Thinking about buying more coins

[jimbobway]

Now might be a good time to buy more bitcoins.   Transferring money...

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[DeathAndTaxes]

Interesting.

Be sure to keep us updated.

[phorensic]

I would buy as much as you can right now, honestly.  As long as it is under $6, gotta catch it quick.

[kjlimo]

Now might be a good time to buy more bitcoins.   Transferring money...

same... can't get money up there fast enough!

[casascius]

Here are some thoughts that I have on the intrinsic value of coins.

OK, so we went from $2 to $7 in pretty short order.  One thing that did not change over threefold in that time is the utility value of the coins.

Bitcoins are useful for several reasons - silkroad, alternative to wiring money, etc..  But the use case hasn't changed drastically.  Certainly not three or four fold.  Sure, there's organic growth as people realize there's new things that Bitcoin lets them do, but I don't think that's multiplied in the last two weeks.

If we were getting swarmed by people looking to make gambling deposits, or suddenly the word got out that Bitcoin is a great way to buy cigarettes for half price by cutting out the tax man and (again) we were swarmed by people looking to do this, then I would say yeah, new money is pouring in and there should be a reason it's going up.  If a publication that is read by thousands of hawala brokers or MSB's suddenly ran a serious article on Bitcoin as a way to move money, that would be something that would drive such instant growth.  But nothing like that has happened in the last two weeks.

In the last two weeks, CES and CBS made us look a lot more legitimate to the world.  That's big.  But I think it's a leap to think that suddenly it will make people think "I need to jump in and buy these now because someone is soon going to want to buy them from me."

And sure, maybe some gazillionaire will look and say $6 coins - how cheap - I'm going to make these go from $6 to $100 myself.  But that gazillionaire will probably be sophisticated enough to do research and discover that this market price is being set by about 1% of the bitcoins in circulation, and the other 99% remain to pop the price at any time and make a sucker out of him...  one need only look at http://ecdsa.org/stats.html to see how many non-moving coins are out there lurking.  I for one am not recommending anyone buy any $7 coins unless they are someone who plans on clearing out all the asks on the order book multiple times, or know someone is about to.

[jojo69]

patience, we retest the long term uptrend in a couple days

[DeathAndTaxes]

OK, so we went from $2 to $7 in pretty short order.  One thing that did not change over threefold in that time is the utility value of the coins.

So what makes you think $2 was the rational utility price?   Maybe the price based on fundamentals was always $6 and the drop to $2 an aberration and the market is simply correcting.    Thus even w/ no increase in utility (from when BTC trade as low as $2 USD) Bitcoin is fairly valued.


Note: I am not saying $6 is the value of Bitcoin based on fundamentals but I don't think $2 is either.

[casascius]

OK, so we went from $2 to $7 in pretty short order.  One thing that did not change over threefold in that time is the utility value of the coins.

So what makes you think $2 was the rational utility price?   Maybe the price based on fundamentals was always $6 and the drop to $2 an aberration and the market is simply correcting.    Thus even w/ no increase in utility (from when BTC trade as low as $2 USD) Bitcoin is fairly valued.


Note: I am not saying $6 is the value of Bitcoin based on fundamentals but I don't think $2 is either.

I actually think the present rational utility price is less than $2, it's just that there are a lot of people who are good enough at holding them that they are protecting that price point, and might succeed in doing so persistently.  I don't blame them (and me included to the extent I hold mine) - Bitcoins really have a legitimate place in society and their future usefulness is likely to explode over the long haul.  I truly believe Bitcoins are a great thing to hold long - that's speculation - while their utility value slowly but inevitably catches up.

It's just not going to explode overnight.

Let's suppose nobody had an interest in holding them other than for their utility value.  I am guessing out loud here.  Think of how you put cash in your pocket.  You know that cash in your pocket is at risk of loss, robbery, etc... so you put the cash in your pocket that you think you might need as you go about your business.  The rest of it, you keep somewhere else you consider safer.  If you happen to have $5k to your name, you probably don't carry it everywhere you go.

Silk Road, as I understand it, has a couple thousand listings on there.  And people must certainly have bitcoins in their accounts there for anticipated purchases (buyers) or completed purchases (sellers).  That makes a few tens of thousands of bitcoins intrinsically useful.

I like keeping a few bitcoins in my back pocket just so that I have an easy way to pay somebody, the same way I keep some cash.  What might I keep in my wallet?  Maybe $80 is a typical amount I might be walking around with, maybe more if I'm on vacation.  Fair to say, the number of Bitcoins I might keep at arm's length might be approximately the same.  Suppose I like pornography or imported cigarettes and want to pay with bitcoins, then having $80 worth of bitcoins on hand for those reasons might be realistic.  For me, I sell physical bitcoins, and occasionally engage in a few deals where bitcoins are handy (like the video cards I recently sold) so having a few hundred or a couple thousand bitcoins at arm's length to go about doing this is realistic.

