Bitcoin's Price is Based on Hoodwink and Bamboozle

[taskly]

I believe that the price of Bitcoin is drastically overvalued. It's driven by speculation than actual economic activity occurring within the Bitcoin ecosystem. This was especially true at the height of the Bitcoin price, when it hit $20,000 or a market cap of $330 billion.

Speculators are speculating against other speculators

When you think of speculators, you may imagine big bankers being the problem. I would be generally inclined to agree with that. In reality, they make up a small portion of the market. The real issue are these so-called investors from home who do technical analysis and try base the value of Bitcoin on previous pattern movements.

On one end of the spectrum you have those trying to short and others who are longing. These aren't just a few loonies, there is a sizeable chunk of these speculators who are shorting and those who are longing. I would say the distribution is 40/60 long.

Who in the world thinks that at the height there was $320 billion in economic activity? There most definitely wasn't $20,000 of services and goods being exchanged per coin.

What goods and services are actually being offered?

Let's be realistic, there isn't $60 billion of economic activity being generated with Bitcoin. If that were true, then it would be much harder to explain the fluctuations in price. You don't just go from $330 billion to $200 billion in a matter of months with no justification.

It used to be that the price of Bitcoin was based on goods and services... back when Silk Road was a thing. The closure of Silk Road sent the price of Bitcoin into free fall.

Lambo's don't help

The idea of cashing out Bitcoin for a Lambo sounds sexy. It is a great marketing draw for the inexperienced to buy some Bitcoin. Who doesn't want a fast car?

It's this idea which is only popular with the greedies and not those concerned what Bitcoin and Blockchain can do. You're buying Bitcoin in USD, promoting theories that the USD is over, only to cash out into USD and buy your Lamborghini. Good for you if you do that, but don't be a hypocrite about the USD just to use it.

Putting money into Bitcoin, only to hold it, does nothing to grow the actual value. The only way an economy grows is by having money circulating around. Putting sums of money into Bitcoin just to have it sitting there creates deflation which can quickly spiral into a deflationary spiral.

Instead of talking about technical analysis and scribbling onto charts, we ought to look at the fundamentals of the price of Bitcoin. We need to be objective and not subjective about Bitcoin. I'm an ardent fan of Bitcoin, but I find the community's view of finances to be amateur, especially on Reddit.

Resources:

https://smallbusiness.chron.com/importance-consumer-spending-3882.html

https://www.economicshelp.org/blog/1888/economics/deflationary-spiral/

https://www.theguardian.com/technology/2018/feb/02/bitcoin-biggest-bubble-in-history-says-economist-who-predicted-2008-crash

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[jademaxsuy]

I agree with you about $330 billion to $200 billion which is a lot of money deducted from $330 billion in a matter of months. I'm sure there's a reason behind the bitcoin's price. Lambos are used in crypto in which amateur will think they will get a lots of money, after all lambo is not cheap.

[cellard]

Just the same pro-Krugman pro-inflationary propaganda we've seen a million times before.

The bullish case for Bitcoin is already there. It doesn't need to be some rich economy with tons of people buying and selling stuff in exchange of Bitcoin and whatnot. That would be great, but it's not the only use case. Defending against confiscability and inflation is already a rock solid use case worth trillions. Case in point, refer to this thread for example of why governments must hold BTC:

https://bitcointalk.org/index.php?topic=5103036.msg49460938#msg49460938

If you still not see why Bitcoin is objectively worth $trillions long term, what can I do?

[biskitop]

yes, it is very clear that the use of bitcoin or useless bitcoin greatly affects the decline in bitcoin prices or the increase in bitcoin prices. it is very realistic, because when an asset does not have value for an item or service, the price will be very cheap.

[taskly]

Just the same pro-Krugman pro-inflationary propaganda we've seen a million times before.

The bullish case for Bitcoin is already there. It doesn't need to be some rich economy with tons of people buying and selling stuff in exchange of Bitcoin and whatnot. That would be great, but it's not the only use case. Defending against confiscability and inflation is already a rock solid use case worth trillions. Case in point, refer to this thread for example of why governments must hold BTC:

https://bitcointalk.org/index.php?topic=5103036.msg49460938#msg49460938

If you still not see why Bitcoin is objectively worth $trillions long term, what can I do?

