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Author Topic: At what pricepoint is bitcoin dead?  (Read 25772 times)
evoorhees
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October 10, 2011, 07:59:55 PM
 #41

If a small-ish group of people can buy the daily supply with a smallish amount of money, I would say that the system is in it's death throes. 


According to your logic, Bitcoin was dead 2 years ago.

But let's examine something. If the price went back to $1, Bitcoin would be just like it was when it was previously $1, except for the following:
- many new exchanges
- many new merchant solutions
- many new vendors
- stronger hashrate
- stronger brand recognition
- longer lifetime (more reasonable to trust)
- stronger client software
- no displacement by multiple competing chains
- etc.

If Bitcoin was viable when it was previously $1 WITHOUT all those subsequent improvements, it'd be reasonable to think it's viable at $1 WITH all those improvements.

The enumeration of improvements is exactly why I consider the solution to be dying.  It is a bad omen to me that even with all of those things you've outlined, the whole systems capital creation can still be purchased for a small outlay.


You're letting the massive speculative bubble up to $30, and the subsequent fall, cloud your judgement.

Consider the market price to be made of two components, the fundamental value and the speculative value. In an asset like Bitcoin, the speculative value will be a very large portion of the market price, because the investment case for Bitcoins is extremely strong (ie - if Bitcoin succeeds, the price of a coin will skyrocket, and if it fails, it will fall toward zero). The result is that the fundamental value component is obfuscated by the extremely volatile speculative value component - and thus the fundamental value may be far higher or far lower than the market price at any given time.

For evidence of this, consider that the fundamental value of Bitcoins didn't increase 30-fold when the price went from $1 to $30. Similarly, when the price fell from $10 to $5, the fundamental value did not halve. It is the speculative component which drives market price right now, and for the foreseeable future. Bitcoin is simply too disruptive a technology to avoid this phenomenon.

The price falling to current levels is indicative of a change in speculative assessment, not fundamental assessment. It takes a wise, patient investor with nerves of steel to understand this and act accordingly - buying when the speculative value has dropped the market price below the fundamental value.

The simple lesson is this:  a falling price does not indicate a less valuable Bitcoin, and a rising price does not indicate a more valuable Bitcoin. Ignore the market price, try to discover the fundamental value of these things, and then act/invest accordingly. I think the fundamental value of this technology is massive, and until a serious security flaw is discovered in the protocol, my long-term outlook for the market price of a bitcoin is very bullish. Short-term, I have to take a shot of tequila sometimes to calm the nerves and like you said, don't invest more than you can be comfortable losing.

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October 10, 2011, 08:34:04 PM
 #42

If a small-ish group of people can buy the daily supply with a smallish amount of money, I would say that the system is in it's death throes. 


According to your logic, Bitcoin was dead 2 years ago.

But let's examine something. If the price went back to $1, Bitcoin would be just like it was when it was previously $1, except for the following:
- many new exchanges
- many new merchant solutions
- many new vendors
- stronger hashrate
- stronger brand recognition
- longer lifetime (more reasonable to trust)
- stronger client software
- no displacement by multiple competing chains
- etc.

If Bitcoin was viable when it was previously $1 WITHOUT all those subsequent improvements, it'd be reasonable to think it's viable at $1 WITH all those improvements.

The enumeration of improvements is exactly why I consider the solution to be dying.  It is a bad omen to me that even with all of those things you've outlined, the whole systems capital creation can still be purchased for a small outlay.


You're letting the massive speculative bubble up to $30, and the subsequent fall, cloud your judgement.

Consider the market price to be made of two components, the fundamental value and the speculative value. In an asset like Bitcoin, the speculative value will be a very large portion of the market price, because the investment case for Bitcoins is extremely strong (ie - if Bitcoin succeeds, the price of a coin will skyrocket, and if it fails, it will fall toward zero). The result is that the fundamental value component is obfuscated by the extremely volatile speculative value component - and thus the fundamental value may be far higher or far lower than the market price at any given time.