Bitcoin's market cap is $48 million, but there aren't 600,000 people like hypothetical porn & smoker with $80 of BTC in their pocket for their usefulness, nor is there even a small fraction of $48 million worth of listings on Silk Road, or gambling activity going on with Bitcoin.

The rest is speculation and subject to behave like speculation any time!

[Serge]

on the other hand even with small utility if people didn't pile so much asks the price could be in triple digits

it is all relative

speculating and hoarding alone do dictate price.  remove completely utility for instance and look at it as a store of value if it is believed to be the truth people will keep demanding them

[proudhon]

OK, so we went from $2 to $7 in pretty short order.  One thing that did not change over threefold in that time is the utility value of the coins.

So what makes you think $2 was the rational utility price?   Maybe the price based on fundamentals was always $6 and the drop to $2 an aberration and the market is simply correcting.    Thus even w/ no increase in utility (from when BTC trade as low as $2 USD) Bitcoin is fairly valued.


Note: I am not saying $6 is the value of Bitcoin based on fundamentals but I don't think $2 is either.

I actually think the present rational utility price is less than $2, it's just that there are a lot of people who are good enough at holding them that they are protecting that price point, and might succeed in doing so persistently.  I don't blame them (and me included to the extent I hold mine) - Bitcoins really have a legitimate place in society and their future usefulness is likely to explode over the long haul.  I truly believe Bitcoins are a great thing to hold long - that's speculation - while their utility value slowly but inevitably catches up.

It's just not going to explode overnight.

Let's suppose nobody had an interest in holding them other than for their utility value.  I am guessing out loud here.  Think of how you put cash in your pocket.  You put the cash in your pocket that you think you might need as you go about your business.  The rest of it, you keep somewhere else you consider safer.  If you happen to have $5k to your name, you probably don't carry it everywhere you go.

Silk Road, as I understand it, has a couple thousand listings on there.  And people must certainly have bitcoins in their accounts there for anticipated purchases (buyers) or completed purchases (sellers).  That makes a few tens of thousands of bitcoins intrinsically useful.

I like keeping a few bitcoins in my back pocket just so that I have an easy way to pay somebody, the same way I keep some cash.  What might I keep in my wallet?  Maybe $80 is a typical amount I might be walking around with, maybe more if I'm on vacation.  Fair to say, the number of Bitcoins I might keep at arm's length might be approximately the same.  Suppose I like pornography or imported cigarettes and want to pay with bitcoins, then having $80 worth of bitcoins on hand for those reasons might be realistic.  For me, I sell physical bitcoins, and occasionally engage in a few deals where bitcoins are handy (like the video cards I recently sold) so having a few hundred or a couple thousand bitcoins at arm's length to go about doing this is realistic.

Bitcoin's market cap is $48 million, but there aren't 600,000 people like hypothetical porn & smoker with $80 of BTC in their pocket for their usefulness, nor is there even a small fraction of $48 million worth of listings on Silk Road, or gambling activity going on with Bitcoin.

The rest is speculation and subject to behave like speculation any time!

This is a good analysis, I think.

[casascius]

What I might add to this, is that the recent volatility yesterday should translate directly to a temporary lessening of the intrinsic value of the bitcoin.  I'm not expecting $7 soon unless someone new comes in with lots of money and balls.

Basically, volatility scares anybody who needs a stable unit of account to stay profitable.  Someone on Silk Road might be happy selling drugs and might have no interest in sitting on BTC regardless of the direction they go, so they will cash their BTC out for USD the moment it arrives.  In fact, I thought I read somewhere that Silk Road lets their sellers do this automatically... as though they still eventually have to take out BTC to stay anonymous, but that they have an online "silk road" USD wallet where they can hedge their risk while their funds are still in their account.

By doing this, they drastically reduce the demand for holding BTC to do their business.  If BTC is dropping - or even if it's just volatile and unpredictable - that would presumably lead sellers to press the "Fuck this, I'm taking USD" button... thereby bringing the need of the "silk road economy" - their demand for bitcoins - much closer to zero - just enough to get funds in and out of the system.

Seeing yesterday's swing surely must have changed the minds of a few people interested in holding them for fun.

Fewer people with a reason to hold bitcoins = fewer people just shuffling the same btc and usd around just trying to outsmart one another = same fundamentals as a poker game = the only clear winner is the house (e.g. MtGox) in this case.

[jimbobway]

The value of bitcoin is highly speculative and good points have been made.  However, I also want to point out that the number of total bitcoins ever to come into existence still has not changed (approx 21 million).  The number of coins mined will be halved by the end of the year.  Only 347 days left.

