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Author Topic: Warning! Please don't create another bubble!  (Read 4450 times)
Shuai
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January 02, 2012, 08:01:29 PM
 #1

Hey everyone,

This is a very important warning that I hope people will understand and take seriously.

Many people probably think that Bitcoin is finally "doing great", fueled by the popular media that constantly judges Bitcoins viability on its fiat exchange rate, and is now talking about the "comeback of Bitcoin". As many of you probably already know, the exchange rate means very little for Bitcoins viability as a currency, other than total liquidity of the system. The thing that truly decides whether Bitcoin is doing good or doing bad is the amount of trade being conducted with it.

As compared to when bitcoin was at 2 USD there has not been any increase in trade, and no new businesses or services that are attracting more bitcoin trade than usual have opened up. Because of this, the real value of the bitcoin economy has not increased. The only thing causing the upsurge in price again, are greedy people who are speculating that prices will rise even further in the future. This is how you create a bubble, and that's what is currently happening.

I know it's really hard for the people who are currently drunk with greed from their short term success (that is, if they're able to sell fast enough once the bubble bursts again). But please understand that even you, as a selfish trader and speculator, are NOT benefitting from creating another short term bubble. You might make a bunch of money in the short term (although with a huge risk associated with this profit). BUT! the new bubble is going to severely hurt all businesses using bitcoin, and thus will be extremely harmful to the bitcoin economy as a whole.

My company is currently running all its international transfers and payments to china in Bitcoin. Because of the immense advantages that bitcoin offers in business situations like this, I have been able to convince my partners to accept and use the currency. However, this has obviously only been possible since bitcoin became relatively stable at around 2 dollars. Now, with the rising prices, which are also seen in China, they are of course even more interested in getting hold of more bitcoins, and that's also great in theory.

The fact that Bitcoin is being used in a way such as this is also itself immensely benefitting to the Bitcoin market cap (which is what you speculators care about), of course im not making much of a difference on my own, but if the bitcoin price were allowed to be stable for a longer period of time, many more businesses that, like mine, operate out of several different countries would switch over for sure, ensuring a slow but steady, long term, healthy increase in bitcoin price.

What is going to happen instead is that the moment this new bubble bursts I will have to cease all trading with Bitcoins. There's no way I can give a rapidly depreciating currency to my partners. I would lose all credibility if my payment had lost 20% of its value after a few days. The only way I could continue to use bitcoins is if I overpaid the price by an amount so large a sudden 20% fall of the value of bitcoin wouldn't mean a loss for the the person im paying. And this is of course impossible to do profitably, and totally overshadows any of the advantages bitcoins have.

Bitcoin has enormous potential as a medium of exchange in international business, and could eventually raise to incredibly high prices, but you speculators are ruining your own long term profits by creating another short term bubble that is going to deter traders, and greatly harm the bitcoin economy as a whole.

What I'm trying to say is, I know you're a trader and don't care about much other than making profits. But even though your greed tells you to buy into the bubble now, and sell at the peak, it WILL be much more profitable for you in the long term if you let prices cool and not raise any further.
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Yankee (BitInstant)
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January 02, 2012, 08:11:18 PM
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As compared to when bitcoin was at 2 USD there has not been any increase in trade, and no new businesses or services that are attracting more bitcoin trade than usual have opened up. Because of this, the real value of the bitcoin economy has not increased. The only thing causing the upsurge in price again, are greedy people who are speculating that prices will rise even further in the future. This is how you create a bubble, and that's what is currently happening.


No, your absolutely incorrect.

Whilst I agree we need to protect ourselves from over speculation which could induce a bubble, your above statement leads to me to believe you have no idea what your talking about (I wont hold your low post count against you)

Your first point of no increase in trade, just by looking at the charts linked below, your statement is a total fallacy.
http://bitcoincharts.com/charts/mtgoxUSD#rg150ztgSzm1g10zm2g25zv
http://bitcoincharts.com/charts/thUSD#rg150ztgSzm1g10zm2g25zv

Cant you see how much trading volume has grown in the past 5 months?

