Bitcoin Bubble 2012

[mobodick]

Soo..
Bitcoin doubled value in one month.
How long will this one last?
 

[ineededausername]

You call this a bubble? Well, last time it was doubling every week

[Mousepotato]

Yeah, this is far from a bubble.  We're simply recovering from 32 and still have a long way to go.

[Revalin]

Fundamentals bear here.  It's still overvalued based on current need and IMO the current rally is based on pure speculation...  IE, it's a speculative bubble.

I speculate that Bubble2 won't be as extreme or last as long as Bubble1.  I give it a few months before we hit $2.00 again.

[sgbett]

If it busts through $7 it might go to $12

However, I think we will probably need to re-test $2.20 before we start looking for new all time highs (they will come though, in time).

[bitcoinBull]

Fundamentals bear here.  It's still overvalued based on current need and IMO the current rally is based on pure speculation...  IE, it's a speculative bubble.

I speculate that Bubble2 won't be as extreme or last as long as Bubble1.  I give it a few months before we hit $2.00 again.

And whats the quantitative "fundamentals"?  I suggest looking at difficulty, which if you compare to the last time bitcoin was at $2-$5, say that its currently undervalued.

[Revalin]

Difficulty is an effect of price, not a cause.

I define the fundamental price as what is required to store sufficient value to support current commerce.  The price cannot be sustained lower since non-speculating Bitcoin users will bid it up to fill their needs.  Speculation can drive the price higher, but only as long as there is a constant influx of investment - the sum of (miners speculatively holding) + (net increase in fiat).

"Feeding the miners" (with either hope or fiat from people with hope) becomes more expensive with a rising price - at the current $5, we have to find over $1M per month of new hopes and dreams just to keep things afloat.  Getting up to $30 would require over $6M per month of influx.

So where's the floor?  Read this plus what I linked at the bottom.

tl;dr: The floor is a few cents, and a reasonable level of speculation would put us at 10x the floor - perhaps $0.50.  Any price above that requires either wild speculation (what we have now), or an increase in commerce.

Hype will get more of the former and thus a bigger, longer bubble; more people doing real commerce will cause the latter, and enable a sustainable long-term growth.  Unfortunately I see mostly the former and very little of the latter.  Until that changes, I'm keeping the bear hat on.

[bitcoinBull]

Difficulty is an effect of price, not a cause.

I define the fundamental price as what is required to store sufficient value to support current commerce. 

The relation between price and difficulty is a two-way causality.  The fact that difficulty exploded before there was even a market or price for bitcoin falsifies the one-way hypothesis.

As for a fundamental, your definition only makes sense if you assume that the utility of bitcoin is strictly supporting commerce.  I assume that the utility also includes the buying and selling of dollars, euros, etc. (speculation).  Its a value storage and transfer system; a risky asset a la gold.  Its not purely a transactional medium, its an actual commodity.

Difficutly is not a byproduct of the bitcoin.  It is the essence of the bitcoin.  But we're beating a dead bear now.

[Revalin]

Price is just a proxy for value.  Before there was a price on an exchange, there was still stored value.  It was harder to quantify, but it still conceptually existed, and would fluctuate with need.  Without even buying or selling actual goods, the demand for novelty was enough to support the very low value per coin at that time.

At $5, you need a lot more than novelty.

Yes, I'm basically modeling it as a transactional currency, and considering the store of value as one aspect of a transaction (all stored value is intended to be spent eventually).  That's basically true for now: the value is too unstable to be a reliable value store, so people seeking a transactional currency won't store much money in BTC.

That's a weakness in the model: a very large and hard to quantify part of the formula is the amount of BTC held long for speculative value.  The actual transactions are small, and the computed value can vary a lot depending how you fudge the variables.

On the other hand, that's also it's strength: any attempt to compute the value based solely on the MAIN current use of Bitcoins (as a speculation vehicle) is completely detached and self-referential, and can be used to justify any price.  Off to the moon we go.

Edit: 

But we're beating a dead bear now.

Oh, don't get me wrong.  It's going up short-term.  I just don't see it lasting for more than a few months before reality sets in again.