There are a ton of short term speculators here.  Some people are here for the long term so if you truly believe bitcoin will be adopted then any buy in the beginnings of bitcoin is a good buy.

[casascius]

The value of bitcoin is highly speculative and good points have been made.  However, I also want to point out that the number of total bitcoins ever to come into existence still has not changed (approx 21 million).  The number of coins mined will be halved by the end of the year.  Only 347 days left.

There are a ton of short term speculators here.  Some people are here for the long term so if you truly believe bitcoin will be adopted then any buy in the beginnings of bitcoin is a good buy.

There is always the risk that someone holds millions of them and might need some money.  I think we've become fairly accustomed to the idea that this isn't happening - but there's no way to know for sure.  Someone who holds a million bitcoins need only drop 20-50k of them at a time to clear out much of the orderbook (like we saw yesterday).

One thing I find incredibly interesting is: http://ecdsa.org/stats.html

Look what happens to all the coins mined in 2009 as you pass your mouse across June 2011.  I bet only 10-15% of them move.  What about the other 85-90%?  That's a serious question to ponder.  They are virgin coins that not only have never been traded, they have never been used for anything!  They still belong to whoever mined them.  Those coins are out there whether we like it or not.  Either whoever holds all those coins died and took them to their grave (unlikely), or only needed to sell a tiny percentage of their holdings to clean house.  Others have suggested that people mined those coins and forgot about them or didn't care.  Even if that's 90% true (it almost surely isn't), 10% of a million coins is quite a load to be able to dump even in this market...

I've griped about these early coins in the past, but feel comfortable that they'll come out slowly in due time if Bitcoin grows organically to the point of ubiquitous adoption.  Whoever holds them will be damn rich, and the cost of them becoming rich will slowly be spread across all of the people adopting bitcoin to the point they won't even notice.  BUt if anyone decides to drop a few million dollars today and wipe out all the asks on the orderbook, feeling like he "0wned" Bitcoin, I am sure whoever has all those sleeping coins is going to have a hard time not being tempted to cash in.  Why woudn't he - his risk is minimal - drop 5% of his coins and take 50% of the orderbook.  Someone with a million dollars to throw at Bitcoin probably is financially sophisticated enough to see that risk just by comparing the depth of the orderbook with the total number of bitcoins in circulation, which is why I am not counting on it.

Someone with a big load of dollars needs to wait for another bottom before considering a major buy, in my opinion.  Otherwise they are essentially gambling that there will be imminent news out of left field that will bring them sudden luck - which could always happen - but not predictably enough that the odds would be any better than a typical wager at a casino.

The people who set the bottom will be the ones with lots of dollars to draw a line in the sand, and the ones with lots of Bitcoins who will decide whether to take the dollars and run, or not.  Those people (presumably) don't know each other, so in effect, nobody can know where the real bottom is.

If all speculation were taken out of the picture, I might guess that the real Bitcoin economy that depends on Bitcoin to function to exchange goods and services (silk road, etc.) needs only about a million dollars to actually account for the goods and services exchanged within, which would correspond to a bitcoin price under 13 cents.  That's what I consider an absolute floor (that we'll never reach).  $2.00 is close, but there's still probably room for a lower bottom.

[antoineph]

The value of bitcoin is highly speculative and good points have been made.  However, I also want to point out that the number of total bitcoins ever to come into existence still has not changed (approx 21 million).  The number of coins mined will be halved by the end of the year.  Only 347 days left.

There are a ton of short term speculators here.  Some people are here for the long term so if you truly believe bitcoin will be adopted then any buy in the beginnings of bitcoin is a good buy.

Yes that's true, and that's really the big question for me. Will it be adopted?

[waspoza]

Bitcoin value is mostly in its scarcity and anti forgery capabilities. If we take any object, for example ink pen, it has some value. But if would be only three those pens in the world, its price would rise, despite the fact its still the same object.

What im trying to say, its very hard to define what is "right" price for bitcoin, cause there is no mathematical formula to calculate that. For every person value of bitcoin is different and actual price is probably average of that.  

[jojo69]

the overhang of early mined coins is a real concern

some have surely been lost in the manner of most ones and zeros

some I am sure are held by deep thinking folks with other than mercenary motives, they did, after all, join the effort when it was about the farthest thing from a sure thing one could imagine

still, your point is well taken...the temptation to cash out has to be very strong

[jimbobway]

A killer bitcoin app will eventually emerge that will propel bitcoin into the massive mainstream.  The creation of "Netscape" was the eureka moment that had tons of developers evolved BBS to HTML and web browsing.

I am working on one myself...stay tuned!

[GeniuSxBoY]

It will go down before it goes up.

