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Author Topic: Warning to the bulls...  (Read 7271 times)
proudhon
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January 05, 2012, 05:10:27 PM
 #101

Bitcoin is a fantastic, world-changing technology. But a few people are getting WAY ahead of themselves. The price of a bitcoin cannot be supported by wishes and dreams. In the end, the market will decide a price that is reflective of the underlying bitcoin economy. Bitcoin can be used as a viable trade medium at any price, granted, but at the same time it will not, and cannot, be held artificially afloat for long.


That's not what i'm seing.
The BC economy is much smaller than the action on the exchanges.
So the actual influence of the economy will be smaller and basicly bitcoin is played by speculators.
And miners, which produce bitcoin.
The economy just tags along. They had to deal with sub-1 prices, they had to deal with 30+ prices and then back to 2 and now 5 again.
That price is not driven by the sales of goos or services for bitcoin. It's way too unpredictable for that.
If you see a rally on the exchanges it is not because people spend bitcoin in shops. It is purely people speculating or dumping their mined coins. Those are the real factors in the price.
I have been unable to find back the effects of the 'economy' (goods/services) on bitcoin pricing.
But sentiment and speculation trends are easy to find.
So, in fact, bitcoin has been supported by wishes and dreams all along.
Smiley


This^

Market speculation will necessarily be many multiples of 'spending'... I have tried to explain this. It is not an aberration, it is how currencies work. M0 will always be a fraction of M2.

Glad that there's at least a couple of people who share my view.  To look for an "underlying economy" of merchants is looking at the thing upside-down.  Just as with dollars, the volume of speculative exchange far exceeds the volume of commercial trade (trillions each day in Forex, while real GDP is only trillions each year).  And that's with a "real currency".

What if bitcoin is, as that Wired article suggests, a "meta-currency".  The term implies that its primary use will be as a go-between for the real-world currencies.  Price is determined by speculation, which then forms the base for commerce.  Again, speculation supports commerce, not the other way around.  The volume of commerce is just a fraction of the bitcoin economy, which is the huge exchange volume (speculative or otherwise) staring everyone in the face.

Is there any reason or historical precedent that the commerce should come before the speculation?  That seems backwards.  Which came first: that bullion became valuable because it could be used to buy things, or that bullion could be used to be used to buy things because its inherent properties were conducive to storing value?

Yup. This is why we won't see Bitcoin taken seriously until it can manage sustained exchange rates above $50/BTC. Because without that you can not make even reasonably large purchases without causing a liquidity crisis. Trading has to be many multiplies of 'spending' volume or 'spending' will result in wild swings in the exchange rate. If folks want to see a 'stable' Bitcoin (i.e. highly correlated to other currencies) there will first have to be trading volume to support a minimum exchange rate of $50. That means Bitcoin can be a billion dollar market... Without that, it's a niche curiosity.

The other advantage of a high price per BTC is that it weeds out small time manipulators. If each BTC is worth upwards of $50, manipulating the market becomes a much more expensive proposition. Not impossible, by any means, but only within reach of those able to manage large sums of money.

Seems like manipulating the price down would be pretty easy for those people with many tens of thousands of bitcoins.

True, and if that was the case with very early adopters, it would make sense. Or, for that matter, for anyone who suddenly found themselves in possession of huge quantities of BTC (i.e. the allinvain or mybitcoin theft). But it would make very little sense for someone who has either mined or hoarded to dump extremely large amounts into the market, IF the price per BTC is as high as that.

My point is that higher prices actually dampen the ability to manipulate in either direction. If I own 100K BTC, and the price is at $50, I have little incentive to dump them all at once (unless I want to buy myself a mansion), when smaller sales will satisfy my needs and maintain the value on the BTC that remain.

I understand what you're saying but I think you're failing to take into account the worry that somebody else might dump enough bitcoins to significantly reduce your purchase power.  So, you might think, you would want to do it before they do.
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January 05, 2012, 05:42:57 PM
 #102

Bitcoin is a fantastic, world-changing technology. But a few people are getting WAY ahead of themselves. The price of a bitcoin cannot be supported by wishes and dreams. In the end, the market will decide a price that is reflective of the underlying bitcoin economy. Bitcoin can be used as a viable trade medium at any price, granted, but at the same time it will not, and cannot, be held artificially afloat for long.


