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Author Topic: You guys don't get it - Bitcoin will act like a Ponzi scheme until Dec 2012  (Read 4954 times)
fastandfurious
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December 13, 2011, 06:52:24 AM
 #1

This is a big issue, everytime Bitcoin price is going up it is at the same time working against it self with the high inflation that we have right now. This is just the way Bitcoin is constructed today. I know that Bitcoin isn't any ponzi sheme, but it will look as it is. The reason for this is very easy to explain, at $3 the inflation rate gives Bitcoin around $21 000/day of fresh capital (or miners that pay this amount by keeping their Bitcoins - the money has to come from somewhere) that is needed to hold the system intact and stable at the rate it is long term. If the price goes up to $10 or $30 then what is needed of fresh money at the exchanges is $72 000/day or $210 000/day to sustain a stable price at those levels. When the inflow of money doesn't come in at a stable rate, then it will act as if it was a ponzi scheme, because soon after it will fluctuate in a very disturbing way. As soon as the interest is gone for a couple of weeks the price will go down dramatically and vice versa.

So my conclusion is that every time anyone or group wants to start to bring in a bigger interest for Bitcoin they are facing a very very hard competitor. They can keep the price high for a couple of weeks, that is possible. But after that the inflation just hits the price every day, it acts today like a Duracell bunny and just gives those inflation numbers to the exchanges and it will not take a pause because the interest in down for a short period. And that will very fast show it self at the exchange price, and when the price goes down people sell in the trend. Exactly the same way they did when the price went up, a herd mentality.

One of my passions of life has been to really understand why the prices in the financial markets (and pretty much everything that is traded) goes up or down. I have been doing this for more then 11 years so what I am saying is my main conclusion why we have all these people that is right now tired of the way Bitcoin is acting, everyone should understand why this reason is.

And also, many super bulls are very blind and just see the positive signs, they really live in their own world. So for the super bulls, you don't need to comment.
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plastic.elastic
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December 13, 2011, 07:11:16 AM
 #2

This is a big issue, everytime Bitcoin price is going up it is at the same time working against it self with the high inflation that we have right now. This is just the way Bitcoin is constructed today. I know that Bitcoin isn't any ponzi sheme, but it will look as it is. The reason for this is very easy to explain, at $3 the inflation rate gives Bitcoin around $21 000/day of fresh capital (or miners that pay this amount by keeping their Bitcoins - the money has to come from somewhere) that is needed to hold the system intact and stable at the rate it is long term. If the price goes up to $10 or $30 then what is needed of fresh money at the exchanges is $72 000/day or $210 000/day to sustain a stable price at those levels. When the inflow of money doesn't come in at a stable rate, then it will act as if it was a ponzi scheme, because soon after it will fluctuate in a very disturbing way. As soon as the interest is gone for a couple of weeks the price will go down dramatically and vice versa.

So my conclusion is that every time anyone or group wants to start to bring in a bigger interest for Bitcoin they are facing a very very hard competitor. They can keep the price high for a couple of weeks, that is possible. But after that the inflation just hits the price every day, it acts today like a Duracell bunny and just gives those inflation numbers to the exchanges and it will not take a pause because the interest in down for a short period. And that will very fast show it self at the exchange price, and when the price goes down people sell in the trend. Exactly the same way they did when the price went up, a herd mentality.

One of my passions of life has been to really understand why the prices in the financial markets (and pretty much everything that is traded) goes up or down. I have been doing this for more then 11 years so what I am saying is my main conclusion why we have all these people that is right now tired of the way Bitcoin is acting, everyone should understand why this reason is.

And also, many super bulls are very blind and just see the positive signs, they really live in their own world. So for the super bulls, you don't need to comment.

You're too fast and furious for me.

I bet you trade 10 sec at a time.

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December 13, 2011, 07:22:14 AM
 #3

It's not a Ponzi (a single fraudster faking returns) at all.  It's much closer to a pyramid (people buying in then desperately trying to get more people to buy in), though still different in a couple important ways.

As for the rest of it, that's basically what I've been saying for a while.  Until there's a lot more commerce, it's overvalued.  But everyone's so hung up on making sure they don't get left out when people start getting rich.

This won't end in 12/2012.  That will just raise the bar a little by decreasing inflation.  The fact that there's excess currency supply (currently hoarded) will eventually make itself known as people begin putting it back on the market.

