Why does acceptance of Bitcoin has to do with the price of Bitcoin?

[deisik]

At this point mass acceptance is leading to lower btc price because merchants are immediately converting the btc to fiat

That makes no sense. BTC are just changing hands. To lower the price you need to increase supply more than demand.

The speed with which bitcoins are changing hands also matters a lot. This might be a driving force behind the recent BTC price decline when new sellers (like Dell) are beginning to accept Bitcoin (though this seems a bit counterintuitive, I agree)...

[Timetwister]

At this point mass acceptance is leading to lower btc price because merchants are immediately converting the btc to fiat

That makes no sense. BTC are just changing hands. To lower the price you need to increase supply more than demand.

The speed with which bitcoins are changing hands also matters a lot. This might be a driving force behind the recent BTC price decline when new sellers (like Dell) are beginning to accept Bitcoin (though this seems a bit counterintuitive, I agree)...

It is frequently said that the value of money depends not merely on its quantity but on the "velocity of circulation." Increased "velocity of circulation," however, is not a cause of a further fall in the value of the dollar; it is itself one of the consequences of the fear that the value of the dollar is going to fall (or, to put it the other way round, of the belief that the price of goods is going to rise). It is this belief that makes people more eager to exchange dollars for goods. The emphasis by some writers on "velocity of circulation" is just another example of the error of substituting dubious mechanical for real psychological reasons.[1]

http://austrianeconomics.wikia.com/wiki/Inflation

[deisik]

At this point mass acceptance is leading to lower btc price because merchants are immediately converting the btc to fiat

That makes no sense. BTC are just changing hands. To lower the price you need to increase supply more than demand.

The speed with which bitcoins are changing hands also matters a lot. This might be a driving force behind the recent BTC price decline when new sellers (like Dell) are beginning to accept Bitcoin (though this seems a bit counterintuitive, I agree)...

It is frequently said that the value of money depends not merely on its quantity but on the "velocity of circulation." Increased "velocity of circulation," however, is not a cause of a further fall in the value of the dollar; it is itself one of the consequences of the fear that the value of the dollar is going to fall (or, to put it the other way round, of the belief that the price of goods is going to rise). It is this belief that makes people more eager to exchange dollars for goods. The emphasis by some writers on "velocity of circulation" is just another example of the error of substituting dubious mechanical for real psychological reasons.[1]

http://austrianeconomics.wikia.com/wiki/Inflation

This is all theory (which may not be applicable in this case), but the reality may be that bitcoin hoarders are willing now to spend their previously stashed away coins since there are many more things now that they can spend their money on. So we have both effective supply and velocity increased, which could potentially explain the decline of Bitcoin price at the moment...

[Timetwister]

This is all theory (which may not be applicable in this case), but the reality may be that bitcoin hoarders are willing now to spend their previously stashed away coins since there are many more things now that they can spend their money on. So we have both effective supply and velocity increased, which could potentially explain the decline of Bitcoin price at the moment...

If there are more things that can be bought with bitcoins, that makes them more useful and therefore more valuable. That increases demand, and therefore price. Velocity has nothing to do with it.

[zimmah]

Well Merchants who accept bitcoins, may even decrease the value of the currency, when they accept it as payment, but only to convert it to fiat.

But imo more people adopting the currency, is more of a good thing, than a bad thing.

But if the users of bitcoin, only adopt to hoard, it's also a problem. {Less in circulation, drive the price up, when there is high demand} but this could be negative, if it causes volatility.  {Price high, lots of people sell.. price low, people hoard...and if this happens often, it decreases the store of value}

only if the people who spend bitcoins are stupid enough to spend them without topping up again...

either way, it will only bring a short-term decrease in value, if any. Because more shops accepting bitcoin will mean more people will use bitcoin, which will drive up demand and therefore price in the medium to long term.

[Erdogan]

At this point mass acceptance is leading to lower btc price because merchants are immediately converting the btc to fiat

That makes no sense. BTC are just changing hands. To lower the price you need to increase supply more than demand.

The speed with which bitcoins are changing hands also matters a lot. This might be a driving force behind the recent BTC price decline when new sellers (like Dell) are beginning to accept Bitcoin (though this seems a bit counterintuitive, I agree)...