That's not what i'm seing.
The BC economy is much smaller than the action on the exchanges.
So the actual influence of the economy will be smaller and basicly bitcoin is played by speculators.
And miners, which produce bitcoin.
The economy just tags along. They had to deal with sub-1 prices, they had to deal with 30+ prices and then back to 2 and now 5 again.
That price is not driven by the sales of goos or services for bitcoin. It's way too unpredictable for that.
If you see a rally on the exchanges it is not because people spend bitcoin in shops. It is purely people speculating or dumping their mined coins. Those are the real factors in the price.
I have been unable to find back the effects of the 'economy' (goods/services) on bitcoin pricing.
But sentiment and speculation trends are easy to find.
So, in fact, bitcoin has been supported by wishes and dreams all along.
Smiley


This^

Market speculation will necessarily be many multiples of 'spending'... I have tried to explain this. It is not an aberration, it is how currencies work. M0 will always be a fraction of M2.

Glad that there's at least a couple of people who share my view.  To look for an "underlying economy" of merchants is looking at the thing upside-down.  Just as with dollars, the volume of speculative exchange far exceeds the volume of commercial trade (trillions each day in Forex, while real GDP is only trillions each year).  And that's with a "real currency".

What if bitcoin is, as that Wired article suggests, a "meta-currency".  The term implies that its primary use will be as a go-between for the real-world currencies.  Price is determined by speculation, which then forms the base for commerce.  Again, speculation supports commerce, not the other way around.  The volume of commerce is just a fraction of the bitcoin economy, which is the huge exchange volume (speculative or otherwise) staring everyone in the face.

Is there any reason or historical precedent that the commerce should come before the speculation?  That seems backwards.  Which came first: that bullion became valuable because it could be used to buy things, or that bullion could be used to be used to buy things because its inherent properties were conducive to storing value?

Yup. This is why we won't see Bitcoin taken seriously until it can manage sustained exchange rates above $50/BTC. Because without that you can not make even reasonably large purchases without causing a liquidity crisis. Trading has to be many multiplies of 'spending' volume or 'spending' will result in wild swings in the exchange rate. If folks want to see a 'stable' Bitcoin (i.e. highly correlated to other currencies) there will first have to be trading volume to support a minimum exchange rate of $50. That means Bitcoin can be a billion dollar market... Without that, it's a niche curiosity.

The other advantage of a high price per BTC is that it weeds out small time manipulators. If each BTC is worth upwards of $50, manipulating the market becomes a much more expensive proposition. Not impossible, by any means, but only within reach of those able to manage large sums of money.

Seems like manipulating the price down would be pretty easy for those people with many tens of thousands of bitcoins.

True, and if that was the case with very early adopters, it would make sense. Or, for that matter, for anyone who suddenly found themselves in possession of huge quantities of BTC (i.e. the allinvain or mybitcoin theft). But it would make very little sense for someone who has either mined or hoarded to dump extremely large amounts into the market, IF the price per BTC is as high as that.

My point is that higher prices actually dampen the ability to manipulate in either direction. If I own 100K BTC, and the price is at $50, I have little incentive to dump them all at once (unless I want to buy myself a mansion), when smaller sales will satisfy my needs and maintain the value on the BTC that remain.

I understand what you're saying but I think you're failing to take into account the worry that somebody else might dump enough bitcoins to significantly reduce your purchase power.  So, you might think, you would want to do it before they do.

Agreed, that's why there are runs on stock exchanges and banks... but in reality there hasn't been a run on a bank in a long time (in Europe or North America at least, South America had them in 2001).

It will always be possible to manipulate any market, provided you have the right amounts of resources. But as the price of BTC climbs, the small time manipulators will be weeded out.

And again I ask what I asked back in July: what would've been the impact on the US and world economy if the NYSE had been hacked and every share sold at its rock-bottom price? Or if most of the big banks had been hacked? That was the equivalent of the MtGox hack in June.