This is why I occasionally toss around RevCoin (Exchange-stabilized low-inflation coins), GEM (generation-stabilized low-inflation coins), EnCoin (a more complicated system)...  All of which will undermine the wild "We're gonna be rich!" speculation, and leave pricing to market-based immediate needs and relatively short-term economic speculation.

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Bitcoin is the Devil's way of teaching geeks economics.  --Revalin 165YUuQUWhBz3d27iXKxRiazQnjEtJNG9g
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December 13, 2011, 07:31:05 AM
 #4

Yes, the inflation rate is still very high, somewhere close to 25% APR right now.  About this time next year it will be around 12.5%, but will suddenly drop to about 6.25% and resume it's slow decent for another 4 years.  For any increases in the BTCUSD exchange rate to be sustainable, there must be a growth rate in the economy that exceeds that inflation rate.  For the first 18 months, there was no bitcoin economy to speak off, so for the past 18 months maintaining an economic growth rate well in excess of the inflation rate has been relatively easy starting from near zero.  However, as the economy grows larger and the monetary base grows larger, the difficulty in maintaining such levels of economic growth increases.  I still don't believe that an economic growth rate well in excess of the inflation rate is improbable, and that we are as likely to see a return to steady exchange value growth as the general perception in the strength of bitcoin increases while the general mistrust in national fiat currencies also increases.  There will always be noise in the signal to deal with, however.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
fastandfurious
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December 13, 2011, 07:31:10 AM
 #5

It's not a Ponzi (a single fraudster faking returns) at all.  It's much closer to a pyramid (people buying in then desperately trying to get more people to buy in), though still different in a couple important ways.

As for the rest of it, that's basically what I've been saying for a while.  Until there's a lot more commerce, it's overvalued.  But everyone's so hung up on making sure they don't get left out when people start getting rich.

This won't end in 12/2012.  That will just raise the bar a little by decreasing inflation.  The fact that there's excess currency supply (currently hoarded) will eventually make itself known as people begin putting it back on the market.

This is why I occasionally toss around RevCoin (Exchange-stabilized low-inflation coins), GEM (generation-stabilized low-inflation coins), EnCoin (a more complicated system)...  All of which will undermine the wild "We're gonna be rich!" speculation, and leave pricing to market-based immediate needs and relatively short-term economic speculation.

Revalin, right, pyramid scheme is more the right word. Thanks for that. Also, I think it will end in Dec 2012. The inflation rate is so much lower then, so it will have a big impact.
fastandfurious
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December 13, 2011, 07:35:09 AM
 #6

Yes, the inflation rate is still very high, somewhere close to 25% APR right now.  About this time next year it will be around 12.5%, but will suddenly drop to about 6.25% and resume it's slow decent for another 4 years.  For any increases in the BTCUSD exchange rate to be sustainable, there must be a growth rate in the economy that exceeds that inflation rate.  For the first 18 months, there was no bitcoin economy to speak off, so for the past 18 months maintaining an economic growth rate well in excess of the inflation rate has been relatively easy starting from near zero.  However, as the economy grows larger and the monetary base grows larger, the difficulty in maintaining such levels of economic growth increases.  I still don't believe that an economic growth rate well in excess of the inflation rate is improbable, and that we are as likely to see a return to steady exchange value growth as the general perception in the strength of bitcoin increases while the general mistrust in national fiat currencies also increases.  There will always be noise in the signal to deal with, however.

It is higher then that, it is around 33 % annual inflation rate today. And your conclusion is right as well, good to see people here are able to see the whole picture.
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December 13, 2011, 07:35:48 AM
 #7

Duracell bunny

Energizer Bunny.

FTFY.


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Revalin
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December 13, 2011, 07:37:08 AM
 #8

Remember: Inflation is only one component of devaluation.  The mining inflation rate is already quite small in the current scale of value change.

