Stabilization?

[AndDuffy]

Obviously, I'm new, so correct me if I'm wrong here.

I love bitcoins and the idea behind them, and I realize that it's still very early. But what I'm curious to know is when (and if) bitcoins will be valued independently of other currencies. Nearly every transaction that happens with bitcoins has a price tag in BTC based nearly entirely on the current exchange rate in USD. Naturally, the value will always be in flux, but at some point it should stabilize. When will this happen? What do you estimate the price will be when (and if) it does?

Essentially what I'm saying is that bitcoins are valued in terms of dollars. I think that stabilization will happen when bitcoins are valued in intangible perceptions of value... the same way that gold is.

[koin]

stabilization will happen when bitcoins are valued in intangible perceptions of value... the same way that gold is.

gold's trading value is normally quoted in USDs as well.  or am i missing your point?    anyway, the much much larger fx market has exchange rates between usd and other currencies so the exchange rate from btc to any other currency can be computed. 

if there are any markets where bitcoins are traded for those other currencies at a different price, it primarily has to do with inefficiencies in the market.   e.g., moving funds to the exchange taking a while or having fees such that the market doesn't have buyer and sellers meeting at the same price that the forex market would suggest it should be at.

it won't be anytime soon that bitcoin trades to other currencies have any influence the fx market.

[AndDuffy]

gold's trading value is normally quoted in USDs as well.  or am i missing your point?

Yes, I wasn't quite clear. I mean that gold has intrinsic value, it has for millennia. Gold is naturally scarce and precious, while bitcoins are artificially scarce and precious (due to our belief that they are, as well as due to the fact that it takes valuable electricity and effort to create them).

Of course, the value of gold is quoted in USD. But I think when people look at fluctuations in price (in this case, the ever rising price of gold), it's not because gold is becoming more valuable. The dollar is becoming less valuable. Fiat currencies will never be stable. The value of gold is stable, and I believe that the value of bitcoins has that potential as well.

Hopefully that makes sense, I realize it's not the traditional way to look at economics.

[qo]

Nice topic.

Gold is also quoted in various other currencies, as are other commodities, as are bitcoins.  Hence, the value of gold, etc., is relative to these other relative metrics (and that's what I've always understood a fiat currency to be, a relative metric vs other currencies).

I happen to hold gold and silver (since 2001).  I watched (and held) as silver sank from $50USD, and as gold withered from $1900.  But, I held onto each since -- as you've appreciated -- fiat currencies simply will never be stable.  While gold/silver/bitcoin are denominated for some purposes in USD/EUR/BSD/JPY/etc., I don't see them as equivalent at all.  And, I suspect, you don't either.  Fiat is inflationary by design (IMHO) whereas commodities are more driven by supply/demand.

[P4man]

Fiat is inflationary by design (IMHO) whereas commodities are more driven by supply/demand.

Gold is inflationary too



And fiat money is valued by supply/demand just like almost anything else. The only difference is that supply is a bit weird, being mostly dependent on increasing debt levels (as opposed to government or central bank printing them as most people think).

@OP

Goods and services will only be denominated in BTC if the economy behind that good or service is mostly paid for in BTC. We are lightyears away from that, and its not even likely we will ever get there.

[Hunterbunter]

But what I'm curious to know is when (and if) bitcoins will be valued independently of other currencies. Nearly every transaction that happens with bitcoins has a price tag in BTC based nearly entirely on the current exchange rate in USD.

That's mostly because you still need other currencies for day to day transactions (rent, utilities, most groceries etc). For BTC to not be compared to other currencies, you should be able to compare it to your life - that is, how many do you need to live the life you want. Atm you might be able to say "I need US$100 a day to live a comfortable life". If you can go a whole year (or something) and only earn and spend BTCs, you can start saying "I need 10 btc a day to live a comfortable life", and when everyone talks that way, your answer will be met.

Naturally, the value will always be in flux, but at some point it should stabilize. When will this happen? What do you estimate the price will be when (and if) it does?

It would be possible for someone to give you an answer to that, if you can tell us when the critical mass of population will be using bitcoins. Mass adoption requires adoption, which will bring it's own stability with it (as well as require it for more).

[Gabi]

Nothing stabilize, not even gold (it's price fluctuate wildly) and dollars, euros etc...

[frank90]

I am totally agree. Also this is the fun.

[AndDuffy]

But what I'm curious to know is when (and if) bitcoins will be valued independently of other currencies. Nearly every transaction that happens with bitcoins has a price tag in BTC based nearly entirely on the current exchange rate in USD.

That's mostly because you still need other currencies for day to day transactions (rent, utilities, most groceries etc). For BTC to not be compared to other currencies, you should be able to compare it to your life - that is, how many do you need to live the life you want. Atm you might be able to say "I need US$100 a day to live a comfortable life". If you can go a whole year (or something) and only earn and spend BTCs, you can start saying "I need 10 btc a day to live a comfortable life", and when everyone talks that way, your answer will be met.

That seems about right. My concern, however, is how will we get to that? I suppose the answer is that if more businesses accept BTC in easily accessible ways, then we can begin to lessen our dependency on fiat currency.

One more question though: do you see BTC ever reaching that point entirely? Will entire markets, companies, and individuals be able to forgo fiat currency completely, or will BTC always be merely a supplement to fiat money?

[Hunterbunter]

But what I'm curious to know is when (and if) bitcoins will be valued independently of other currencies. Nearly every transaction that happens with bitcoins has a price tag in BTC based nearly entirely on the current exchange rate in USD.

That's mostly because you still need other currencies for day to day transactions (rent, utilities, most groceries etc). For BTC to not be compared to other currencies, you should be able to compare it to your life - that is, how many do you need to live the life you want. Atm you might be able to say "I need US$100 a day to live a comfortable life". If you can go a whole year (or something) and only earn and spend BTCs, you can start saying "I need 10 btc a day to live a comfortable life", and when everyone talks that way, your answer will be met.

That seems about right. My concern, however, is how will we get to that? I suppose the answer is that if more businesses accept BTC in easily accessible ways, then we can begin to lessen our dependency on fiat currency.

One more question though: do you see BTC ever reaching that point entirely? Will entire markets, companies, and individuals be able to forgo fiat currency completely, or will BTC always be merely a supplement to fiat money?

Yes the first step would be for lots of businesses to accept BTCs.

The second would be for businesses to start running on BTCs only. There has to be a distinct advantage to using bitcoins over cash for this to really happen.

The third part is legitimacy. Not many people want to invest everything they have into a business, only to have someone with more power (i.e., the govt) turn around and say "Sorry what you're doing is illegal, and we're taking everything you have". While bitcoins are not illegal, it's certainly got an underground stigma attached to it. I can pretty much guarantee you that if a government accepts tax payments in bitcoins, the rest will fall into place overnight. As long as you have to pay taxes in a particular place, you'll need fiat currency to achieve it. The alternative is for the government to accept bitcoins or labour in lieu of fiat currency tax.