I am predicting a spike above $3

[Inedible]

if you're so against gambling why are you hanging out in the Speculation Board?

Not sure he's against gambling.

Looks like to me he's saying that traders are having a hard time accepting Bitcoin for trading due to the wild fluctuations and if Bitcoin doesn't get traction as a currency then it'll never succeed.

I can see why merchants would have a problem with the volatility.

I can see why speculators want to speculate.

In the grand scheme of things I'd say if you let the merchants do their thing first, Bitcoin gains traction as a currency, everyone wins. If you let the speculators do their thing first, there might not be anything left.

[cypherdoc]

if you're so against gambling why are you hanging out in the Speculation Board?

Not sure he's against gambling.

Looks like to me he's saying that traders are having a hard time accepting Bitcoin for trading due to the wild fluctuations and if Bitcoin doesn't get traction as a currency then it'll never succeed.

I can see why merchants would have a problem with the volatility.

I can see why speculators want to speculate.

In the grand scheme of things I'd say if you let the merchants do their thing first, Bitcoin gains traction as a currency, everyone wins. If you let the speculators do their thing first, there might not be anything left.

i think you have it backwards.  first of all traders love volatility.  second no one can control speculators or the markets so no sense knocking them.  third if speculators are successful at driving the price of Bitcoin higher, this encourages merchants to jump in with innovative businesses related to Bitcoin.  we saw this excitement in the Spring.  so i don't begrudge speculators at all.  this is how markets work.

[P4man]

if speculators are successful at driving the price of Bitcoin higher, this encourages merchants to jump in

Ahm. No.

[Inedible]

i think you have it backwards.  first of all traders love volatility.  second no one can control speculators or the markets so no sense knocking them.  third if speculators are successful at driving the price of Bitcoin higher, this encourages merchants to jump in with innovative businesses related to Bitcoin.  we saw this excitement in the Spring.  so i don't begrudge speculators at all.  this is how markets work.

Ooops - my first use of 'traders' I meant merchants. I used merchants afterwards because I realised using traders would be confusing but forgot to change it there.

I agree though, 'day traders' love volatility.

I also agree that no one can (or ought to) control speculators.

I disagree that speculators driving up the price of Bitcoin will encourage merchants to use it. I would agree if I thought merchants felt the price would be stable or only go up but we all know this isn't true.

I don't begrudge speculators at all either but I do understand that speculation is going to slow down Bitcoin adoption for traditional merchant transactions and if adoption for the sale of services/goods is the primary basis for the value of Bitcoin, I can understand from that, that Bitcoin will never have value (or so limited that it'll be irrelevant).

[P4man]

In the grand scheme of things I'd say if you let the merchants do their thing first, Bitcoin gains traction as a currency, everyone wins. If you let the speculators do their thing first, there might not be anything left.

This.
Services like bitpay may help mitigate the volatility to a large extent, but its definitely not helpful to see BTC value fluctuate more then thermometer in the Siberian spring. It does huge damage to its image, it prevents non dynamic setting  of prices and basically makes a bitcoin economy almost impossible. The only way to use it is buy the bitcoins before your purchase, with the merchant selling them for dollars instantly with bitcoins never remaining in the economy. Thats not entirely useless, but really not what it could be.

Anyway, I dont hate speculators, I do hate stupid speculation, and honestly, this is what we are seeing. There is nothing going on in bitcoin land that warrants the swings we have seen. No real increase in commerce, no real threats or opportunities. Whatever you thought in may bitcoin might achieve over time, all that is still valid today. Why price would go up and down by an order of magnitude makes no sense. This daily buying and selling makes no sense, it is a lottery. Its literally a zero sum game. If you want to speculate, at least take the long view.

[mjcmurfy]

In the grand scheme of things I'd say if you let the merchants do their thing first, Bitcoin gains traction as a currency, everyone wins. If you let the speculators do their thing first, there might not be anything left.

+1

... [price volatility] basically makes a bitcoin economy almost impossible. The only way to use it is buy the bitcoins before your purchase, with the merchant selling them for dollars instantly with bitcoins never remaining in the economy. Thats not entirely useless, but really not what it could be.

.. This daily buying and selling makes no sense, it is a lottery. Its literally a zero sum game. If you want to speculate, at least take the long view.

+1

I agree. From a merchant's perspective, volatility makes bitcoin a nightmare to do business in. Some speculation is necessary, to ensure that hardware, goods and services required for the bitcoin economy (but cannot as yet purchased with bitcoin) can be obtained with fiat currency. But when nobody wants to leave any capital within the bitcoin economy, it is extremely difficult to operate a business under these conditions.

