Warning! Please don't create another bubble!

[notme]

1. Has the economy shrunk by a factor of 15 since $30 to justify a $2 price?
2. If you are buying bitcoins to send to china, knowing full well they will hold rather than sell, you are doing more to create a bubble than speculators who buy and sell for limited profit.  Those who are greedy and hope for limitless growth will get what's coming to them regardless of what gets spewed in these forums.

[Shuai]

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.

Of course not, and I'm not so stupid I believe I can control the wild west of bitcoin.

I'm merely appealing to people who might be more interested in seeing Bitcoins long term success and long term profitability, or perhaps just traders that wishes to make more long term, rational trading decisions rather than rooting for volatility to increase casino gambling opportunities ala wall street bankers.

I'm just saying look at the facts. The bitcoin economy has not changed significantly in the last 2 months, but market capitalization has been rising more and more. These are obvious signs of a bubble, and I'm pretty sure most people know this. They just think they can make a quick buck by buying into the bubble now, inflating it further, and then just make sure theyre awake for when it bursts again so they can sell on the top. But what these traders dont realize is that through these short term profit schemes, they harm the long term profits bitcoin could otherwise make them.

Of course in the very long term, bitcoin will still succeed (and we WILL see stability at some point, a good guess could be in 2033 where the yearly  inflation rate of the total bitcoin money supply will be 0,4%), but the more bubbles in the beginning, the longer it will take, so although the traders are going for short term profits, and some of them will make it in this next bubble, they're losing out on orders of magnitude larger "mid term" (I.E. before 2033) gains that could be had if bitcoin doesn't burst badly again.

[miscreanity]

Growth in the Bitcoin economy exceeded two standard deviations from the mean during the bubble. It is currently less than one away right now and the capital inflows have been steadily rising. Overall, the general pace has resumed to what it was before the April-June bubble. The USD exchange rate would have to exceed $5.80 on the week to start being concerned, and $6.20 to trigger an immediate sell signal. Each time the price has jumped since November, it's built a stable base before continuing up.

It's also important to keep in mind that advances in science & technology are cumulative - they amplify prior improvements. Look at the comparison of bitcoin to gold - the former at a weekly level and the latter on a yearly level. That would effectively be about a 50:1 rate of growth just based on relative USD prices (the Bitcoin values are from mid-2010, not 2009).



It can be expected that adoption rates will remain accelerated simply because of how small the Bitcoin economy still is relative to the rest of the world. I've compared Bitcoin's growth to that of Facebook and the patterns are similar there as well. We're still in an early phase, and Bitcoin has a far wider usage potential.

[Coinbuck @ BTCLot]

I consider this offensive.

[lonelyminer (Peter Šurda)]

Based on my analysis, I think that high volatility is probably here to stay for the foreseeable future. I don't think that it can be prevented, other than by growing the economy. I actually thought earlier today about writing something like the OP, before I saw this post.

I don't think that warning people will avoid it. However, I would advise people to act rationally rather than emotionally when speculating, and to expect further bubble(s) in the future.

[BrightAnarchist]

Bubbles happen. It's human nature. You can't stop them.

People made way too much out of the last bubble, proclaiming the "end of bitcoin" when it popped. All nonsense. It was just a hype bubble, nothing new in the world here.

That's why if you believe in Bitcoin, as I do, but you're not into market timing or speculating, you can just use dollar cost averaging by buying BTC every month -- and stop worrying so much about the day-to-day price changes. Let the speculators sweat that stuff, you don't have to if you only care about the long-term success of BTC.

I've bought BTC at 6 cents, and I've bought it at $30. Overall I've been increasing my wealth since I discovered BTC because the long-term trend is up. And I don't worry about it.

[fornit]

nobody has the intention of building a wall bubble.

[amencon]

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.

For that to mean anything you would first have to establish that $2/btc is where the price "should" be.  Maybe $2 was too low to hold for the amount of intra-bitcoin trade, in which case you wouldn't need 250% upsurge to justify the now higher price.

[phillipsjk]

Until it is possible to easily buy and sell bitcoin, speculating is the cheapest way to buy them. International wire transfers cost around $50. Using a wire transfer to buy $5 worth of bitcoin would be stupid. I am planning a $500 or larger transfer, just to keep the transaction costs below 10%.

Since I have no immediate plans to spend those funds, I would mainly be buying and holding. I would likely try to convince businesses I deal with (especially remotely) to accept them, but they would likely incur the same fees while converting back to fiat.

OP has one thing correct: the fundamentals of the bitcoin economy are more important than the price. OP seems to feel that the fundamentals won't develop in the face of rapid speculation (which is probably true). However, the converse is also true: the fundamentals of the bitcoin economy can not improve without pushing up the price. Every exchange puts upward pressure on the price of bitcoin.

[Stephen Gornick]

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.

selling bitcoins for money is such a huge clusterfuck, especially in China

Perhaps I didn't explain that step properly.  Converting bitcoins to USDs allows you to lock in the exchange rate but there's no requirement that those funds be withdrawn at that instant in time.  Those USD funds can be left in the account with the exchange.  

