Why is bitcoin falling so slowly and gradually?

[bitcola]

If it's a correction then it shouldn't be happening so slowly.

I thought the price stabilized at $5 and I bought in. Now I'm considering selling up, this is ridiculous.

I've seen many a market correction, but this gradual slide doesn't make any sense. Will it slide all the way down to 1 cent?

[1713581296]

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[1713581296]

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[1713581296]

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[ElectricMucus]

My best explanations are
a) Economic development falling behind expectations
b) The general hostility on the forums
c ==  a+b) People generally don't know about how to play the Prisoners Dilemma

[casascius]

If it slides down to 1 cent, I will personally be able to afford to buy all the Bitcoins in existence.

So would many others.

Unless there's something out there better than Bitcoin for the purpose of sending peer-to-peer transfers, that's extremely unlikely to happen.

[Revalin]

d) No one knows that I'm the manipulator, but this is what I've had planned from the beginning.

e) Even now there are tons of people who still want to buy in at just the right time and get rich, because it's inevitable that Bitcoin is going to be huge in the long run, right?  They're diminishing in numbers, but with the falling price it takes ever fewer of them to hold each new level.

[dustintrammell]

If it's a correction then it shouldn't be happening so slowly.

One perspective:

http://blog.bitcoinwatch.com/2011/10/october-21-2011-bitcoin-charts-and-bitcoin-price-analysis-bubble-or-no-bubble/

[justusranvier]

MV=PQ

P=M(V/Q)

Where M is the number of currency units, Q is the number of goods and services and sold, P is the price of goods and services and V is the velocity of money.

In the Bitcoin economy M is rising linearly and not subject to adjustment (beyond the periodic halving specified in the protocol) so all other things being equal P will rise with it (P is the inverse of the price of Bitcoins).

What happened earlier this year was an increase in Q (more goods being sold for Bitcoins) which brought the exchange rate up but more importantly a lot of publicity that caused people to buy Bitcoins and hold on to them as investments. Bitcoins that aren't being spent don't contribute to the V so the velocity of money slowed down and brought the exchange rate up.

There's just one small problem with an increase in the value of a currency due to a drastically reduced V - it's got nowhere to go but down. V has a lower bound at 0 (which it approaches asymptotically) but it wasn't particularly high to begin with. Q has an upper bound of the GDP of the entire world, which it's nowhere near.

An increase in Q is the only sustainable, long-term way to bring the price of Bitcoins but when you're starting from a situation of both a small Q and a small V then increasing Q is going to necessarily raise V because Q only goes up if people start spending currency. Unless the increase of Q is very high (unrealistic) the effect of increasing velocity is going to dominate the effect on P.

That's another way of saying that it had to get worse before there was any possibility of it getting better.

It won't get better though until the volume of goods and services sold for Bitcoins starts growing consistently at a rate at least equal to the generation rate of Bitcoins. There are three obvious growth areas for Bitcoin but realizing that growth will require business and technical expertise, access to capital and hard work. Nobody wants to be the ones to actually do the work though, they just want to get rich via speculation.

[ElectricMucus]

MV=PQ

P=M(V/Q)

Where M is the number of currency units, Q is the number of goods and services and sold, P is the price of goods and services and V is the velocity of money.

In the Bitcoin economy M is rising linearly and not subject to adjustment (beyond the periodic halving specified in the protocol) so all other things being equal P will rise with it (P is the inverse of the price of Bitcoins).

What happened earlier this year was an increase in Q (more goods being sold for Bitcoins) which brought the exchange rate up but more importantly a lot of publicity that caused people to buy Bitcoins and hold on to them as investments. Bitcoins that aren't being spent don't contribute to the V so the velocity of money slowed down and brought the exchange rate up.

There's just one small problem with an increase in the value of a currency due to a drastically reduced V - it's got nowhere to go but down. V has a lower bound at 0 (which it approaches asymptotically) but it wasn't particularly high to begin with. Q has an upper bound of the GDP of the entire world, which it's nowhere near.

An increase in Q is the only sustainable, long-term way to bring the price of Bitcoins but when you're starting from a situation of both a small Q and a small V then increasing Q is going to necessarily raise V because Q only goes up if people start spending currency. Unless the increase of Q is very high (unrealistic) the effect of increasing velocity is going to dominate the effect on P.

That's another way of saying that it had to get worse before there was any possibility of it getting better.

It won't get better though until the volume of goods and services sold for Bitcoins starts growing consistently at a rate at least equal to the generation rate of Bitcoins. There are three obvious growth areas for Bitcoin but realizing that growth will require business and technical expertise, access to capital and hard work. Nobody wants to be the ones to actually do the work though, they just want to get rich via speculation.

+9000

Excellent post you described consistently what I have preached all over the forum and never archived to bring across to people.

[jago25_98]

 Or another way to put it? -

speculation is pretty stable now. The trend downwards is mostly the inflation built into the client

[Revalin]

Disagree.  The inflation rate from new coins is about 0.1% per day.  The devaluation from the blowoff is much higher than that.

[chickenado]

Nobody wants to be the ones to actually do the work though, they just want to get rich via speculation.

Which is silly, because building a bitcoin business is a wiser investment than just buying a bunch of bitcoins and saving them.

If bitcoin succeeds, you are going to be rich in both cases. But if bitcoin fails, in the first case you will at least come out with some useful skills and experience, while in the second case you will come out with nothing.