Bitcoin price increases are just getting started

[dacoinminster]

OK - I can't stand it anymore. I have to let you guys know why I think bitcoin price increases are just getting started. I think my logic is best described in this IM conversation I had with my best friend:

Friend: So what is the economic reasoning why this stuff should become super-valuable?
Me: Well, there's this: http://www.google.com/search?tbm=isch&q=drug+money
Me: That will probably always be a big part of it, because it has all the advantages of cash plus a lot more
Me: The main reason though, which I haven't told anybody except my wife, and that only briefly, is that it is the perfect commodity for trading stocks, bonds, commodities, options, etc.
Me: It won't be legal, but I guarantee it will happen
Me: There are TRILLIONS of dollars in those markets
Me: But only 21 million bitcoins
Me: You get some percentage of that moving to bitcoins, and the math is easy
Me: Plus, of those 21 million bitcoins, most of them aren't for sale
Me: So if billions of dollars of ANYTHING moves into bitcoins, their value will be much, much more than billions of dollars
Me: Depending on how you do the math, you can come up with some pretty absurd future values
Friend: Why would someone start trading in stocks/bonds/com mod,
Friend: In a currency that may magor-inflate?
Me: Well, there are some trades you just can't make right now.
Me: For instance, there are no futures or options for many smaller stocks
Me: Remember when I was interested in penny stocks? One of the biggest problems with trading them is that there are never enough short-borrows available, so even though you KNOW a stock is going to crash, you can't profit from it
Me: Also, there is always insider trading. That's why this stuff won't be legal
Me: I know my stock is going to crash because I spent all the money on hookers and blow, so I short it on the bitcoin black market
Me: Completely untraceable insider trading profits
Me: I'm confident that billions of dollars are going to move into digital currencies like bitcoin. The main risk I see is that a different digital currency will take it's place. That would make bitcoins much less valuable, if not worthless
Me: Bitcoin price instability is one of the biggest reasons this sort of thing will be hard to do, but there is a solution for that as well
Me: You can "short" bitcoin to equal the amount of bitcoins you are holding, so that you are neutral to any bitcoin price swings. You can do something like that with only a small amount of bitcoins using options

Note for posterity: current bitcoin price is in the $5-$6 range after a big run-up.

I think it is appropriate that this is my hundredth post

Edit: Since this thread is now my signature, I want to include my official bitcoin predictions I made in another thread before starting this one:

I'm going to step out on a limb and make some predictions about bitcoin price increases:

1) A lot of kids with graphics cards are going to get a LOT of spending money just because they saved the few bitcoins they mined after reading about it in a forum somewhere
2) The term "bitcoin billionaire" is going to become somewhat commonplace, and will refer to someone who became a billionaire through bitcoin investment.
3) The world's first trillionaire (by USD valuation) will be one of the first big investors in bitcoins.
4) This will all happen WITHOUT the collapse of the US dollar, and without bitcoins becoming a commonplace way to pay at the grocery store.

I guess we'll see if I'm right.

Edit 8/11/2011: My proposal for "the ticker and the hole" is quite possibly the way this will happen: https://bitcointalk.org/index.php?topic=36453.0

Edit 4/2/2013: I now have much more sophisticated ideas about how bitcoin will achieve stability (see my signature). Bitcoin cleared $100 yesterday, and I'm reviving this thread in which in 2011 I predicted wild growth ahead before even the first bitcoin bubble. Note that the arguments above are no less valid today!

[SgtSpike]

Interesting theory indeed...

So essentially, big-time investors would use bitcoins to make insider trades, and that's what would make bitcoins worth a bunch of money?  Doesn't that mean bad news for corporate America?  As in, any big-wig could ruin a company while cashing in on it at the same time?

While I am excited by the prospect of bitcoins being worth more money down the line, I don't want to see abuse of the stock system.  That could mean an entire economic collapse if enough top executives decided to do something like this and ruin enough companies.

[kiba]

Insider trading is a good thing for the bitcoin economy because it means accurate information about companies are flowing into the economy.

[SgtSpike]

Insider trading is a good thing for the bitcoin economy because it means accurate information about companies are flowing into the economy.

It also means that people who can manipulate a company in a bad way for their own gain has an easier way of doing so.

I am all for accurate and transparent information, but there are good reasons that insider trading is outlawed.

[dacoinminster]

So essentially, big-time investors would use bitcoins to make insider trades, and that's what would make bitcoins worth a bunch of money?  Doesn't that mean bad news for corporate America?  As in, any big-wig could ruin a company while cashing in on it at the same time?

Not just big investors. Have you ever tried to trade stocks? It is a royal pain to get set up (they want to know everything about you), then you pay several dollars MINIMUM for each trade, and then if you are lucky enough to profit, the government taxes you.

Bitcoin solves all of those "problems".

I also don't like insider trading. I just know that like the drug money, it is inevitable. And I plan to profit from the resulting increase in bitcoin prices.

[SgtSpike]

So essentially, big-time investors would use bitcoins to make insider trades, and that's what would make bitcoins worth a bunch of money?  Doesn't that mean bad news for corporate America?  As in, any big-wig could ruin a company while cashing in on it at the same time?

