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Author Topic: How do we separate the fundamental value from the speculative value  (Read 1953 times)
brush242
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April 22, 2014, 03:12:04 PM
 #21

Hey guys I am trying to work out some new ways of valuing bitcoin.

Obviously the price reflects bitcoin's fundamental value as a medium of exchange as well as a speculative value based on expectations of increased value in the future. What I want to know is how to separate the two in some kind of rational way?

All suggestions welcome

I'm not sure you can, rationally. Part of the issue is that part of the speculative value is based on decreased value in the future (however far or near that future may be). Another issue is that if you figured out some way to do that, the market would adjust based on the knowledge that you can do that.

Not to mention, you wouldn't need bitcoins, you'd already be a super billionaire via other investment.

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brush242
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April 22, 2014, 03:21:11 PM
 #22

Paradox:  if you remove the speculative component from bitcoin's price, its value increases.

Here's why:

Imagine that tomorrow everyone believes that the price of bitcoin will no longer increase.  But the price will no longer decrease either.  1 BTC will forever buy the same basket of goods.  What would happen?  Aggregate demand for bitcoin would increase due to its useful properties as a store of value.  But of course this can't happen without also increasing the price, and thus the paradox.   

The only reason bitcoin's price isn't much higher is because people believe it could also be much lower.

Wait, you lost me, that's not a paradox, it's just a result. You said that "1 BTC will forever buy the same basket of goods," thus the price is fixed, neither increasing nor decreasing.

But, I don't want to get into a discussion of semantics; am I missing something here?

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Peter R
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April 22, 2014, 03:40:41 PM
 #23

Paradox:  if you remove the speculative component from bitcoin's price, its value increases.

Here's why:

Imagine that tomorrow everyone believes that the price of bitcoin will no longer increase.  But the price will no longer decrease either.  1 BTC will forever buy the same basket of goods.  What would happen?  Aggregate demand for bitcoin would increase due to its useful properties as a store of value.  But of course this can't happen without also increasing the price, and thus the paradox.    

The only reason bitcoin's price isn't much higher is because people believe it could also be much lower.

Wait, you lost me, that's not a paradox, it's just a result.

The part that is a paradox is just the statement in bold: "Paradox:  if you remove the speculative component from bitcoin's price, its value increases."  The rest is an explanation of the paradox, not the paradox itself.  

The definition of a paradox is "a statement that apparently contradicts itself and yet might be true."

The apparent contradiction is the idea that the speculative component is actually negative; i.e., if you remove it the value would increase.  Yet this might be true.  

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NotLambchop
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April 23, 2014, 12:15:21 AM
 #24

...this is not a paradox...

It seems you now agree the argument I used to explain the paradox wasn't "begging the question."  

The statement that's a paradox is the one I labelled "Paradox: if you remove the speculative component from bitcoin's price, its value increases."

The definition of a paradox is "a statement that apparently contradicts itself and yet might be true."

The apparent contradiction is the idea that the speculative component is actually negative; i.e., if you remove it the value would increase.  Yet this might be true.  

I think perhaps you think this shows that the price must increase.  It doesn't.  It just shows that at our current level of bitcoin adoption the price probably can't remain constant (and non-zero).  It holds in the case of lambcoins too--the value quickly plummets!

Of course "but the value would increase due to its useful properties..." is begging the question.
You posit that the value would increase, and that's the same thing you find paradoxical.  Come on.

When you quote the definition of "paradox" (it's ok to admit you're quoting wikip, kids won't laugh), you skip the crucial bit:
"Most logical paradoxes are known to be invalid arguments but are still valuable in promoting critical thinking."  In other words, older kids won't see a paradox where you would.

Your Lambcoin valuation is also sloppy, unless you're suggesting Lambcoin's value can plummet indefinitely (as in "into negative numbers").
As Lambcoin's creator, I can tell you that its value is currently quite stable at zero, and is unlikely to go any lower without creating anti-coin.

 
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April 24, 2014, 07:20:49 AM
 #25

Paradox:  if you remove the speculative component from bitcoin's price, its value increases.

Here's why:

Imagine that tomorrow everyone believes that the price of bitcoin will no longer increase.  But the price will no longer decrease either.  1 BTC will forever buy the same basket of goods.  What would happen?  Aggregate demand for bitcoin would increase due to its useful properties as a store of value.  But of course this can't happen without also increasing the price, and thus the paradox.   

The only reason bitcoin's price isn't much higher is because people believe it could also be much lower. 

I get what you are saying but I disagree. I think people are buying/holding/mining bitcoin to make a profit. I really think the number of people who just totally believe in the idea and would use it as a regular currency is extremely small right now. The bottom line is that acquiring and using bitcoin right now is risky, costly, and complex. There isn't any huge advantage that would make someone want to accept these risks/complications and use it over say a credit card, paypal, etc. The reason people are involved with it is because they think it will go up and they can make a massive profit.

So if you removed speculative value, I think it would crash and crash hard.

We're all speculative participates hence the operation is functioning and mining is still sought to be profitable longterm. Coinwarz is the best example of rough economics of what is taking place altogether. There's supply and demand for all the markets with plenty of volume to prove that. Hashpower runs the game and hashpower costs money to purchase,operate,maintain so until mining isn't profitable, these coins have value.

The value of the coin seams to be proportional to the hashing power of the network( interested participates) which agree on price through a free market exchange.   It would make sense to follow the hashing power of multipools
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