For evidence of this, consider that the fundamental value of Bitcoins didn't increase 30-fold when the price went from $1 to $30. Similarly, when the price fell from $10 to $5, the fundamental value did not halve. It is the speculative component which drives market price right now, and for the foreseeable future. Bitcoin is simply too disruptive a technology to avoid this phenomenon.

The price falling to current levels is indicative of a change in speculative assessment, not fundamental assessment. It takes a wise, patient investor with nerves of steel to understand this and act accordingly - buying when the speculative value has dropped the market price below the fundamental value.

The simple lesson is this:  a falling price does not indicate a less valuable Bitcoin, and a rising price does not indicate a more valuable Bitcoin. Ignore the market price, try to discover the fundamental value of these things, and then act/invest accordingly. I think the fundamental value of this technology is massive, and until a serious security flaw is discovered in the protocol, my long-term outlook for the market price of a bitcoin is very bullish. Short-term, I have to take a shot of tequila sometimes to calm the nerves and like you said, don't invest more than you can be comfortable losing.



+1. Very well said.


Bitcoin is already a huge success in my opinion. Its success is not gauged by its price, but would be better served if its price was on par with its current "fundamental value".
I'm not sure where that exact value is, but my speculation is somewhere between $3 dollars to $4 dollars for the next several months. Anything lower than that I consider a steel and will be investing heavily. Also, it does make a lot of since for it to be driven lower than its fundamental value for that has always been the history of bubbles deflating. My guess (speculation) is the all time low will be somewhere between $2 to $3.

One thing I observed with the huge price increase to $30 was a mentality of the limited supply nature of Bitcoin. After going that high, reality started to set in that it couldn't be sustained with the current money injection rate and has continued a decline ever since. As the price starts to approach levels only seen before the huge bull run, I fully expect the "limited" supply mentality to start to kick in and create a very rock solid bottom. As for the the mining aspect, I'm fully confident in the miners like my self that will continue to support bitcoin even at a loss (call it a hobby). Why? Where else is there such a system that could compete with the federal reserve. It is truly a priceless technology.
The tragic thing would be if the prices deviated to such an extreme from its fundamental price for a second time. With the ability to short and mature bitcoin investing, I really hope relatively and sudden high prices do not happen again.

Bitcoin will not die, but will continue to live. Rid yourselves of fear and greed and find better reasons to support this. Government and Banking Cartels have really screwed us in so many ways. Bitcoin is truly a powerful tool for individuals to be free.
 
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October 10, 2011, 08:53:45 PM
 #43

The last two posts were spot on. I cant put it better.

If people quit freaking out the short term I think bitcoin will only grow at sure and steady pace. Its all about developing services and supporting the system anyway we can. The limited supply I think will kick in in about 18 months from now.. my estimates anyway...
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October 10, 2011, 08:58:35 PM
 #44


You're letting the massive speculative bubble up to $30, and the subsequent fall, cloud your judgement.

I don't believe that I am to a great degree.  It's likely that a lot of us are allowing our hope for the solution and disgust at the current 'official' monetary systems to cloud our judgement.  I try to avoid that as well.


The price falling to current levels is indicative of a change in speculative assessment, not fundamental assessment. It takes a wise, patient investor with nerves of steel to understand this and act accordingly - buying when the speculative value has dropped the market price below the fundamental value.

As I said, I continue to fill in to the USD amount I've chosen to convert.  I may even up the amount (again) as I have more disposable USD and the Bitcoin network remains sound and unexploited (in a technical way.)

I am actually more than comfortable with the appearance of morbidity for Bitcoin for the simple reason that it would, hopefully, induce the crooks who have obtained their coin through theft to liquidate and create a period of time when a higher percentage of people are interested in Bitcoin were so on the basis of theory (technical and/or monetary theory that is.)  More like it probably was back in the good old days a year or two ago.

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October 10, 2011, 09:00:49 PM
 #45

Depending on how well namecoins hold their value people will be able to mine at lower market prices using merged mining.  Right now, merged mining gives a miner about 45% more income for the same power consumption (although few pools are using merged mining right now).

The last two posts were spot on. I cant put it better.