[casascius]

still, your point is well taken...the temptation to cash out has to be very strong

Especially when that person with lots of coins comes to the conclusion at some point that it's overvalued and that a price crash is imminent whether he sells his or not, realizes that only the first few people out the door have any chance of actually realizing their profit and the rest will be bagholders... and rationalizes that, despite his interests in Bitcoin's success, if someone is going to come out ahead, "it might as well be me"...

[ineededausername]

The value of bitcoin is highly speculative and good points have been made.  However, I also want to point out that the number of total bitcoins ever to come into existence still has not changed (approx 21 million).  The number of coins mined will be halved by the end of the year.  Only 347 days left.

There are a ton of short term speculators here.  Some people are here for the long term so if you truly believe bitcoin will be adopted then any buy in the beginnings of bitcoin is a good buy.

There is always the risk that someone holds millions of them and might need some money.  I think we've become fairly accustomed to the idea that this isn't happening - but there's no way to know for sure.  Someone who holds a million bitcoins need only drop 20-50k of them at a time to clear out much of the orderbook (like we saw yesterday).

One thing I find incredibly interesting is: http://ecdsa.org/stats.html

Look what happens to all the coins mined in 2009 as you pass your mouse across June 2011.  I bet only 10-15% of them move.  What about the other 85-90%?  That's a serious question to ponder.  They are virgin coins that not only have never been traded, they have never been used for anything!  They still belong to whoever mined them.  Those coins are out there whether we like it or not.  Either whoever holds all those coins died and took them to their grave (unlikely), or only needed to sell a tiny percentage of their holdings to clean house.  Others have suggested that people mined those coins and forgot about them or didn't care.  Even if that's 90% true (it almost surely isn't), 10% of a million coins is quite a load to be able to dump even in this market...

I've griped about these early coins in the past, but feel comfortable that they'll come out slowly in due time if Bitcoin grows organically to the point of ubiquitous adoption.  Whoever holds them will be damn rich, and the cost of them becoming rich will slowly be spread across all of the people adopting bitcoin to the point they won't even notice.  BUt if anyone decides to drop a few million dollars today and wipe out all the asks on the orderbook, feeling like he "0wned" Bitcoin, I am sure whoever has all those sleeping coins is going to have a hard time not being tempted to cash in.  Why woudn't he - his risk is minimal - drop 5% of his coins and take 50% of the orderbook.  Someone with a million dollars to throw at Bitcoin probably is financially sophisticated enough to see that risk just by comparing the depth of the orderbook with the total number of bitcoins in circulation, which is why I am not counting on it.

Someone with a big load of dollars needs to wait for another bottom before considering a major buy, in my opinion.  Otherwise they are essentially gambling that there will be imminent news out of left field that will bring them sudden luck - which could always happen - but not predictably enough that the odds would be any better than a typical wager at a casino.

The people who set the bottom will be the ones with lots of dollars to draw a line in the sand, and the ones with lots of Bitcoins who will decide whether to take the dollars and run, or not.  Those people (presumably) don't know each other, so in effect, nobody can know where the real bottom is.

If all speculation were taken out of the picture, I might guess that the real Bitcoin economy that depends on Bitcoin to function to exchange goods and services (silk road, etc.) needs only about a million dollars to actually account for the goods and services exchanged within, which would correspond to a bitcoin price under 13 cents.  That's what I consider an absolute floor (that we'll never reach).  $2.00 is close, but there's still probably room for a lower bottom.

Hmmmmm.  

Those of you worried about all of the bitcoins mined at difficulty 1 need to take a look at this graph.

http://ecdsa.org/stats.html

What you'll see, is that the vast majority of those coins haven't been touched.  Not when bitcoins were $20, not when they were on their way up, not when they were on their way down.  Also, you'll be able to see that most of those coins didn't get produced at a rate of 50 every 10 minutes.

The more coins that get mined, the less they matter.  Those are what, a million coins?  Two million?  As time goes on, and we're cranking out a million new coins every few months, those first coins matter that much less.

Possibilities that have crossed my mind include:

1 - whoever owns them has so many, knows that dumping them would crash the market, and has enough faith in bitcoin's future to not blow his load all at once.  Is waiting for the big long term payoff, a $30 bitcoin price is maybe small potatoes in his vision, or is incentive only enough to dump a few.

2 - many of them may be lost forever.

3 - many of them must be owned by Satoshi, who maybe died, or perhaps is also smart enough to know that moving all of those early coins will give us clues to his existence and deliberately spends only newer coins.

I once feared that those coins would come out and crash the market - I'm not so worried at this point.  If someone has them and is able to spend them, I trust that whoever's got them isn't going to crash my bitcoins to pennies with them, and has an interest in seeing Bitcoin's long-term longevity.  (and if they do, I'll be standing by to buy many of them up for pennies).

If someone drops 50k to 100k coins they will get snapped up.

Check back in a week and see if you are still saying boo hoo. I'm holding mine.