It's hopeless to expect speculators to only take the long view, and since there is no defined floor for the price of bitcoin, any merchant who adopts it is taking a huge risk. As a bitcoin merchant, you have no option but to force yourself to assume an overly optimistic and bullish outlook, whether you believe it or not. So the only merchants who will adopt the system are those who can successfully delude themselves. Do we want to entrust the development of the early bitcoin economy to irrational people?

With speculators buying and selling schizophrenically, sending the exchange rate wild, rational entrepreneurs naturally find it difficult to maintain this optimistic outlook when they see such bearish signals coming from the markets and then feel their balance sheets squeeze and expand within no defined range.

It is going to take some time still for all those irrational speculators out there to get bored of their zero sum game and realize that it is a pointless exercise before we get any kind of economically viable environment for businesses to operate in.

[P4man]

It is going to take some time still for all those irrational speculators out there to get bored of their zero sum game and realize that it is a pointless exercise

I dont think that will ever happen. People dont stop playing the lottery no matter how often they lose. As long as there is volatility it will attract daytraders, as long as there are daytraders and they are setting the price based on nothing but mood, there will be endless bubbles and bursts.

If anything, I have more hopes that Mt Gox' legal issues and the consequences of that will put a brake on wild speculation. If they are going to be forced to comply to financial regulations, its going to cost them a pretty penny, which I *hope* they will pass on to traders. Not unlike a tobin tax, it wont prevent anyone from taking a long term position, particularly considering the near limitless potential up and down of bitcoin, but it could, and hopefully will kill most of the daytrading casino.

[mjcmurfy]

I have more hopes that Mt Gox' legal issues and the consequences of that will put a brake on wild speculation.

I hope this happens. But do you think that bitcoin could withstand the loss of MtGox, which has managed to establish itself as a crucial cog in the bitcoin economy? I think negative PR on that scale would trigger a massive outflow of goodwill and capital from the system. It may end up being a devastating blow.

Though, with no way of easily cashing out bitcoin for fiat, speculators would then be forced also to take as bullish an outlook for bitcoin as they are currently forcing bitcoin merchants to do. I don't know what the outcome of all that would be, but I think it probably would result in a much better economic environment for everyone involved.

[P4man]

I have more hopes that Mt Gox' legal issues and the consequences of that will put a brake on wild speculation.

I hope this happens. But do you think that bitcoin could withstand the loss of MtGox, which has managed to establish itself as a crucial cog in the bitcoin economy? I think negative PR on that scale would trigger a massive outflow of goodwill and capital from the system. It may end up being a devastating blow.

Though, with no way of easily cashing out bitcoin for fiat, speculators would then be forced also to take as bullish an outlook for bitcoin as they are currently forcing bitcoin merchants to do. I don't know what the outcome of all that would be, but I think it probably would result in a much better economic environment for everyone involved.

If bitcoin cant survive the loss of Mt Gox, it doesnt deserve to survive. Sure there will be a PR blowback, but I think it would be one the best things that could happen for bitcoin to not have an easy way to cash in or out, for a while at least. That would really force everyone to use it as banter, as the only way to obtain bitcoins would be mining or conducting trade. The only way to unload your bitcoins would be buying stuff with bitcoins. Circulation of bitcoins would drop dramatically, but actual trade would likely spike and me thinks thats precisely what bitcoin needs.

[Cluster2k]

If bitcoin cant survive the loss of Mt Gox, it doesnt deserve to survive. Sure there will be a PR blowback, but I think it would be one the best things that could happen for bitcoin to not have an easy way to cash in or out, for a while at least. That would really force everyone to use it as banter, as the only way to obtain bitcoins would be mining or conducting trade. The only way to unload your bitcoins would be buying stuff with bitcoins. Circulation of bitcoins would drop dramatically, but actual trade would likely spike and me thinks thats precisely what bitcoin needs.

If the only way to use bitcoins would be to trade them for good or services, how do those goods and service get purchased to make the trade?  There is one, perhaps two degrees of separation at all points in the chain between bitcoins and your national currency.

Then there is the question of why anyone would want to use bitcoins if that were the case.  Why trade in a market with a few hundred, possibly a few thousand participants, where using a conventional currency means you can trade with many millions?

Merchants love the no charge back feature of bitcoins, but customers hate it.  On another BitcoinTalk forum there's debate on whether a very cheap FPGA miner solution for US$499 is actually legit.  Those people who have signed up and paid the money all say 'if it's not legit, I'll get my money back through my card/PayPal'.  I wonder if they would be so keen if they had to pay up in bitcoins.

[P4man]

If the only way to use bitcoins would be to trade them for good or services, how do those goods and service get purchased to make the trade?  There is one, perhaps two degrees of separation at all points in the chain between bitcoins and your national currency.

