for it. But we'll see, I truly think we're at "calm before the storm" stage right now. Something is bound to happen soon.

 

[S3052]

I agree with you 100%. I do not see the doom scenario. BTCUSD has not even seriously tested the long term trend. As long as the trend is not broken, the 1.5 year rally remains the active scenario.

[fivebells]

Money existed long before any governments: http://szabo.best.vwh.net/shell.html

No one actually knows how money originated, and that essay doesn't do anything to illuminate the question.  It is rife with glib assumptions.   I like David Graeber's theory on the origin and original purpose of money, as it is at least based on observations of actual human cultures, as opposed to the bold evidence-free theorizing Szabo indulges in.  But even it is highly speculative on this question.

[zby]

Money existed long before any governments: http://szabo.best.vwh.net/shell.html

No one actually knows how money originated, and that essay doesn't do anything to illuminate the question.  It is rife with glib assumptions.   I like David Graeber's theory on the origin and original purpose of money, as it is at least based on observations of actual human cultures, as opposed to the bold evidence-free theorizing Szabo indulges in.  But even it is highly speculative on this question.

OK - I linked that essay to support the thesis that money has a business case even without government - the theory you linked to is not contradicting this.  Once again what interests me are the total costs vesus the total benefits of the system - when it will start to break even?  With any startup this is the most basic part of the plan - but here nobody tries to make this calculation which worries me, maybe it is just a pyramid scheme?