The Collapse of Bitcoin Price and Why You Shouldn't Care

[tacotime]

...but you should sell your coin.

Bitcoin is inflating wildly right now, almost as much as it deflated back in May.  The hash rate will keep going down, but at the same time, the difficulty will always be decreasing so net rewards for miners will probably not diminish in the extreme.

People are pulling out, and the people left mining will be the ASICs and large scale GPU farms in locations with cheap electricity.  They won't be making much, but they will be making some and that will be enough.

The next big jump in bitcoin price will probably not occur until the currency actual deflates -- that is, when block size shrinks to 25 BTC/block some time next year.  This is also granted the currency survives this long, but as long as the infrastructure is up and trading is still profitable to the trading companies and the traders it will be.  Until then, we will be in freefall until we hit some kind of equilibrium.

This is probably obvious to most people, but if you're just hopping aboard now and haven't figured things out -- bitcoin is inflationary in the near term, deflationary in the long term.

(It should be noted that if you haven't been paying attention either, TBX mining is exploding because it effectively utilizes the CPU cycles from mining rigs, the currency is secure long as lolcust doesn't dump his 7m TBX into the market, and because of effective programming from both Artforz and lolcust.  Hop on if you want.)

[Edward50]

The only thing holding up the bitcoin price is somebody who has bought thousands of bitcoins on the way down from $30. This moron has bought so many bitcoins trying to maintain the price that he has no choice but to keep throwing more money to protect the value of his total bitcoins. He can't sell any coins now because that will just drop the price when he is the only one really buying.

He is so desparate that he put up over a 30,000 bitcoin bid wall on mt. gox at the 4.45-4.50 range. This is his last efforts to protect a fall into the 3's.

The same forces are in play that will keep bitcoin falling, like you say inflation, or so many new coins coming into the market everyday. Why buy when you can just mine. Most people into this currency are computer geeks who will just mine for their coins not buy them.

 

[322i0n]

its cheaper to buy than it is to mine not everybody is here for to turn a quick buck. some of us here understand the value of the bitcoin distinct form the price of btc to paper money. 

if you base the value of BTC in USD or some other centralized government regulated paper currency you are missing the point.

[ElectricMucus]

Don't you think that anyone possessing 30k BTC would more likely have mined them early on?
Do you really think there is someone spent half a million USD to buy them?

That sounds even more ridiculous but don't let me interrupt you circle jerking  

[log0s]

some of us here understand the value of the bitcoin distinct form the price of btc to paper money. 

if you base the value of BTC in USD or some other centralized government regulated paper currency you are missing the point.

Bitcoin is effectively a fiat token with some hard money properties.  It does not meet any economic definition of a money.  It's not even a commodity.  The only thing you can do with a bitcoin is send it to another bitcoin address. It's becoming apparent to more and more people that bitcoin is merely a fad among a few geeks that just like to play with it, and that it was/is misunderstood by tens/hundreds of thousands of people (and continues to be misunderstood by most that remain in the community) to be something most people would value.  This is what caused it's large price increase into the $30s when people expected the mainstream attention to result in bitcoin catching on.  (It hasn't yet, and most likely won't, and is currently teetering on the brink of a catastrophic collapse where the price becomes too low to make mining profitable, resulting in extremely slow block generation/confirmations, which will make it even worse as a form of payment, thereby hurting it's value and price further.)  I have yet to see a single bitcoin developer (or anyone, whether inside or outside the bitcoin community, for that matter) express accurate understanding of bitcoin's economic value and how to take advantage of it.  Eventually most bitcoin users will find that, at least in it's current form, the only value of bitcoin to them is to try to acquire as much profit as they can in terms of government fiat currency and/or other goods from bitcoin before it collapses to whatever price those few bitcoin geeks will pay for them.

[ElectricMucus]

... resulting in extremely slow block generation/confirmations, which will make it even worse as a form of payment, thereby hurting it's value and price further...

that's bullshit.

[log0s]

... resulting in extremely slow block generation/confirmations, which will make it even worse as a form of payment, thereby hurting it's value and price further...

that's bullshit.

Oh, you're right.  My mistake.  People will continue spending money on mining so they can buy fewer bitcoins than they could if they just spent that money on bitcoins directly.  It's not like we saw such a failure happen before on some other crypto-currency like namecoin or anything...

[kjj]

some of us here understand the value of the bitcoin distinct form the price of btc to paper money. 

if you base the value of BTC in USD or some other centralized government regulated paper currency you are missing the point.