Oh no doubt, its use would be limited for quite some time, and BTC wouldnt be an option for amazon&co. But its not like amazon is accepting bitcoins now.

What Im pretty sure off, is that it would spur a slow, but more organic growth, like trade between individuals, "ebay" kind of stuff. Right now even on this forum, most things that are put up for sale are denominated in dollar, and can mostly be bought with dollars. If you no longer have an exchange to buy bitcoins, Im pretty sure a lot of people would sell stuff for bitcoins exclusively in order to get some. Likewise  people with "too many" bitcoins, be it miners, pool operators, merchants, would be more eager to spend them on whatever the bitcoin economy has to offer, even if its just second hand hardware or alpaca socks.  Right now there is very little incentive to do so. You might as well use dollars since everyone just converts the price from btc to dollar and back,  even though the exchange rate is utterly artificial and purely driven by daytraders. I would also guess most of the btc trade (however little it is), is also converted to dollars almost instantly.

Its like the global future markets for oil, commodities, even food; they used to serve a purpose in facilitating trade, future markets, like exchanges are essentially a good thing, helping  trade by protecting producers from price swings etc. But then the gamblers took over and turned it in to a casino, driving up global prices and actually hindering trade. Most economist will tell you you need some speculation, to act as "grease", but more than 25% speculation is a recipe for bubbles and bursts, which hinder the economy, and for instance farmers now no longer use future markets, as it has lost its purpose and has become purely a casino.  In our bitcoin economy its far far worse than that, its more like 99% speculation and 1% trade.  So anything that gets that ratio down, even if only temporarily, I can only see as a good thing.

[Cluster2k]

What Im pretty sure off, is that it would spur a slow, but more organic growth, like trade between individuals, "ebay" kind of stuff. Right now even on this forum, most things that are put up for sale are denominated in dollar, and can mostly be bought with dollars.

I remember buying a PCIE 1x to 16x adapter on eBay to use for mining (using USD$) and trying to sell it (unsuccessfully) on these forums for bitcoins.  Back then I wanted 1.6btc to cover costs.  Now I would need to ask for 8.  If I bought the adapter in bitcoins it's quite possible I would have sold it for the original number of BTC, plus whatever the postage cost would be in my currency.  It's virtually impossible to divorce one's self from every day money.  Postage in $3 bitcoins costs a whole lot more than it used to.

But then the gamblers took over and turned it in to a casino, driving up global prices and actually hindering trade. Most economist will tell you you need some speculation, to act as "grease", but more than 25% speculation is a recipe for bubbles and bursts, which hinder the economy, and for instance farmers now no longer use future markets, as it has lost its purpose and has become purely a casino.  In our bitcoin economy its far far worse than that, its more like 99% speculation and 1% trade.  So anything that gets that ratio down, even if only temporarily, I can only see as a good thing.

It does very much seem like we're replacing one semi regulated casino (share markets) with a completely unregulated casino. 

[P4man]

It does very much seem like we're replacing one semi regulated casino (share markets) with a completely unregulated casino.  

Thats the irony of it. On another forum someone asked me what solution I was suggesting. I was not suggesting any, frankly, I dont have any.  The only raison d'etre of a currency is facilitating trade. If a currency ends up hurting trade, and only encouraging lottery play, you are doing something wrong.

If people following their instincts leads to a less than desirable outcome, you have to change the system, you cant change human nature, nor can you expect people to go against their nature voluntarily. In this case, the only "fix" I can think off is what most people on this forum consider blasphemy: regulation and taxation.  If anyone can think of a different way to discourage short term speculation, Im all ears, but Im not holding my breath. Even if Mt Gox could and would somehow impose a "tax" on people that convert from dollars to btc and back without there being a real world trade associated with it, all that would do is move everyone to other exchanges. Oh the wonders of a decentralized, deregulated free "currency".

Maybe someone more clever than me will come up with a solution in bitcoin 2.0, but for this attempt, I think we're basically screwed and I will be quite impressed if bitcoin overcomes this catch 22.

[old_engineer]

In our bitcoin economy its far far worse than that, its more like 99% speculation and 1% trade.  So anything that gets that ratio down, even if only temporarily, I can only see as a good thing.

Since no one knows what the heck bitcoins are worth, I think speculation is actually the most important activity for bitcoin right now as we go through the slow process of price discovery.  Once a price range is settled on, THEN commerce can start.

Seems to me that almost all speculators think they're worth between $0.50 and $10.  That's a smaller range than April-June, where it went from $0.60 to $30.  It's slowly getting better, though I think too slowly for everyone's tastes.  Bitcoin is new by any standard, with the first significant press was in June, and we just need to give things time to settle down.