It is frequently said that the value of money depends not merely on its quantity but on the "velocity of circulation." Increased "velocity of circulation," however, is not a cause of a further fall in the value of the dollar; it is itself one of the consequences of the fear that the value of the dollar is going to fall (or, to put it the other way round, of the belief that the price of goods is going to rise). It is this belief that makes people more eager to exchange dollars for goods. The emphasis by some writers on "velocity of circulation" is just another example of the error of substituting dubious mechanical for real psychological reasons.[1]

http://austrianeconomics.wikia.com/wiki/Inflation

This is all theory (which may not be applicable in this case), but the reality may be that bitcoin hoarders are willing now to spend their previously stashed away coins since there are many more things now that they can spend their money on. So we have both effective supply and velocity increased, which could potentially explain the decline of Bitcoin price at the moment...

Yes.

The money velocity is a neo keynesian thing. It tries to track the money as it changes hands in the productive economy, thus pure financial transactions are excluded. It has to be, because a trader buying coins one day and selling it the next day, does not touch the productive economy. Thus measurement of money velocity presents much of the same problems as the economic gross product at different levels. Some of those problems are: should we include things like insurance payments which is a result of some destructive accident, and should we include production at loss, and production where the profit or loss is unknown, as in a market with government regulation where real prices are undiscoverable.

In fact, money velocity is never measured, it is always only the GDP / money supply. In case of USD, this is quite nonsensical, as the money are used outside the scope of the GDP.

I suspect that the money velocity when mentioned, is just an excuse to cover up the mediocre economic production, where the real reason is the intervention in the interest market, which hides the real time preferences and makes the economic actors take decisions blindly, like don quijote de la lora la mancha fighting the windmills.

Here is a paper from London School of Economics, maybe it is not the truth, but interesting. I mentioned it also in the gold collapsing... thread:

http://www.lse.ac.uk/economicHistory/pdf/FACTSPDF/1306Morgan.pdf

There is only one basic reason for the value of money, and that is the demand, or the preference to hold (where supply is some actors preference to hold less) (assuming sound money). Indirectly of course, is the number of users, their savings, their view on what is the best saving, including the prospect of appreciation. The ease with which a saver can spend, is a part of that consideration, therefore new shops can influence the value negatively, hopefully only in the interim.

[deisik]

This is all theory (which may not be applicable in this case), but the reality may be that bitcoin hoarders are willing now to spend their previously stashed away coins since there are many more things now that they can spend their money on. So we have both effective supply and velocity increased, which could potentially explain the decline of Bitcoin price at the moment...

If there are more things that can be bought with bitcoins, that makes them more useful and therefore more valuable. That increases demand, and therefore price. Velocity has nothing to do with it.

You seem to be lost in theories and don't see the reality behind them. If at first people were hoarding bitcoins (scarce money), and now they begin spending (abundant money), this would effectively increase the total amount of money in circulation. On the outside it will look like more people buying more things. And, in fact, they are, but the price of Bitcoin will nevertheless go down...

[Timetwister]

You seem to be lost in theories and don't see the reality behind them. If at first people were hoarding bitcoins (scarce money), and now they begin spending (abundant money), this would effectively increase the total amount of money in circulation. On the outside it will look like more people buying more things. And, in fact, they are, but the price of Bitcoin will nevertheless go down...

That's right, supply would increase in that case, and therefore, ceteris paribus, bitcoin's purchasing power would decrease (its price compared to USD would go down). But that doesn't have anything to do with "velocity".

[tooil]

Why is there a correlation between the two?
Thanks

Doubt anyone know for certain how price correlated with acceptance.


The latest announcement from Dell and Expedia gives unexpected flat line response to the market.

[deisik]

You seem to be lost in theories and don't see the reality behind them. If at first people were hoarding bitcoins (scarce money), and now they begin spending (abundant money), this would effectively increase the total amount of money in circulation. On the outside it will look like more people buying more things. And, in fact, they are, but the price of Bitcoin will nevertheless go down...

That's right, supply would increase in that case, and therefore, ceteris paribus, bitcoin's purchasing power would decrease (its price compared to USD would go down). But that doesn't have anything to do with "velocity".

In fact, it has everything to do with money velocity. But if you don't see why it does, then so be it. Just one last note, if hoarders begin forking out, the bitcoins which they part with are evidently changing hands and not necessarily changing hands with would-be hoarders (otherwise they wouldn't shell out in the first place), so I leave it for you (those who are curious) to decide if it has anything to do with bitcoin circulation velocity or doesn't. In short, it is impossible to increase money supply this way without a corresponding increase in velocity...