At a later time conversion back to bitcoins can occur at whatever exchange rate exists at that time and as a result, bitcoins once again can be withdrawn.  There's no exchange rate risk using this tactic and the exchange fees are reasonably small -- for both selling and then buying back later the fee ranges from 0.6% to 1.2% combined, depending on monthly volume.  There might be risk to holding those USDs at the exchange though so this may not be the ideal approach.

Moving those funds to Liberty Reserve does add an additional expense but that provides a place where the funds can be parked and then easily moved back into a bitcoin exchange at a later time.

It is too bad there isn't yet a BTC/GAU exchange where the GAU is backed by physical gold (where delivery can be taken even).  http://Bitcoin-central.net offers a BTC/PGAU (Pecunix GAU) market but it appears to be unused -- currently there are no sellers shown.  That's probably what would serve you best for the problem you are describing.

[disclaimer201]

As a long term miner myself, I haven't been selling bitcoins for the past 6 months. 2 $ is way to low to be cost efficient. So, a price around 10$ isn't a bubble to me AT ALL.

[kokjo]

As a long term miner myself, I haven't been selling bitcoins for the past 6 months. 2 $ is way to low to be cost efficient. So, a price around 10$ isn't a bubble to me AT ALL.

... do you know what a bubble is?

[S3052]

Bubbles happen. It's human nature. You can't stop them.

This is correct and by the way, it was really not  a bubble in logarithmic terms which is the more appropriate way to chart assets that show exponential rises in very short time.

And, bubbles or however people call strong rises, can not be avoided. Herding psychology is human and can never be avoided in free markets.

[disclaimer201]

As a long term miner myself, I haven't been selling bitcoins for the past 6 months. 2 $ is way to low to be cost efficient. So, a price around 10$ isn't a bubble to me AT ALL.

... do you know what a bubble is?

A bubble is a trade in high volumes at prices that are considerably in opposition to intrinsic values. That's why I wrote a "bubble to me". Though I know there is no direct correlation between market price and costs for miners, as long as miners are the main supplier of bitcoins they hold the power to not sell bitcoins under average production costs plus a profit. This will change when the minting rate will drop in half. I certainly am not willing to sell for dumping prices, and I am not pressured to sell for a long time. And I don't think I am the only miner who sees it that way. So, let the prices rise and we can talk again about any kind of bubble.

[phatsphere]

I concur with the statement that bubbles cannot be avoided. I think the opposite, it's rather important that this kind of pattern happens! This just means that there is a dynamic exchange between all sorts of interest groups around bitcoin. All those groups vary in size and if the trade volume is an indication, the groups grow in size, too. I also predict that this kind of pattern will happen more and more often in the future, if bitcoin rises in interest.

[Vandroiy]

Shuai has a point. Also, you can't count exchange volume as trade volume, trading is indeed still fairly small.

But then again, it's pointless to try and stop speculation. We need these hiccups and rallies to build a financial foundation for larger-scale trade. 8M @ 2 USD is a little small to provide the kind of market a business trader from and to China is likely to need.

Bottom line: live with the fluctuations for a bit longer, and don't give up even if you lose the majority of funds at some point. Every day this goes on is one day less until we reach stability. And don't forget that swings can go both ways, volatility is both a risk to lose money and a chance to win some. Don't put in too much and you'll likely be fine.

[cadillac]

I don't understand all this talk about buying bubbles with bitcoins.  You can just run over to Dollar tree or Dollar General and buy a three pack of bubble solution for a buck.  An economic bubble?   Oh, never mind!   Emily Litela.

[tvbcof]

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

I'd likely do another $10k-ish assuming similar conditions as the last time (lack of Bitcoin system weaknesses, scary global monetary issues and some disposable (and lose-able) income.)  Actually, I'd probably be buying into such a decline so I would not have the full funds left at the $2 point.

I expect that the only way to get down there again is if some truly massive holders decide to bail in something of a panic for some reason.  Back at the $15 level I thought it could only get into the $5 range if such players cashed out in a big way, and that they probably would do so mainly if they had advanced awareness of a weakness.  I was quite wrong it seems.  This wrong conjecture moderated my purchases, but fortunately (it currently appears) a lot of the moderation was on the way down and I plowed a good bit in in the lower ranges.

[finway]

Interesting post.
Bubble happens.  Bubble is a way of evolution, i think.

[Bigpiggy01]

Shuai,

For someone doing business with bitcoin you're kind of naive. I'm in China as well and have been using bitcoins for a large number of smallish business transactions and this has so far been a great success.

The second you're doing this you need to hedge at least part of your positions, if you don't do that then yes you'll end up with unhappy customers etc. THIS IS ESSENTIALLY THE SAME AS WHEN DOING BUSINESS IN ANY NON LOCAL CURRENCY. Once you hedge your costs you're beyond the point of people getting upset about losses etc provided that you've explained the volatile nature of the medium to them.