Bitcoin is effectively a fiat token with some hard money properties.  It does not meet any economic definition of a money.  It's not even a commodity.  The only thing you can do with a bitcoin is send it to another bitcoin address. It's becoming apparent to more and more people that bitcoin is merely a fad among a few geeks that just like to play with it, and that it was/is misunderstood by tens/hundreds of thousands of people (and continues to be misunderstood by most that remain in the community) to be something most people would value.  This is what caused it's large price increase into the $30s when people expected the mainstream attention to result in bitcoin catching on.  (It hasn't yet, and most likely won't, and is currently teetering on the brink of a catastrophic collapse where the price becomes too low to make mining profitable, resulting in extremely slow block generation/confirmations, which will make it even worse as a form of payment, thereby hurting it's value and price further.)  I have yet to see a single bitcoin developer (or anyone, whether inside or outside the bitcoin community, for that matter) express accurate understanding of bitcoin's economic value and how to take advantage of it.  Eventually most bitcoin users will find that, at least in it's current form, the only value of bitcoin to them is to try to acquire as much profit as they can in terms of government fiat currency and/or other goods from bitcoin before it collapses to whatever price those few bitcoin geeks will pay for them.

Paragraph breaks are your friend.  As would be a coherent logical structure.  But no matter, the substance of your post is worse than the style.

What "economic definition of money" are you talking about?  Medium of exchange?  Check.  Unit of account?  Check.  Store of value?  Check.

Sending to another address is enough.  What more do you want?  Are you sad that you can't draw a mustache on George?

Apparent ≠ true.

The doomsday scenario where miners all just disappear is just as silly when you say it as it was when the other dozen folks said it.

I have a very good idea of bitcoin's economic value, and how to take advantage of it.  But my ideas aren't mine alone, so if you haven't seen them elsewhere, I suspect the problem is that you have a different view, and you are unable to imagine a different view.

Anything that I didn't address directly was baseless conjecture, unless I missed a valid point buried in that wall of text.

Oh, and namecoin isn't bitcoin.  Just FYI.

[ElectricMucus]

... resulting in extremely slow block generation/confirmations, which will make it even worse as a form of payment, thereby hurting it's value and price further...

that's bullshit.

Oh, you're right.  My mistake.  People will continue spending money on mining so they can buy fewer bitcoins than they could if they just spent that money on bitcoins directly.  It's not like we saw such a failure happen before on some other crypto-currency like namecoin or anything...

That was because people went from mining NMC to mining BTC there isn't anything they can just switch to since bitcoin is the king of the hill. Abolishing mining takes longer than just switching but lets suppose we get a fully classical symmetric bubble in that case difficulty will just lag behind a little like it did during the hyperbolic rise.
Not that big of a deal. At the most transactions would take twice as long to get confirmations.

BTW: Your post even implied that we were already at this, nearly impossible to happen point, which is again b.s.

[322i0n]

Bitcoin is effectively a fiat token with some hard money properties.

Fiat money is money that has value only because of government regulation or law

The value of bitcoin is decided by the community that uses it in a similar fashion to other commodities its value, rate of exchange is not set by a government/central bank/private company or any other authority. in what way would you say it is a "a fiat token"?

[BitcoinMint.US]

It's not like we saw such a failure happen before on some other crypto-currency like namecoin or anything...

Namecoin is not a failure and serves a greater purpose than that of a crypto-currency.

[evoorhees]

Bitcoin is effectively a fiat token

Man, you didn't even get five words in without making a factual error. Fiat, in the context of money and economics, means "by decree." It refers to something which is money because it is mandated to be such by a government entity. Bitcoin is in no way fiat.

The rest of your post was full of additional fallacies. Did you know that?

[iamzill]

some of us here understand the value of the bitcoin distinct form the price of btc to paper money. 

if you base the value of BTC in USD or some other centralized government regulated paper currency you are missing the point.

where the price becomes too low to make mining profitable, resulting in extremely slow block generation/confirmations, which will make it even worse as a form of payment, thereby hurting it's value and price further.)

Why would it slow down block generation? It was 10 minutes per block with only Satoshi's computer, and it's still 10 mintutes per block with a million GPUs.

[log0s]

Medium of exchange?  Check.

You're missing a key word there: Common medium of exchange.

Store of value?  Check.

Good luck getting the people that just heard about bitcoin when prices were at $30+ and bought to believe that...

What "economic definition of money" are you talking about?

http://wiki.mises.org/wiki/Money

A money is effectively the most marketable good in the economy. Last I knew all but a tiny sliver of the economy has not heard of bitcoin, let alone offers any goods for bitcoins.  Bitcoin is not even remotely close to becoming a money.  Most in the bitcoin community like to pretend it's money, or are deluded enough into believing it really is money, but that does not make it so.

Sending to another address is enough.