If people quit freaking out the short term I think bitcoin will only grow at sure and steady pace. Its all about developing services and supporting the system anyway we can. The limited supply I think will kick in in about 18 months from now.. my estimates anyway...

Agreed, those were some good posts.  Last year I was largely uncertain about Bitcoin's viability but following the huge bubble I'm fairly optimistic about Bitcoin's future.
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October 10, 2011, 10:45:26 PM
 #46

Seems to me bitcoin is dead where its been hanging at for weeks, 4 to 5 bux a bitcoin is not helping anyone.  To expensive to create them with the cards and electricity cost, selling, trading too risky for way to low of profit, the only way bitcoin gets back to where it needs to be seems to be if some company starts accepting them, newegg, amazon something like that or when all the bitcoins have been made, then maybe the value would rise.  It is a toy at this price point, needs to be 10 to 15 a bitcoin to actually pay for itself, pay for anything make it work.  1 buck sucks, 4 bux sucks, kinda dead and stuck for past month, not looking good.

This was kind of my point... it wasn't about being a "ponzi scheme trader" or whatever the guy with 8 posts was saying.. It was more like a 9% decrease in difficulty versus a 66% drop in price makes it difficult to sustain.

For me below $10/BTC it's not really worth much to *me personally*, because I mine, and because I have (2) daytime jobs already, and have no desire to speculate or trade.  But how can I buy something when the value is fluctuating so much, mainly in the downward direction?

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October 10, 2011, 10:49:23 PM
 #47

If a small-ish group of people can buy the daily supply with a smallish amount of money, I would say that the system is in it's death throes. 


According to your logic, Bitcoin was dead 2 years ago.

But let's examine something. If the price went back to $1, Bitcoin would be just like it was when it was previously $1, except for the following:
- many new exchanges
- many new merchant solutions
- many new vendors
- stronger hashrate
- stronger brand recognition
- longer lifetime (more reasonable to trust)
- stronger client software
- no displacement by multiple competing chains
- etc.

If Bitcoin was viable when it was previously $1 WITHOUT all those subsequent improvements, it'd be reasonable to think it's viable at $1 WITH all those improvements.

Sounds good.

What I'd like to do, since there are many places to spend it:

I would like to buy several $100 bills from you in USD.  I will offer you $25 each for them.  Next week I will give you $20 each for them, and next month $10.

You'll be able to spend the $10 anywhere you'd like, or, I could buy that $10 from you 2 months from now for 25 cents.

If you prefer coins, I'll buy as many silver dollars as you want to sell for $0.30 each.

Or for pure silver, I'll buy it from you at a year ago's prices.

We'll neglect inflation for the point of all of these.

Be fearful when others are greedy, and greedy when others are fearful.

-Warren Buffett
mizike29
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October 10, 2011, 11:09:26 PM
 #48

You cant just ignore the price it cost to create a bitcoin.  That is a major concern when it comes to bitcoin, if you dont mine, bitcoins are not made, if you cant make money mining bitcoins then they make no sense.  I dont even mean just mining them and selling them to make money, I am also including if you create bitcoins and they cost 7 dollars to make one bitcoin, then it also doesnt make sense to try to purchase goods or services with bitcoins.  So the cost of mining compared to the value of bitcoin can not be ignored, it is a huge aspect of will bitcoin die, or is bitcoin dead.  It is a toy, just because you can use bitcoin to buy something doesnt make it worthwile.  If it cost more to create a bitcoin then it does to buy something with a dollar vs a bitcoin then bitcoin is not working and will not work.  If you do not mine and you just buy bitcoins, then I guess you can take the mining aspect out of it, but at that point your still buying a bitcoin at 6 bux one month and next month its at 4 bux or less, how does that system make sense, it doesnt, so it needs to correlate with the cost of mining and has to have some type of stability in the 10 to 15 per coin area for everything to work together and for it to all make sense.

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October 10, 2011, 11:13:26 PM
 #49

This was kind of my point... it wasn't about being a "ponzi scheme trader" or whatever the guy with 8 posts was saying..

Oh I think I'm up to nine posts, or so.

I don't consider the trading of BTC to add anything to Bitcoin's success. A trader can only profit if another loses, and if we're trying to build a new kind of economic system where's the net gain in that?