[P4man]

Since no one knows what the heck bitcoins are worth, I think speculation is actually the most important activity for bitcoin right now as we go through the slow process of price discovery.  Once a price range is settled on, THEN commerce can start.

I couldnt disagree more. If you see bitcoin as a currency,  like I do, its only reason to exist is to allow trade; and if there is no commerce associated with it, it has no value. All speculation does is anticipate on future economic activity that may or may not happen, and in this case, the speculation itself is preventing the economic activity from happening. That will never stabilize, its inherently unstable.

Assume it stays around $3 for a few months now, and merchants start to believe in its stability and start adopting it. What do you think will happen? As BTC adoption finally begins, its price will skyrocket, a bubble will inflate, merchants will get second thoughts, the bubble bursts and we are back at square one.

[cypherdoc]

Anyway, I dont hate speculators, I do hate stupid speculation, and honestly, this is what we are seeing.

why can't you accept the fact that this is all in the eyes of the beholder?  honestly, if investing was so easy, everyone would see the potential and the price would skyrocket w/o any speculator being able to make a profit.  successful investing means spotting an opportunity when no one else sees it.  sure, we bulls, could be wrong but we just as sure could be right based on an intuition you're just not seeing.

[cypherdoc]

Since no one knows what the heck bitcoins are worth, I think speculation is actually the most important activity for bitcoin right now as we go through the slow process of price discovery.  Once a price range is settled on, THEN commerce can start.

I couldnt disagree more. If you see bitcoin as a currency,  like I do, its only reason to exist is to allow trade; and if there is no commerce associated with it, it has no value. All speculation does is anticipate on future economic activity that may or may not happen, and in this case, the speculation itself is preventing the economic activity from happening. That will never stabilize, its inherently unstable.

Assume it stays around $3 for a few months now, and merchants start to believe in its stability and start adopting it. What do you think will happen? As BTC adoption finally begins, its price will skyrocket, a bubble will inflate, merchants will get second thoughts, the bubble bursts and we are back at square one.

i said i agree with you that in an ideal world a currency should be rock steady with no fluctuation in value.  but that has to be some positive number thats above zero.  but because that number is above zero, how does the market determine what that specific number is?

i submit that if Bitcoin becomes successful it will stabilize at some number reflective of its useful value as a currency.  b/c its so young, the market is trying, wildly, to determine what that number is.  my opinion, and its just my opinion based on what i know of the technology, is that its way above its current number.  nevermind the volatility which is expected at this nascent stage.

edit:  btw, we don't live in an ideal world.  we live in a world with the corrupt Fed injecting USD's into the system everytime their buddies get into trouble.  this is in part why we have volatility.

[Crypt_Current]

Since no one knows what the heck bitcoins are worth, I think speculation is actually the most important activity for bitcoin right now as we go through the slow process of price discovery.  Once a price range is settled on, THEN commerce can start.

price != value

[P4man]

why can't you accept the fact that this is all in the eyes of the beholder?  honestly, if investing was so easy, everyone would see the potential and the price would skyrocket w/o any speculator being able to make a profit.  successful investing means spotting an opportunity when no one else sees it.  sure, we bulls, could be wrong but we just as sure could be right based on an intuition you're just not seeing.

Here is the thing, Ill try to explain so maybe even you can understand. Speculating on future prices or value of things in the real economy is good. It helps establish a "true" price, it helps trade, it makes things more predictable, it can hedge risks etc.

However at some point, if speculation becomes bigger than the real world economy thats being speculated on, then you have a  BIG problem, because speculators are no longer trying to predict real world changes in economy or finance, but are trying to predict what other speculators will predict. It doesnt take a genius to understand how this creates huge bubbles and bursts. This is precisely whats happening in the real world commodity markets (*), and bitcoin is a caricature of this, with speculation FAR FAR outpacing any realworld trade.

(*) Just saw this:
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=7492
Interesting parts start at 4 minutes.

[cypherdoc]

However at some point, if speculation becomes bigger than the real world economy thats being speculated on, then you have a  BIG problem, because speculators are no longer trying trying to predict real world changes in economy or finance, but are trying to predict what other speculators will predict. It doesnt take a genius to understand how this creates huge bubbles and bursts. This is precisely whats happening in the real world commodity markets (*), and bitcoin is a caricature of this, with speculation FAR FAR outpacing any realworld trade.

wrong again.  i'm a speculator and i'm not speculating on what i expect other speculators will do.  i speculate on Bitcoin b/c of what i believe are the underlying fundamentals.

you're once again claiming your world view is the correct one when it could in fact be wrong.