      War is God's way of teaching Americans geography.  --Ambrose Bierce
Bitcoin is the Devil's way of teaching geeks economics.  --Revalin 165YUuQUWhBz3d27iXKxRiazQnjEtJNG9g
fastandfurious
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December 13, 2011, 07:44:19 AM
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Smiley

But the original name is Duracell. That is the name we use in Sweden.

http://en.wikipedia.org/wiki/Duracell_Bunny
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December 13, 2011, 07:47:47 AM
 #10

Yes, the inflation rate is still very high, somewhere close to 25% APR right now.  About this time next year it will be around 12.5%, but will suddenly drop to about 6.25% and resume it's slow decent for another 4 years.  For any increases in the BTCUSD exchange rate to be sustainable, there must be a growth rate in the economy that exceeds that inflation rate.  For the first 18 months, there was no bitcoin economy to speak off, so for the past 18 months maintaining an economic growth rate well in excess of the inflation rate has been relatively easy starting from near zero.  However, as the economy grows larger and the monetary base grows larger, the difficulty in maintaining such levels of economic growth increases.  I still don't believe that an economic growth rate well in excess of the inflation rate is improbable, and that we are as likely to see a return to steady exchange value growth as the general perception in the strength of bitcoin increases while the general mistrust in national fiat currencies also increases.  There will always be noise in the signal to deal with, however.

I agree, see this economy:
https://bitcointalk.org/index.php?topic=54016.0

chieffery
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December 13, 2011, 08:11:23 AM
 #11



Smiley

But the original name is Duracell. That is the name we use in Sweden.

http://en.wikipedia.org/wiki/Duracell_Bunny


Holy shit, today i learned the energizer bunny was ripped off from duracel. 

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chickenado
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December 13, 2011, 08:24:39 AM
 #12

high inflation? 25% APR is tiny considering how new bitcoin is.  Most disruptive technologies fail. But the ones that don't fail, usually grow a lot faster than 25% APR in the first few years.  
fastandfurious
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December 13, 2011, 08:33:08 AM
 #13

high inflation? 25% APR is tiny considering how new bitcoin is.  Most disruptive technologies fail. But the ones that don't fail, usually grow a lot faster than 25% APR in the first few years.  

Bitcoin today is not that tiny. The total market cap of Bitcoin is around 24 million dollars at this exchange rate. And the inflation is 33% not 25%.
lonelyminer (Peter Šurda)
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December 13, 2011, 12:56:37 PM
 #14

I don't think the production rate matters that much, it's the propensity to sell BTC in general. Maybe since we already know from historical data that bubbles can form, speculators won't hoard so much and the price will adjust more quickly. Since the trade volume occurring on the exchanges is several times the amount of newly produced bitcoins (last 24 hours MTGox trade volume 47k BTC vs 7.2k produced BTC), I don't think this has much effect. Instead of a price stabilisation in Dec 2012, I expect rather that the network hash capacity adjusts itself. But I'm excited to see what happens nevertheless. From economic point of view, it is an interesting experiment, because we do have all kinds of data that is impossible to collect in other situations, and we know in advance when changes happen.

I think the value will continue to fluctuate as long as there are amateur speculators/"investors". Maybe they're all out of money now or learned their lesson about playing against the pros :-)
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December 13, 2011, 03:14:23 PM
 #15

this has been discussed a bunch before,  it reached the point where we had to build a calculator that explains how much money is needed to enter into the bitcoin economy.

http://www.flexcoin.com/calc/


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December 13, 2011, 03:21:30 PM
 #16

high inflation? 25% APR is tiny considering how new bitcoin is.  Most disruptive technologies fail. But the ones that don't fail, usually grow a lot faster than 25% APR in the first few years.  

Bitcoin today is not that tiny. The total market cap of Bitcoin is around 24 million dollars at this exchange rate. And the inflation is 33% not 25%.

That's tiny.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 13, 2011, 03:25:07 PM
 #17

And the inflation is 33% not 25%.

Yes, you're right.  Sorry.

So next year it will be around 25% then suddenly drop to 12.5%.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 13, 2011, 03:26:18 PM
 #18

Remember: Inflation is only one component of devaluation.  The mining inflation rate is already quite small in the current scale of value change.

explain, please.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 13, 2011, 03:28:31 PM
 #19

Isn't the inflation a good thing? Doesn't it keep the exchange rate down in the early stages so that more people can acquire some Bitcoins if they so desire? Hasn't this been discussed hundreds of times before already?

Shouldn't you understand what a ponzi scheme is and isn't before claiming, "You guys don't get it"?

Yes, indeed. The inflation rate of bitcoin is both a product of how the currency is issued as well as an inventive for miners to participate.  It's very necessary.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 13, 2011, 03:29:27 PM
 #20

And the inflation is 33% not 25%.

Yes, you're right.  Sorry.

So next year it will be around 25% then suddenly drop to 12.5%.

Wait, I thought it was going to cut the block reward in half, why is it going from 33, 25, then 12.5?  

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