You cant just ignore the price it cost to create a bitcoin

Correct. And since GPU miners will be replaced by FPGA/sASIC/ASIC the cost of producing bitcoins will continue to fall, even if difficulty stays where it's at.

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October 10, 2011, 11:22:42 PM
 #50

This was kind of my point... it wasn't about being a "ponzi scheme trader" or whatever the guy with 8 posts was saying..
I don't consider the trading of BTC to add anything to Bitcoin's success. A trader can only profit if another loses, and if we're trying to build a new kind of economic system where's the net gain in that?

Who makes Bitcoin liquid, and more easily exchangable into other currencies, if not traders?

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October 10, 2011, 11:29:55 PM
 #51

Who makes Bitcoin liquid, and more easily exchange able into other currencies, if not traders?

Wall Street ponzi scheme HFT trading mumbo jumbo with no basis in actual reality. Bitcoin needs nothing more than miners wanting to recoup the cost of verifying transactions for people to be able to acquire the necessary currency for economic transactions.

A quick read through of the Speculation part of this forum is all that's needed to understand just how sad things can get. "My charts show that we're headed upwards. BUY BUY BUY".

The only way to profit from that is if someone else loses. No net gain for Bitcoin.
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October 11, 2011, 12:09:53 AM
 #52

1) Mining cost is irrelevant. The purpose of the "difficulty" is a feedback loop to ensure that. We do not value a dollar on how much work people do but on how much the economy grows over time. A failing or failed economy leads to price decline (unless it's propped up by something else as in the USD having utility as a reserve currency). Similarly gold mining companies don't set the price for gold, they react to it, and mine more  or less.

2) Trading does have a purpose - it ensures price discovery and liquidity. Those aren't mumbo jumbo terms. Liquidity means that when I go to buy BTC there is someone ready to sell, and when I want to sell my coin there is someone ready to buy. Without the traders we have no idea what price to assign to BTC. Without them you would be buying/selling BTC on a "black market" as in countries where they try to "fix" the price of a currency, eg. VZ.

3) The fundamental/speculative parts of the value are valid. Most state currencies have a high fundamental part ensured by the states insistence on it's legal use and people actually using it, and then a small speculative component that varies daily as traders get in/out. But Bitcoin is a baby currency and until it matures the speculative part will be higher - it's fundamental value is a measure of how safe people feel holding coins. And for now not too many people feel safe doing that - hence, only speculators do that.

All of this just evolves from human nature. If people were different we would have different economic systems. Surviving a big speculative bubble means we now have to get on with the business of proving BTC has value. If we can't do THAT then it dies, only then.

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October 11, 2011, 02:07:46 AM
 #53

1) Mining cost is irrelevant. The purpose of the "difficulty" is a feedback loop to ensure that. We do not value a dollar on how much work people do but on how much the economy grows over time. A failing or failed economy leads to price decline (unless it's propped up by something else as in the USD having utility as a reserve currency). Similarly gold mining companies don't set the price for gold, they react to it, and mine more  or less.

2) Trading does have a purpose - it ensures price discovery and liquidity. Those aren't mumbo jumbo terms. Liquidity means that when I go to buy BTC there is someone ready to sell, and when I want to sell my coin there is someone ready to buy. Without the traders we have no idea what price to assign to BTC. Without them you would be buying/selling BTC on a "black market" as in countries where they try to "fix" the price of a currency, eg. VZ.

3) The fundamental/speculative parts of the value are valid. Most state currencies have a high fundamental part ensured by the states insistence on it's legal use and people actually using it, and then a small speculative component that varies daily as traders get in/out. But Bitcoin is a baby currency and until it matures the speculative part will be higher - it's fundamental value is a measure of how safe people feel holding coins. And for now not too many people feel safe doing that - hence, only speculators do that.

All of this just evolves from human nature. If people were different we would have different economic systems. Surviving a big speculative bubble means we now have to get on with the business of proving BTC has value. If we can't do THAT then it dies, only then.