Your second point "and no new businesses or services that are attracting more bitcoin trade than usual have opened up" is personally insulting.

In the past 5 days since we launched Instant Bank Cash Deposits @ BitInstant, we've seen over 30k USD in cash deposits- ONLY in cash deposits.
Since we've launched, we've transferred over $1.2m USD. 40% being first time Bitcoin buyers
Are you really gonna sit here and claim "The only thing causing the upsurge in price again, are greedy people who are speculating that prices will rise even further in the future"

I can leave it at that, because I know the hundreds of Bitcoin business owners will be replying to this post to defend their accomplishments.

Thus, I conclude while I agree we should avoid a bubble- you should also avoid statements that you cannot back up for factual evidence and proof.

Bitcoin pioneer. An apostle of Satoshi Nakamoto. A crusader for a new, better, tech-driven society. A dreamer.

More about me: http://CharlieShrem.com
kokjo
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You are WRONG!


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January 02, 2012, 08:12:00 PM
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if you don't want the bubble: don't buy bitcoin.

but i will buy mine Tongue

"The whole problem with the world is that fools and fanatics are always so certain of themselves and wiser people so full of doubts." -Bertrand Russell
Shuai
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January 02, 2012, 08:21:20 PM
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As compared to when bitcoin was at 2 USD there has not been any increase in trade, and no new businesses or services that are attracting more bitcoin trade than usual have opened up. Because of this, the real value of the bitcoin economy has not increased. The only thing causing the upsurge in price again, are greedy people who are speculating that prices will rise even further in the future. This is how you create a bubble, and that's what is currently happening.


No, your absolutely incorrect.

Whilst I agree we need to protect ourselves from over speculation which could induce a bubble, your above statement leads to me to believe you have no idea what your talking about (I wont hold your low post count against you)

Your first point of no increase in trade, just by looking at the charts linked below, your statement is a total fallacy.
http://bitcoincharts.com/charts/mtgoxUSD#rg150ztgSzm1g10zm2g25zv
http://bitcoincharts.com/charts/thUSD#rg150ztgSzm1g10zm2g25zv

Cant you see how much trading volume has grown in the past 5 months?

Your second point "and no new businesses or services that are attracting more bitcoin trade than usual have opened up" is personally insulting.

In the past 5 days since we launched Instant Bank Cash Deposits @ BitInstant, we've seen over 30k USD in cash deposits- ONLY in cash deposits.
Since we've launched, we've transferred over $1.2m USD. 40% being first time Bitcoin buyers
Are you really gonna sit here and claim "The only thing causing the upsurge in price again, are greedy people who are speculating that prices will rise even further in the future"

I can leave it at that, because I know the hundreds of Bitcoin business owners will be replying to this post to defend their accomplishments.

Thus, I conclude while I agree we should avoid a bubble- you should also avoid statements that you cannot back up for factual evidence and proof.


First of all, this was in no way an attempt at attacking bitcoin businesses or saying that they don't exist etc.

Perhaps the bitcoin economy has increased, but what I'm saying is that there has not been anywhere near a 250% upsurge in intra-bitcoin trade since the price was at $2.

You're right theres increased volume on the exchanges, and the price of bitcoin has been increasing. But this says nothing about the state of the bitcoin economy, it literally means nothing because this is all people buying bitcoin for speculative purposes, because thats pretty much the only thing you can do with bitcoin at the moment. You cannot spend $1.2 million dollars worth of bitcoin on anything meaningful currently.

A chart that would mean something is the number of transactions, but blockchain.info is currently inaccesible (at least for me) so i cant provide it here at the moment. But you would see that there hasn't been a significant increase in number of transactions, and most of them are probably attributed to speculation either way.
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January 02, 2012, 08:24:40 PM
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if you don't want the bubble, sell when the price is increasing and buy when the price is decreasing.