That alone is not a very marketable property.  You can give just about anything to just about anyone else.

The doomsday scenario where miners all just disappear is just as silly when you say it as it was when the other dozen folks said it.

Oh, and namecoin isn't bitcoin.  Just FYI.

Namecoin is almost an identical clone of bitcoin.  The same rules in namecoin that resulted in it's block generation stagnation are the same rules that are in bitcoin and will result in bitcoin's block generation stagnation if prices drop low enough.

[Crypt_Current]

It's becoming apparent to more and more people that bitcoin is merely a fad among a few geeks that just like to play with it, and that it was/is misunderstood by tens/hundreds of thousands of people (and continues to be misunderstood by most that remain in the community) to be something most people would value.

OH, so Bitcoin is just like the Internet!

[YoYa]

ITT: Bearish conjecture without substantiation

As it's me who is speculating and it's my opinion, QED, I can't be wrong!

[log0s]

Bitcoin is effectively a fiat token with some hard money properties.

Fiat money is money that has value only because of government regulation or law

The value of bitcoin is decided by the community that uses it similar in a similar fashion to other commodities its value, rate of exchange is not set by a government/central bank/private company or any other authority. in what way would you say it is a "a fiat token"?

Bitcoin is effectively a fiat token

Man, you didn't even get five words in without making a factual error. Fiat, in the context of money and economics, means "by decree." It refers to something which is money because it is mandated to be such by a government entity. Bitcoin is in no way fiat.

Perhaps the word "effectively" doesn't make things as clear as I wanted.  You are correct that there is no government-like entity mandating it's use as money, though the lack of this decree certainly doesn't work in bitcoin's favor, since if it has no government mandated use (like fiat currencies have had), and no commodity use (like free market monies have had).  So where does bitcoin's value come from?  Why did people start mining and buying bitcoins in the first place?  Bitcoin's value is most likely founded on the delusion that it is a money, probably because it was created with the intention of being a money (the word "coin" in it's name probably adds to that perception as well).  But goods do not become money just because some people believe it is a money.

If you believe it already is a money, then sure it makes sense to value it and use it as a money.  But it does not fit the definition of a money, and therefore is not a money, so any belief that it is a money is merely a delusion.  If you believe it will become a money, then it makes sense to invest in it, but bitcoin does not have all of the features of any goods that have become free market monies, and does not have a government mandate in it's use, so there is no reason to believe it will become a money, suggesting that any belief that bitcoin in it's present form will become a money in the future is also far fetched.

Something of which the price has risen due to false beliefs about what it is almost certainly means the price is much higher than it would be if people did not have those false beliefs.

[David M]

But goods do not become money just because some people believe it is a money.

I LOLed.  Cheers!

[memvola]

Medium of exchange?  Check.

You're missing a key word there: Common medium of exchange.

So in summary, Bitcoin should not be adopted, because it is not adopted.

You can give just about anything to just about anyone else.

No.

Bitcoin has utility for me, since I transfer money across the globe all the time and many of my acquaintances already use BTC. It might not be of use to someone else who don't suffer from banking fees/regulations. I'm an expatriate and most of my friends are too. This is where the world is going now, and Bitcoin fits the picture perfectly.

Namecoin is almost an identical clone of bitcoin.  The same rules in namecoin that resulted in it's block generation stagnation are the same rules that are in bitcoin and will result in bitcoin's block generation stagnation if prices drop low enough.

Prices dropped hugely, and we haven't seen a problem. Namecoin solved its issue with merged mining (hopefully in effect in a few hours). Think of it this way... A distributed notary system is an extremely useful technology, even outside the scope of currency transactions. Domain names, contact information, secure certificates, contracts, stocks, and just about anything you'd need an authoritative source for. And all these systems will eventually use a single computational power source. The system is not mature enough, but at one point hashing power will not be totally tied to Bitcoin's market value. A few hours later, Namecoin's utility will have an influence on it as well, albeit very little. We need at least a few years of development before anyone can say anything conclusive.

(Sorry, I edited the above post a lot.)

[kjj]

memvola beat me to most of this.

Namecoin is almost an identical clone of bitcoin.  The same rules in namecoin that resulted in it's block generation stagnation are the same rules that are in bitcoin and will result in bitcoin's block generation stagnation if prices drop low enough.

Namecoin's (near) failure was because it added nothing that anyone wanted.  The people that wanted bitcoin's properties already had bitcoin.  The people that want domain registration can't get it from namecoin.  If the bulk of the DNS servers on the internet start to accept .bit as a TLD to be resolved through namecoin, it will explode.  Until then, it remains nearly useless, even to the few dozen people that really believe in it.