Mining cost is absolutely not irrelevant.  This is obvious.  Even if the effect is as little as 1-2% (I'd argue it's vastly more at this point) it's not a static 1-2%, it's a variance.  Something else also occurs at a 1-2% variance...trading.

Or, you could look at the difficulty or hash rate relative to value and compare time periods between, say, June, and now.

Why does everyone forget there's a human element involved?  Contrary to nerd belief, there are factors at play that can't be measured numerically. Every miner's (the person-miner pressing 'go,' not your graphics card) perspective varies and the sample size is far too small for the bell curve to apply properly.  Any factor in the Bitcoin economic system is subject to a miner/trader's perception, including difficulty and something else called an electric bill.  The speculative value of Bitcoin plays a big factor in helping a person choose whether to mine or not when the value is low.  Without this speculative value, you'd probably see a current hash rate of...well....me, because I rent with paid-for electricity.

Not to mention that mining gave rise to Bitcoin and Bitcoin only operates with miners (after all, the question of whether miners determine price is a matter of no miners vs. miners period, NOT some number of miners vs. some other number of miners).  It's axiomatic that if you take away all miners, the value will go away too.  Nothing to confirm their value anymore (the program confirms value, but we run the program). 

Also, keep in mind that miners are traders while traders are not necessarily miners.  All miners mine and will eventually trade, and trading influences price.

People need to respect the miners more.  They rule Bitcoin and will always be the most fundamental and necessary element besides the programs and computers themselves.

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October 11, 2011, 02:30:49 AM
 #54

Who said anything about taking away miners? Sure we need miners. I also mine myself. I said the cost of mining isn't important as in it does not determine the price that Bitcoins trade at. It doesn't even set a lower limit as you might expect by miners not wanting to sell lower than Y. They will be forced to stop mining before they can force the price above their costs.

Some people are thinking that the price of Bitcoin should be X because electricity costs Y. That's what I'm saying is baloney. The cost of mining isn't fixed by electricity since the difficulty is a feedback that adjusts how much electricity is needed per coin.


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October 11, 2011, 02:59:40 AM
 #55

So the cost of mining compared to the value of bitcoin can not be ignored, it is a huge aspect of will bitcoin die, or is bitcoin dead.

I agree that it can't be ignored in general, but not in the context you describe. If a coin was a one time thing, like a token of computational power, a work unit, then you would be right. But that's not the case. When you create the metaphorical coin, you create a thing that will persist forever. Its usefulness in the long term is what gives it value. This relates to the inclination of people and businesses to accept Bitcoin, inclination to "hoard" coins, sentiment of the potential users, etc.

Why some people think like you do, is because they don't actually make use of Bitcoin at all. If your only involvement is mining coins and selling them, of course you will see it as a computational work unit. But please keep in mind that it's not even tangential to what Bitcoin is all about.

If it cost more to create a bitcoin then it does to buy something with a dollar vs a bitcoin then bitcoin is not working and will not work.

Why? Just stop creating them if it's not working for you. What's not working is creating them at that cost, not the Bitcoin system in general.

If you do not mine and you just buy bitcoins, then I guess you can take the mining aspect out of it, but at that point your still buying a bitcoin at 6 bux one month and next month its at 4 bux or less, how does that system make sense, it doesnt, so it needs to correlate with the cost of mining and has to have some type of stability in the 10 to 15 per coin area for everything to work together and for it to all make sense.

This is the issue about volatility, and I agree that this may be a problem for some, and will be over when we have more speculators in the market, which might take a few years at least. Otherwise, your numbers are arbitrary. You are saying that when the exchange value to dollars are falling, it doesn't make sense to buy? Hell yes. But how do we know what the prices will be at any point in the future? Again, while I agree with the sentiment, an options system can limit the risk, so there is a solution to that waiting to be implemented.

Plus, price does not, and cannot correlate with the cost of mining (although there may be some feedback as thejoint puts it), cost of mining comes to terms with the price, that's the mechanism in place. The difficulty is decreasing, and your 10 to 15 per coin will be less and less, until (if ever) the exchange value increases. So again, those numbers are temporary.