[bitcoinBull]

Price is just a proxy for value.  Before there was a price on an exchange, there was still stored value.  It was harder to quantify, but it still conceptually existed, and would fluctuate with need.  Without even buying or selling actual goods, the demand for novelty was enough to support the very low value per coin at that time.

At $5, you need a lot more than novelty.

Its straightforward to quantify the difficulty, matter of fact its built into the protocol.  And not coinicidentally, its mich higher now at $5.

On the other hand, that's also it's strength: any attempt to compute the value based solely on the MAIN current use of Bitcoins (as a speculation vehicle) is completely detached and self-referential, and can be used to justify any price.  Off to the moon we go.

Try computing the value using difficulty as one of the variables.  Prices at the moon are only justified if difficulty follows.  When it doesn't, there are spikes in the price:difficulty ratio, and it stays grounded at realistic prices.

[Revalin]

If the price goes up, more miners come online and boost difficulty.  If it drops, they get out because it's not worth the power and difficulty falls.

The compliment happens to a degree: if difficulty is high, some people will buy coins at the market instead of mining them, thus boosting the price.

I think the first effect completely overpowers the second, so difficulty is a lagging indicator of price.  And so far, it looks that way to me:



Do you have any evidence to the contrary?

[bitcoinBull]

If the price goes up, more miners come online and boost difficulty.  If it drops, they get out because it's not worth the power and difficulty falls.

The compliment happens to a degree: if difficulty is high, some people will buy coins at the market instead of mining them, thus boosting the price.

I think the first effect completely overpowers the second, so difficulty is a lagging indicator of price.  And so far, it looks that way to me:

Do you have any evidence to the contrary?

I said as much a long time ago:

The charts show that increases in difficulty follow increases in price.  So by this interpretation, price is the leading indicator and difficulty is the lagging indicator.  Leading indicators tend to be more volatile, so when the lagging indicator follows the rise of the leading, it confirms the strength of the rise.

[Revalin]

Good, we're on the same page, then.

I look at it like an SMA with some upward bias: after the price levels off at bottom an SMA will keep falling, whereas difficulty goes flat quicker (some miners keep mining even when somewhat unprofitable); when the price then goes up a level SMA will start turning up quickly whereas the difficulty lags a bit more (a few miners are willing to start when it's less-unprofitable, but most wait until the price goes high enough to make profit at a difficulty level).

In the end, it's just a lagging indicator of price, just with some extra factors thrown in ($/kW, MH/J, miners' inertia to start or stop mining, available MHps offline after a price drop, the $/MHps for new hardware) that aren't relevant to the fundamental value of a coin.

So for pricing purposes, how is it any more enlightening than an SMA45?

[sunnankar]

Do you have any evidence to the contrary?

You both seem to be off in the weeds arguing a logical fallacy concerning correlation and causation.

Ludwig von Mises:

There are, in the field of economics, no constant relations, and consequently no measurement is possible. If a statistician determines that a rise of 10 percent in the supply of potatoes in Atlantis at a definite time was followed by a fall of 8 percent in the price, he does not establish anything about what happened or may happen with a change in the supply of potatoes in another country or in another time. He has not "measured" the "elasticity of demand" of potatoes. He has established a unique individual historical fact. No intelligent man can doubt that the behavior of men with regard to potatoes and every other commodity is variable. Different individuals value the same things in a different way, and valuations change with the same individuals with changing conditions. . . .The impracticability of measurement is not due to the lack of technical methods for the establishment of measure. It is due to the absence of constant relations.

[kjj]

Do you have any evidence to the contrary?

You both seem to be off in the weeds arguing a logical fallacy concerning correlation and causation.

Ludwig von Mises:

There are, in the field of economics, no constant relations, and consequently no measurement is possible. If a statistician determines that a rise of 10 percent in the supply of potatoes in Atlantis at a definite time was followed by a fall of 8 percent in the price, he does not establish anything about what happened or may happen with a change in the supply of potatoes in another country or in another time. He has not "measured" the "elasticity of demand" of potatoes. He has established a unique individual historical fact. No intelligent man can doubt that the behavior of men with regard to potatoes and every other commodity is variable. Different individuals value the same things in a different way, and valuations change with the same individuals with changing conditions. . . .The impracticability of measurement is not due to the lack of technical methods for the establishment of measure. It is due to the absence of constant relations.