By the way, you quote parts from the Austrian school of economics, but fail to employ their method in practice

[Ayers]

it's simple, more people using it, mean more people buy it, which mean better price

[deisik]

it's simple, more people using it, mean more people buy it, which mean better price

It is not that simple. More people using more bitcoins means that more people spend more bitcoins (which were previously stashed away). The net effect on the Bitcoin price remains to be seen...

[twiifm]

it's simple, more people using it, mean more people buy it, which mean better price

This logic is twisted.  Why would I buy money to spend it?

If I wanted to buy something in USD and the merchant accepts USD.  Does it make sense for me to convert USD to BTC then back to USD to give the merchant?

The only reason to do that was for online drugs buying cause there's no way to send cash online.  

[wasserman99]

it's simple, more people using it, mean more people buy it, which mean better price

It is not that simple. More people using more bitcoins means that more people spend more bitcoins (which were previously stashed away). The net effect on the Bitcoin price remains to be seen...

Why would they have to spend bitcoin that would otherwise be held onto and not sold? If someone is going to sell bitcoin the price is going to be the main deciding factor, not where they can spend the bitcoin.

[deisik]

it's simple, more people using it, mean more people buy it, which mean better price

It is not that simple. More people using more bitcoins means that more people spend more bitcoins (which were previously stashed away). The net effect on the Bitcoin price remains to be seen...

Why would they have to spend bitcoin that would otherwise be held onto and not sold? If someone is going to sell bitcoin the price is going to be the main deciding factor, not where they can spend the bitcoin.

It was explained before. They would begin spending if they could buy things directly without the hassle of going to an exchange. This is not a question of where they are selling bitcoins. In fact, it is not even a question of selling them at all (that is exchanging them for some other coins or fiat), it is a question of spending them (that is about final consumption)...

[Ayers]

it's simple, more people using it, mean more people buy it, which mean better price

It is not that simple. More people using more bitcoins means that more people spend more bitcoins (which were previously stashed away). The net effect on the Bitcoin price remains to be seen...

the point is that more people using it mean more volume mean a better value

[deisik]

it's simple, more people using it, mean more people buy it, which mean better price

It is not that simple. More people using more bitcoins means that more people spend more bitcoins (which were previously stashed away). The net effect on the Bitcoin price remains to be seen...

the point is that more people using it mean more volume mean a better value

As I said before, it is not given. And the dynamics of the Bitcoin exchange rate as of recent confirms that. So all expectations that the wider acceptance would unconditionally bring about the higher value may ultimately turn out a bit exaggerated (let alone hopes for a million dollars per coin)...

[wasserman99]

it's simple, more people using it, mean more people buy it, which mean better price

It is not that simple. More people using more bitcoins means that more people spend more bitcoins (which were previously stashed away). The net effect on the Bitcoin price remains to be seen...

the point is that more people using it mean more volume mean a better value

As I said before, it is not given. And the dynamics of the Bitcoin exchange rate as of recent confirms that. So all expectations that the wider acceptance would unconditionally bring about the higher value may ultimately turn out a bit exaggerated (let alone hopes for a million dollars per coin)...

People that are saying bitcoin is going to reach a million dollars are not realistic and do not understand economics. Over the long term, the net effect of higher adoption will increase the value of bitcoin as people will buy more bitcoin then they spend causing a net spending effect on the market. Over the short term, more merchants accepting bitcoin for payment will likely have a negative effect on prices because it will likely entice people to sell bitcoin (via buying products) that would not have otherwise sold bitcoin.

[Rakitich]

The more merchants =  more btc flowing = stronger economy.

[botany]

it's simple, more people using it, mean more people buy it, which mean better price

It is not that simple. More people using more bitcoins means that more people spend more bitcoins (which were previously stashed away). The net effect on the Bitcoin price remains to be seen...

the point is that more people using it mean more volume mean a better value

As I said before, it is not given. And the dynamics of the Bitcoin exchange rate as of recent confirms that. So all expectations that the wider acceptance would unconditionally bring about the higher value may ultimately turn out a bit exaggerated (let alone hopes for a million dollars per coin)...

Wider acceptance would not have an immediate effect, but is expected to result in a price increase in the long term. Of course, no rational person would expect it to go to a million dollars.