Some say we will always have scandals. But that's a bit like saying we will always have airplane crashes... it's true, but it doesn't tell the whole story. I can say quite confidently that there will be an airplane crash that will take dozens of lives in the next year. But to say that because of that aviation is as unsafe now as it was in the 1930's would be more than a bit misguided.
proudhon
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January 05, 2012, 06:01:26 PM
 #103

Bitcoin is a fantastic, world-changing technology. But a few people are getting WAY ahead of themselves. The price of a bitcoin cannot be supported by wishes and dreams. In the end, the market will decide a price that is reflective of the underlying bitcoin economy. Bitcoin can be used as a viable trade medium at any price, granted, but at the same time it will not, and cannot, be held artificially afloat for long.


That's not what i'm seing.
The BC economy is much smaller than the action on the exchanges.
So the actual influence of the economy will be smaller and basicly bitcoin is played by speculators.
And miners, which produce bitcoin.
The economy just tags along. They had to deal with sub-1 prices, they had to deal with 30+ prices and then back to 2 and now 5 again.
That price is not driven by the sales of goos or services for bitcoin. It's way too unpredictable for that.
If you see a rally on the exchanges it is not because people spend bitcoin in shops. It is purely people speculating or dumping their mined coins. Those are the real factors in the price.
I have been unable to find back the effects of the 'economy' (goods/services) on bitcoin pricing.
But sentiment and speculation trends are easy to find.
So, in fact, bitcoin has been supported by wishes and dreams all along.
Smiley


This^

Market speculation will necessarily be many multiples of 'spending'... I have tried to explain this. It is not an aberration, it is how currencies work. M0 will always be a fraction of M2.

Glad that there's at least a couple of people who share my view.  To look for an "underlying economy" of merchants is looking at the thing upside-down.  Just as with dollars, the volume of speculative exchange far exceeds the volume of commercial trade (trillions each day in Forex, while real GDP is only trillions each year).  And that's with a "real currency".

What if bitcoin is, as that Wired article suggests, a "meta-currency".  The term implies that its primary use will be as a go-between for the real-world currencies.  Price is determined by speculation, which then forms the base for commerce.  Again, speculation supports commerce, not the other way around.  The volume of commerce is just a fraction of the bitcoin economy, which is the huge exchange volume (speculative or otherwise) staring everyone in the face.

Is there any reason or historical precedent that the commerce should come before the speculation?  That seems backwards.  Which came first: that bullion became valuable because it could be used to buy things, or that bullion could be used to be used to buy things because its inherent properties were conducive to storing value?

Yup. This is why we won't see Bitcoin taken seriously until it can manage sustained exchange rates above $50/BTC. Because without that you can not make even reasonably large purchases without causing a liquidity crisis. Trading has to be many multiplies of 'spending' volume or 'spending' will result in wild swings in the exchange rate. If folks want to see a 'stable' Bitcoin (i.e. highly correlated to other currencies) there will first have to be trading volume to support a minimum exchange rate of $50. That means Bitcoin can be a billion dollar market... Without that, it's a niche curiosity.

The other advantage of a high price per BTC is that it weeds out small time manipulators. If each BTC is worth upwards of $50, manipulating the market becomes a much more expensive proposition. Not impossible, by any means, but only within reach of those able to manage large sums of money.

Seems like manipulating the price down would be pretty easy for those people with many tens of thousands of bitcoins.

True, and if that was the case with very early adopters, it would make sense. Or, for that matter, for anyone who suddenly found themselves in possession of huge quantities of BTC (i.e. the allinvain or mybitcoin theft). But it would make very little sense for someone who has either mined or hoarded to dump extremely large amounts into the market, IF the price per BTC is as high as that.

My point is that higher prices actually dampen the ability to manipulate in either direction. If I own 100K BTC, and the price is at $50, I have little incentive to dump them all at once (unless I want to buy myself a mansion), when smaller sales will satisfy my needs and maintain the value on the BTC that remain.