Why is inflation a bad thing? Deflation is a much worse phenomena for the economy. Can you name me an economy with a deflationary currency that is successful?

Your argument for Bitcoin and anti-confiscation measures is that a brutal communist dictator would be able to cash out funds illicitly obtained. How many people are brutal communist dictators that would specifically benefit from anti-confiscation measures? Who's to say you're safe using Bitcoin? If you cash out, what's preventing the government from arresting you and seizing those funds? Taking these additional steps doesn't throw anyone off.

Bitcoin could be could trillions, but with the right selling point. This anti-confiscation, anti-inflation thing isn't the answer.

[davis196]

"The closure of Silk Road set the price of bitcoin to a free fall."
Wow,this is the most stupid,wrong and ignorant statement regarding bitcoin I've ever read.
There are some true points in your post,but the mindless FUD around them makes it look ignorant.

[HeRetiK]

I don't think you can boil a "sane" valuation of Bitcoin down to economic activity. Even for classical assets such as gold and many stocks (especially growth oriented ones) reducing valuation down to economic activity is overly simplistic and sometimes not even possible. Cryptocurrencies being a whole new asset class makes valuations all the harder, hence the pronounced phases of volatility.

Most investments are an investment in expected future growth (be it a growing company or a growing market leading to increased demand). Heck, our whole credit-based fiat system is based on investing in expected future growth. Loans are nothing but. Accordingly there is almost always a premium to be paid, question being whether the premium paid is worth the risk taken.

It used to be that the price of Bitcoin was based on goods and services... back when Silk Road was a thing. The closure of Silk Road sent the price of Bitcoin into free fall.

That statement couldn't be more wrong.

When Ulbricht was arrested BTC was still in the sub USD 150,-, the large dip that happened that day was followed by an almost immediate correction and arguably was one of the catalsysts for the late 2013 bubble towards the first 4 digit bitcoins. Many other crypto-based black markets followed so it doesn't seem like the black market saw much of a recession with Silk Road's closure.

To top things off, regular market activities involving cryptos have outgrown black market activities by literally an order of magnitude [1].

[1] https://www.ccn.com/dea-criminal-activities-account-for-just-10-percent-of-bitcoin-transactions/

[Theb]

When I see someone saying Bitcoin is overvalued (or even undervalued) I always look at their post showing the justification of what they are saying with calculations based on a fundamental aspect of BTC which in this case I have seen none. OP had tried hard to throw in some numbers but its hardly even related to what is happening to the whole market right. I thought what we have established now that this market is based on speculation, saying something is overvalued or undervalued doesn't really apply on most speculative assets, I mean we aren't even talking about the fundamental nature of cryptocurrencies when we re predicting if its going up or down.

[taskly]

I don't think you can boil a "sane" valuation of Bitcoin down to economic activity. Even for classical assets such as gold and many stocks (especially growth oriented ones) reducing valuation down to economic activity is overly simplistic and sometimes not even possible. Cryptocurrencies being a whole new asset class makes valuations all the harder, hence the pronounced phases of volatility.

Most investments are an investment in expected future growth (be it a growing company or a growing market leading to increased demand). Heck, our whole credit-based fiat system is based on investing in expected future growth. Loans are nothing but. Accordingly there is almost always a premium to be paid, question being whether the premium paid is worth the risk taken.

Cryptocurrency isn't a 'new asset class'. Currency is as old as civilisation itself. It's a digitalisation of a ledger system.

Bitcoin, as a currency, needs economic activity to be actually worth a damn. Why would anyone sane use cryptocurrency in its current state where amateur investors are hoping on exponential growth based on... nothing?

Outside of currency, what utility does Bitcoin have?

[kryptqnick]

I believe that the price of Bitcoin is drastically overvalued.

Speculators are speculating against other speculators

The real issue are these so-called investors from home who do technical analysis and try base the value of Bitcoin on previous pattern movements.