This should be tattooed on the hand of any person that is about to speak authoritatively about economics.  Teachers, TV news fodder, drunks in bars, internet idiots, etc.

[cypherdoc]

Do you have any evidence to the contrary?

You both seem to be off in the weeds arguing a logical fallacy concerning correlation and causation.

Ludwig von Mises:

There are, in the field of economics, no constant relations, and consequently no measurement is possible. If a statistician determines that a rise of 10 percent in the supply of potatoes in Atlantis at a definite time was followed by a fall of 8 percent in the price, he does not establish anything about what happened or may happen with a change in the supply of potatoes in another country or in another time. He has not "measured" the "elasticity of demand" of potatoes. He has established a unique individual historical fact. No intelligent man can doubt that the behavior of men with regard to potatoes and every other commodity is variable. Different individuals value the same things in a different way, and valuations change with the same individuals with changing conditions. . . .The impracticability of measurement is not due to the lack of technical methods for the establishment of measure. It is due to the absence of constant relations.

Trace Mayer or Bill Rounds?

Welcome to the World of the Gold/Silver Replacement:  Bitcoin.

edit:  don't miss this ramp Trace.  this time it isn't coming back.

[Revalin]

Your quote is about the fact that the market is too complicated to model accurately, and too fleeting to easily test a theory with any respectable degree of scientific rigor.  I entirely agree - it's very hard to show causation when any given correlation could be the side effect of a near-infinite supply of other factors.

Nonetheless, it is not a logical fallacy to suggest that there are causative relationships in the market.  They're there!  They're just hard to prove.  The best we can do is theorize, then see how well our theories predict the future.  That's the whole basis of analysis.

Difficulty clearly correlates strongly with price.  It's not direct due to all the other factors I mentioned, but there is a causative relationship somewhere in there.

[sunnankar]

I entirely agree - it's very hard to show causation when any given correlation could be the side effect of a near-infinite supply of other factors.

Nonetheless, it is not a logical fallacy to suggest that there are causative relationships in the market.  They're there!  They're just hard to prove.  The best we can do is theorize, then see how well our theories predict the future.  That's the whole basis of analysis.

Difficulty clearly correlates strongly with price.  It's not direct due to all the other factors I mentioned, but there is a causative relationship.

Post hoc ergo propter hoc. I am going to isolate the relevant sentences and bold the key part so you can read and hopefully understand since you missed it the first time.

Different individuals value the same things in a different way, and valuations change with the same individuals with changing conditions. . . .The impracticability of measurement is not due to the lack of technical methods for the establishment of measure. It is due to the absence of constant relations.

We are talking about economics with human action and not physics. But I will concede that despite the complexities and unknowables we can know something and from that something derive tendencies.

[cypherdoc]

I entirely agree - it's very hard to show causation when any given correlation could be the side effect of a near-infinite supply of other factors.

Nonetheless, it is not a logical fallacy to suggest that there are causative relationships in the market.  They're there!  They're just hard to prove.  The best we can do is theorize, then see how well our theories predict the future.  That's the whole basis of analysis.

Difficulty clearly correlates strongly with price.  It's not direct due to all the other factors I mentioned, but there is a causative relationship.

Post hoc ergo propter hoc. I am going to isolate the relevant sentences and bold the key part so you can read and hopefully understand since you missed it the first time.

Different individuals value the same things in a different way, and valuations change with the same individuals with changing conditions. . . .The impracticability of measurement is not due to the lack of technical methods for the establishment of measure. It is due to the absence of constant relations.

We are talking about economics with human action and not physics. But I will concede that despite the complexities and unknowables we can know something and from that something derive tendencies.

spoken like a lawyer.  probably Bill.  welcome.

[sunnankar]

spoken like a lawyer.

All the lawyers disappeared.

The National Lawyers Guild adds its voice to the many others who oppose this legislation (NDAA). Our opposition is not based solely on the fact that this bill allows indefinite detention of US citizens and residents or that the presumed “battlefield” encompasses the entire globe. We oppose indefinite detention without trial because it is immoral and cruel and because it violates the U.S. Constitution and international law.

The NDAA was signed into law. The BTC price in USD went up. Therefore, when legislation is signed into law the price of BTC in USD goes up.