I understand what you're saying but I think you're failing to take into account the worry that somebody else might dump enough bitcoins to significantly reduce your purchase power.  So, you might think, you would want to do it before they do.

Agreed, that's why there are runs on stock exchanges and banks... but in reality there hasn't been a run on a bank in a long time (in Europe or North America at least, South America had them in 2001).

It will always be possible to manipulate any market, provided you have the right amounts of resources. But as the price of BTC climbs, the small time manipulators will be weeded out.

And again I ask what I asked back in July: what would've been the impact on the US and world economy if the NYSE had been hacked and every share sold at its rock-bottom price? Or if most of the big banks had been hacked? That was the equivalent of the MtGox hack in June.

Some say we will always have scandals. But that's a bit like saying we will always have airplane crashes... it's true, but it doesn't tell the whole story. I can say quite confidently that there will be an airplane crash that will take dozens of lives in the next year. But to say that because of that aviation is as unsafe now as it was in the 1930's would be more than a bit misguided.

I'm impressed by the security of MtGox since the hack, and overall I think the infrastructure has come a long way.  There's still a ways to go, however.  Though, if major hacks like what we saw in 2011 can be avoided from here on out, I think trust can be rebuilt.  I can see the case for fewer and fewer of these large dumps, even if I'm skeptical.  If trust in the system is high enough, and bitcoin can be used to buy more and more of the things people want, then there won't be a reason to liquidate as much and as often.
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January 05, 2012, 06:05:48 PM
 #104

Bitcoin won't reach much higher until the multisig stuff is widely used.  Only then will it be safe enough for the average windows user.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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notme
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January 05, 2012, 06:23:08 PM
 #105

Bitcoin won't reach much higher until the multisig stuff is widely used.  Only then will it be safe enough for the average windows user.

As a 'meta currency' it doesn't even have to be accessible to the average windows user.

Think SWIFT.

Good point.  There are lots of uses outside where users don't need to hold bitcoins.  I still see issues however since the media will hype it again and normal people will be using it and will have coins stolen.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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January 05, 2012, 06:59:12 PM
 #106

Average growth since earliest pricing data for Mt. Gox from Bitcoin Charts is about 8.6% per week.

Reversion to the mean in relation to growth rates suggests a valuation of USD$28 per BTC. Even at a reduced 5% growth since the 2011 bubble puts the exchange rate at $10.

Nothing trades in a straight line; corrections will occur. With average inflow of ~$1.5mm per week and only ~$300k needed to maintain a stable price (the last time inflow was below $300k was in mid-April 2011, just before the bubble), a decline in price is extremely unlikely.

The reasons for Bitcoin adoption are not easily seen from within the system, but by looking outside at the declining incentives to hold other classes of assets. Currencies such as USD are overvalued and fundamentally unstable - for $300k/wk to flow into an alternative like Bitcoin hardly even registers.

It's good to acknowledge the data, but it must be applied in proper context: Bitcoin is not of a magnitude where capital flow is comparable to established economies; it is far more likely that a few drops from the global economy will send the exchange rates on a moonshot than current wealth be divested from the Bitcoin system.
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January 07, 2012, 01:50:18 PM
 #107

What if bitcoin is, as that Wired article suggests, a "meta-currency".  The term implies that its primary use will be as a go-between for the real-world currencies.  Price is determined by speculation, which then forms the base for commerce.  Again, speculation supports commerce, not the other way around.  The volume of commerce is just a fraction of the bitcoin economy, which is the huge exchange volume (speculative or otherwise) staring everyone in the face.

I generally agree with your sentiment, but this statement makes no sense. What the heck is a "meta-currency"? IMO, the Wired guy who invented the term doesn't know himself. Generally, the article is an abomination, I'd be too ashamed to leave the house again after writing such nonsense. Genjix wrote a nice blog post on it, still too nice in my opinion though, but it saved me the hassle of typing rage-posts.