What goods and services are actually being offered?

Let's be realistic, there isn't $60 billion of economic activity being generated with Bitcoin.
It used to be that the price of Bitcoin was based on goods and services... back when Silk Road was a thing.

The only way an economy grows is by having money circulating around. Putting sums of money into Bitcoin just to have it sitting there creates deflation which can quickly spiral into a deflationary spiral.

If we think of bitcoin as money, it's a failed project for now. I bet most of people won't accept 1 bitcoin in exchange for some groceries worth $30. Why? Because they don't care about these new complicated technological advances and miss the times when there were no smartphones and people used cash in supermarkets. However, I don't think that bitcoin is overvalued, because I don't believe most of people think of it as of money. It's more like something valuable in itself for them, I guess, something that is held for long-term profit. If more retailers accept bitcoin, its price and marketcap will get more justified, but we're in the vicious circle here, because for that to happen the price should rise first to prove that bitcoin is worth taking seriously. Unfortunately, I think it's the stock traders who can get the price back up, and I am really not sure bitcoin can even be that kind of money used in supermarkets because of the scalability issue.

[HeRetiK]

Cryptocurrency isn't a 'new asset class'. Currency is as old as civilisation itself. It's a digitalisation of a ledger system.

Electronic banking has been the digitalization of the ledger system. Cryptocurrency is the digitalization of cash.

Cryptocurrencies are to digital ledgers what physical assets are to the promise of a physical asset (eg. certificates and other assets that are under custody of a third party such as banks).

A subtle, but significant difference. If cryptocurrencies were just "digital ledgers" I'd fully agree with you. Alas they are not.

[el kaka22]

The value of bitcoin is being determined by the amount of bitcoins which are being offered to trade and NOT based on actual amount of circulating or so-far-mined bitcoins. This is the reason why we are having highly fluctuating market conditions like falling from $330 billion to $200 billion kind of things are happening as usual. It is being emphasized here for 1000+ times, bitcoin's value is being determined by future speculations like how much demand it may have in 2020 or 2030. Hence, we cannot expect any economic activity within bitcoin ecosystem. This is a FUTURES markets and its demand is purely determining the value hence no need of considering the actual businesses nor transactions.

Few economic experts may call bitcoin a bubble but I guess they are bothering only the value but not looking into the applications of bitcoins. Bitcoin's value is not being determined by changing hands but based on future use-case and applications on various domains. If there will be no such advantage from bitcoins in future then I agree it is a bubble and may burst out into zero. But, I am able to see a future where bitcoin may replace gold and fiats for various reasons. So, I am buying bitcoins now itself for the current market prices by considering it is a cheaper than when I am going to spend/use them.

[BitBustah]

Ok but don't act like this type of manipulation and tricks don't happen in the stock market.  companies are constantly defrauding people and cooking the books to fake profits they don't even have.  The Fed will keep pumping out those dollars and causing a bubble in all the markets until it eventually gets exposed.

[mu_enrico]

Bitcoin, as a currency, needs economic activity to be actually worth a damn. Why would anyone sane use cryptocurrency in its current state where amateur investors are hoping on exponential growth based on... nothing?

In theory (about currency), that would be correct. You assume that people are rational and markets are efficient. However, people treat bitcoin differently. Most people treat it like rare gold-like collectibles and hold it like crazy. Don't forget about supply-demand, this hodl cult actually could drive up the price.

As long as people see bitcoin as a rare gem, the price would always go up. Of course without liquidity (real tx volume). There is no price stability.
But it is still valuable!

[taskly]

Ok but don't act like this type of manipulation and tricks don't happen in the stock market.  companies are constantly defrauding people and cooking the books to fake profits they don't even have.  The Fed will keep pumping out those dollars and causing a bubble in all the markets until it eventually gets exposed.

This is why you have regulatory agencies like the SEC.

The Fed don't directly create money. They create credit, but they're not stupid about it. They know what they're doing. We have little inflation. The increase in the stock market (since 2016) isn't because of monetary policy, but stock buybacks, economic growth, etc.