Miners who whine need to quit mining. That's practical reality. I always recommend people not to get into mining in the first place. Hand down mining to professional businesses. Buy shares from mining companies instead, if you really want to invest in that..
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October 11, 2011, 03:52:29 AM
 #56

Mining cost is absolutely not irrelevant.  This is obvious. 
Mining cost is not irrelevant, it's just irrelevant to the price of bitcoin.

Quote
It's axiomatic that if you take away all miners, the value will go away too.  Nothing to confirm their value anymore (the program confirms value, but we run the program).
It's also true that if you take away all demand for bitcoin, then mining will go away.  Mining difficulty follows the price of bitcoin (this has actually been studied and demonstrated several times by different people).  Mining secures the bitcoin network and contributes to the fundamental value of the bitcoin system.  But more miners will not yield higher prices, only the demand for bitcoins relative to the supply determines price (and demand stems from both usage of bitcoin for transactions and speculation).  Miners that keep their bitcoins instead of selling are speculators.  There is no causal relationship between the number of miners or mining difficulty and the bitcoin exchange rate.  However, there is correlation.  The correlation stems from the fact that the number of miners is related to the level of interest in bitcoin.  The more interest in bitcoin, the higher the price, and the more miners there tend to be.

Quote
People need to respect the miners more.  They rule Bitcoin and will always be the most fundamental and necessary element besides the programs and computers themselves.
Miners ensure the integrity of the network.  And anyone who's serious about bitcoin has an interest in that.  However I don't really agree that miners "rule" bitcoin.  The miners and security guards in the gold economy are important, but they don't "rule" gold.  I have a rack full of mining equipment because the integrity of the network matters to me.  I am fortunate to have a profitable operation, but even it if were unprofitable, I don't think I'd shut it down (I would stand to lose far more if the integrity of bitcoin were compromised).

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October 11, 2011, 02:37:55 PM
 #57

+1 Steve.

Like with gold, if buying it on the market is more expensive than mining it, people mine it. Mining expenses per BTC/kg gold follow the market price. As a mining operation is non-trivial (more for gold than for bitcoin) an unexpected decline in the BTC/gold-price leads to "expensive" mining which is not the end of gold/bitcoin.

If you are new to gold your operations will bring gold with a two year delay at least. With bitcoin the delay is on average a month I would guess. Experienced miners can increase their capacities within half a year/two weeks respectively.

With the given investment, miners stick to mining even when it doesn't pay off, speculating it will in the future so as long as mining "doesn't pay off" I know that the majority of the miners has faith in a future for the bitcoin, so no, I'm not worried when mining doesn't pay off. I would be worried if it did.

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October 11, 2011, 05:26:54 PM
 #58

zero

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October 11, 2011, 07:12:36 PM
 #59

As the price continues to fall like the last month or two, at what point should we consider it "dead"?

The price of BTC on the exchanges doesn't mean squat about the "health" of Bitcoin.  A price of 1 BTC= $10,000 or 1 BTC = $0.01 on MtGox only says something about the fiat value of individual BTC portfolios.  If you bought BTC @ $0.01, you might think that BTC is very much alive - despite the precipitous drop from its highs.  If you bought @ $30...well, I can understand why you might be trying to figure out when to completely give up on BTC.   The reality is this: if you hold 10,000 BTC, and can go to your local grocery and exchange 1 BTC for a 2lb chuck roast, you don't give a rat's ass about the price of BTC on some thinly traded, unregulated, foreign exchange that is run by someone in their mom's basement.

Even if the price of BTC dropped so low that the exchanges were no longer profitable and closed, BTC would still be alive as long as people accepted BTC in payment for goods and services.  Bitcoin is dead when no one sees any value in it as a medium of exchange now or in the future.  In that sense, Bitcoin may have never really been alive to begin with.

IMO, bitcoin is still in the "pre-natal" stage of life.  Maybe now that the casino aspects of BTC are fading, people may actually try to develop the utility of bitcoin beyond something that does nothing more than separate fools from their money.
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October 11, 2011, 09:11:31 PM
 #60

I'd say bitcoin is dead when it hits single digits cents. say 5-9 center per coin.

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