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January 02, 2012, 08:26:58 PM
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What a stupid call to action... Smiley

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January 02, 2012, 08:30:29 PM
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Explain to your Chinese partners about your thoughts on the dangers of another bitcoin bubble and the possible sudden decrease in bitcoin value so they can decide if they want to hold bitcoin or exchange it to Yuan or whatever. They can decide if they want to take the risk of holding bitcoin or not. If you or they don't want the exchange risk then just buy and sell bitcoins only when you need them/as soon as you receive them.
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January 02, 2012, 08:48:51 PM
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caveat emptor

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January 02, 2012, 08:51:40 PM
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Perhaps the bitcoin economy has increased, but what I'm saying is that there has not been anywhere near a 250% upsurge in intra-bitcoin trade since the price was at $2.


Perhaps the intrinsic value was higher then $2 but do to volatility it was just a good deal at the time? 

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January 02, 2012, 08:55:12 PM
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You simply must explain to them that there will be huge fluctuations in the value of the coins, we are going to se quite a few bubbles before things start to calm down, and there is no way for any of us to change that. It might take 5-15 years before things calm down.


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January 02, 2012, 08:59:52 PM
 #11

I bet the fluctuations will be heavily muted.  I'm not worried one bit.

People throwing money into Bitcoins are already much more aware of the risk they're taking than they did in June.  In June, people felt there was only one way to go - up.  Now everyone is well tuned into the fact that the market delivering a swift and harsh punishment is not out of the question.

The more the price goes up, the more people holding them will say, "Shit, I better sell these while I'm ahead, before it plummets again".  That very thought is what will prevent the bubble and keep the price in equilibrium.

I also wouldn't worry much about holding BTC.  The media is already chiming on that they're useful, that the dangers can be protected against, and that this is something that'll probably stick around for quite a while.  A new worm or trojan that steals wallets or mines bitcoins isn't going to shock anybody anymore.  To me, this is an excellent time to be acquiring BTC.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper wallets instead.
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January 02, 2012, 09:20:40 PM
 #12

OP has a point. Grownup people hopefully behave responsibly and think somewhat long-term.  I for one have stopped "promoting" Bitcoin to my friends. I think developers and startup businesses need to focus on infrastructure, idiot-proof clients, security, etc. before it's time to start offering Bitcoin as a solution to this-or-that.

Bursting bubbles mostly bring about negative attention in the media and alienate potential future adopters.



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Your mining rig is on fire, yet you're very calm.
Shuai
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January 02, 2012, 09:35:48 PM
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You simply must explain to them that there will be huge fluctuations in the value of the coins, we are going to se quite a few bubbles before things start to calm down, and there is no way for any of us to change that. It might take 5-15 years before things calm down.



 I am of course explaining that to them.

And I know the fluctuations are unavoidable, but the way to avoid them in the first place is by having a healthy bitcoin economy that relies on real trade rather than USD to BTC speculation.

I am trying to explain to everyone who currently are buying bitcoin in the hopes of getting rich off it would be much more profitable if they instead let the market cool and thus will not make the next fluctuation as violent as the last one.

Bitcoin is viable right now as a means of exchange internationally, but only in the brief periods of stability such as these last two months. But this sudden short term price increase will harm that viability once it bursts again.
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January 02, 2012, 09:46:54 PM
 #14

OMG!

They're trying to stop the bubble! 

SELL! SELL! SELL! 

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January 02, 2012, 09:48:12 PM
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Now, with the rising prices, which are also seen in China, they are of course even more interested in getting hold of more bitcoins, and that's also great in theory.

Sounds like a self-reinforcing market.  Price goes up which rewards the businesses that accept them, which encourages them to seek more trade using bitcoins.  Problem?