Anyway: by the given reasoning, the USD is one hell of a "meta-currency". Almost everyone uses it to quickly exchange into something else.
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January 07, 2012, 03:02:03 PM
 #108

What if bitcoin is, as that Wired article suggests, a "meta-currency".  The term implies that its primary use will be as a go-between for the real-world currencies.  Price is determined by speculation, which then forms the base for commerce.  Again, speculation supports commerce, not the other way around.  The volume of commerce is just a fraction of the bitcoin economy, which is the huge exchange volume (speculative or otherwise) staring everyone in the face.

I generally agree with your sentiment, but this statement makes no sense. What the heck is a "meta-currency"? IMO, the Wired guy who invented the term doesn't know himself. Generally, the article is an abomination, I'd be too ashamed to leave the house again after writing such nonsense. Genjix wrote a nice blog post on it, still too nice in my opinion though, but it saved me the hassle of typing rage-posts.

Anyway: by the given reasoning, the USD is one hell of a "meta-currency". Almost everyone uses it to quickly exchange into something else.

Like I said, if bitcoin becomes dominant then it will be the preferred go-between for real-world currencies and any other e-currencies.  "meta-currency" = currency of currencies.

As for USD, the "given reasoning" you quoted was my reasoning for why the speculative economy of bitcoin is a good thing that enables commerce, not an evil which prevents it.  Even though the dollar is obviously the dominant currency at present, I don't think I need to bother going through the list of reasons it makes a terrible meta-currency (and compare them to properties of bitcoin which make it a great one).

I completely agree with genjix's response to the wired article, though I do object to his saying that "meta-currency" makes no sense.  I guess he flamed it because it seemed to pooh-pooh bitcoin, even though the mere suggestion that bitcoin could replace Western Union IMO still recognizes its phenomenally disruptive potential.  I'd say that makes the tone of genjix's response a little too mean.  The article even suggests replacing wire transfers too (SWIFT like chodpaba mentioned above).  If genjix wouldn't have defensively overreacted, he might realize that "meta-currency" is a pretty good term for describing the revolutionary difference of bitcoin.  Its way better than the simple "currency" as in "yet another currency".

Matter of fact, even though he said the term is meaningless, I'm going to add genjix to the "bitcoin is a meta-currency and speculation is good for commerce" club.  What he said right afterwards shows that in fact he does think of bitcoin as a meta-currency.  Of course, if he or anyone else can come up with a better term then I'd love to hear it.

Quote
Likewise, if bitcoins are useful for buying foreign currency or buying online services, then at some point you will need to be holding bitcoins. That interlude when you have aquired bitcoins will be when you spend them in the general economy.

I know what the author is trying to get at- that nobody would ever what to hold bitcoins because the price is volatile and that the only use for bitcoin ever is as a service for changing money. That’s all.

What the author fails to realise is this: market volatility is a consequence of bitcoin being small, and if the economy booms due to people using bitcoin as a forex tool then the volatility would disappear suddenly. If market trading became more professional then we would see arbitrage and professional speculation.


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January 08, 2012, 07:15:48 AM
 #109

Average growth since earliest pricing data for Mt. Gox from Bitcoin Charts is about 8.6% per week.

Reversion to the mean in relation to growth rates suggests a valuation of USD$28 per BTC. Even at a reduced 5% growth since the 2011 bubble puts the exchange rate at $10.

Nothing trades in a straight line; corrections will occur. With average inflow of ~$1.5mm per week and only ~$300k needed to maintain a stable price (the last time inflow was below $300k was in mid-April 2011, just before the bubble), a decline in price is extremely unlikely.

The reasons for Bitcoin adoption are not easily seen from within the system, but by looking outside at the declining incentives to hold other classes of assets. Currencies such as USD are overvalued and fundamentally unstable - for $300k/wk to flow into an alternative like Bitcoin hardly even registers.

It's good to acknowledge the data, but it must be applied in proper context: Bitcoin is not of a magnitude where capital flow is comparable to established economies; it is far more likely that a few drops from the global economy will send the exchange rates on a moonshot than current wealth be divested from the Bitcoin system.

This post is #1 in the running for my brand-new "Best Post on Bitcointalk.org of All Time" award.

... prize yet to be deterMined

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