What is going to happen instead is that the moment this new bubble bursts I will have to cease all trading with Bitcoins. There's no way I can give a rapidly depreciating currency to my partners. I would lose all credibility if my payment had lost 20% of its value after a few days.

If price stability is an important factor, bitcoins received can be moved to an exchange and converted to USDs within minutes after receipt.  At some point there will be  options and other derivatives that will provide the ability to hedge and lessen exchange rate risk without having to immediately (or ever) convert out of bitcoins.

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January 02, 2012, 09:54:05 PM
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Yes! Don't create a bubble! Sell all your BTC now, cheap please! Thanks.

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January 02, 2012, 09:58:15 PM
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If price stability is an important factor, bitcoins received can be moved to an exchange and converted to USDs within minutes after receipt.  At some point there will be  options and other derivatives that will provide the ability to hedge and lessen exchange rate risk without having to immediately (or ever) convert out of bitcoins.

If I want to receive BTC but don't want to hold them - I'll give out a MtGox address as my receiving address, and leave a sell order open that cannot execute due to insufficient BTC.  At the earliest moment possible, my BTC's will be auto-sold.  Problem solved.

Oh, by the way... if BTC's somehow make it down to $2 again, I will probably drop another $100k on them.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper wallets instead.
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January 02, 2012, 10:03:28 PM
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Quote
What is going to happen instead is that the moment this new bubble bursts I will have to cease all trading with Bitcoins. There's no way I can give a rapidly depreciating currency to my partners. I would lose all credibility if my payment had lost 20% of its value after a few days.

If price stability is an important factor, bitcoins received can be moved to an exchange and converted to USDs within minutes after receipt.  At some point there will be  options and other derivatives that will provide the ability to hedge and lessen exchange rate risk without having to immediately convert out of bitcoins.

I know, and I tried convincing people to do this while the market was falling, but why should they bother with it? They can't be bothered doing that as it doesnt save them any money or time compared to just doing an international wire transfer, selling bitcoins for money is such a huge clusterfuck, especially in China, and on top of that if you aren't standing by to receieve your payment they could get fucked within the timeframe of a few days.

Once the market stabilized at 2-3 I could show them that they could actually just accept bitcoin and then just hold it on their computer, and when they want to liquidate it they can just sell it at market rate to chinese OTC traders. This is so convenient for everybody, it doesn't attract more customers just because we're using bitcoins, but it just helps us all save money, proving that bitcoin is really damn useful.

But this usability will disappear the moment the next bubble bursts. Anyway I'm hoping that some people might refrain from aggresively speculate that the prices will go even higher, so the bubble wouldn't be as bad and the fallout from its burst wouldn't last longer. I know there's no way to prevent the next bubble (or the next one, or the one after that), but its amplitude and thus its negative effects on all of us (lack of commerce, media mentions declaring bitcoin dead, newcomers who buy in at the height of the bubble and come to forever hate bitcoin and consider it a ponzi scheme) can be mitigated by fewer, or more long term oriented speculators. A result of smaller bubbles would be more commerce, and more commerce will bring BOTH more stability AND higher prices, which translates into more $$$ for you speculators - RISK FREE.
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January 02, 2012, 10:05:25 PM
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You simply must explain to them that there will be huge fluctuations in the value of the coins, we are going to se quite a few bubbles before things start to calm down, and there is no way for any of us to change that. It might take 5-15 years before things calm down.



And I know the fluctuations are unavoidable, but the way to avoid them in the first place is by having a healthy bitcoin economy that relies on real trade rather than USD to BTC speculation.


I think you are right, it would be better with a slow growth but its simply impossible. You just cant tell everyone in the world not to buy as they see the price go up. And as the price go up, you cannot tell people they need to sell to stop it from going up.

We will not see stability.

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January 02, 2012, 10:13:44 PM
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We will not see stability YET.
corrected. wait a couple decades.

"The whole problem with the world is that fools and fanatics are always so certain of themselves and wiser people so full of doubts." -Bertrand Russell
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