Not just big investors. Have you ever tried to trade stocks? It is a royal pain to get set up (they want to know everything about you), then you pay several dollars MINIMUM for each trade, and then if you are lucky enough to profit, the government taxes you.

Bitcoin solves all of those "problems".

I also don't like insider trading. I just know that like the drug money, it is inevitable. And I plan to profit from the resulting increase in bitcoin prices.

Good point about the fees.

I've always wondered why someone didn't create an online stock exchange that was made "for the little guy".  A place that pretty much just accepts any legitimate company that wants to go public, and allows anyone to trade with just a small percentage fee.  All done through a web interface with no stock broker middleman.  Sounds like a good idea to me...

I know Ubitex is attempting to head that direction.  It's not intuitive to use through the command line interface though, and most people "wouldn't get it".  Something with a GUI and a simple way to buy/sell could go like hotcakes in exactly the way you describe.  The hardest part would be getting some decent companies to register with the exchange.

[dacoinminster]

I know Ubitex is attempting to head that direction.  It's not intuitive to use through the command line interface though, and most people "wouldn't get it".  Something with a GUI and a simple way to buy/sell could go like hotcakes in exactly the way you describe.  The hardest part would be getting some decent companies to register with the exchange.

You never need any companies to register with a new exchange. You just need a way to speculate on existing companies. IE I bet the price will rise, you bet it will fall.

The most important thing missing from bitcoin right now is a way to create transactions that are dependent on an external variable (like what a certain stock does tomorrow).

The second most important thing missing is a way to advertise that anonymous person A wishes to bet on such a possibly-illegal external variable.

Stock trading in a separate bitcoin black market would definitely affect the real markets, because real traders will see a price difference between the real markets and the black market - if google is trading at $1 on the black market, they will buy google on the black market while shorting Google on the real market, then they will collect the difference. This kind of risk-free profit is called "arbitrage".

[SgtSpike]

I know Ubitex is attempting to head that direction.  It's not intuitive to use through the command line interface though, and most people "wouldn't get it".  Something with a GUI and a simple way to buy/sell could go like hotcakes in exactly the way you describe.  The hardest part would be getting some decent companies to register with the exchange.

You never need any companies to register with a new exchange. You just need a way to speculate on existing companies. IE I bet the price will rise, you bet it will fall.

The most important thing missing from bitcoin right now is a way to create transactions that are dependent on an external variable (like what a certain stock does tomorrow).

The second most important thing missing is a way to advertise that anonymous person A wishes to bet on such a possibly-illegal external variable.

Ok, makes sense regarding speculation.  I'm not terribly knowledgeable on stock exchanges, and I obviously still have things to learn. 

That's what a speculative exchange would solve though, right?  As long as you thought the price would drop, and someone else thought the price wouldn't, then you can go ahead and "make the bet" about it.

[silversurfer]

I want what he's smoking 

[Terpie]

I know Ubitex is attempting to head that direction.  It's not intuitive to use through the command line interface though, and most people "wouldn't get it".  Something with a GUI and a simple way to buy/sell could go like hotcakes in exactly the way you describe.  The hardest part would be getting some decent companies to register with the exchange.

You never need any companies to register with a new exchange. You just need a way to speculate on existing companies. IE I bet the price will rise, you bet it will fall.

The most important thing missing from bitcoin right now is a way to create transactions that are dependent on an external variable (like what a certain stock does tomorrow).

The second most important thing missing is a way to advertise that anonymous person A wishes to bet on such a possibly-illegal external variable.

Stock trading in a separate bitcoin black market would definitely affect the real markets, because real traders will see a price difference between the real markets and the black market - if google is trading at $1 on the black market, they will buy google on the black market while shorting Google on the real market, then they will collect the difference. This kind of risk-free profit is called "arbitrage".

Interesting, so you're thinking something along the lines of an Intrade for bitcoin that could effectively substitute for shares of a company stock. I hadn't thought of that. Definitely could work, but we seem a ways off from something like that.

[dacoinminster]

Interesting, so you're thinking something along the lines of an Intrade for bitcoin that could effectively substitute for shares of a company stock. I hadn't thought of that. Definitely could work, but we seem a ways off from something like that.

Yes, but think bigger. If I can place a wager based on any external variable, I can not only speculate on stocks, I can also speculate on sporting events, political races, and anything else that people want to bet on. All I need is a counterparty to take the other side of the bet, a trusted mediator to hold the money, and a way to advertise my bet so that my counterparty can find me (and so I can see other people's advertised bets).

This could literally be as simple as:

1) A few trusted forum members offer to hold money for any bet and dispense it to the winner
2) Some people start advertising bets (and who is holding the money) in some public place that can't be easily censored or taken down (i.e. TOR or Freenet)
3) Counterparty finds bet they want to take, sends their money to the mediator
4) Mediator dispenses winnings according to the advertised terms of the bet

Not much needs to be built that doesn't exist already.

[Terpie]

Also, you're definitely right about the drug money. Although I know the community doesn't like to trumpet this potential...

"A report said the global drug trade generated an estimated US$321.6 billion in 2005."

http://en.wikipedia.org/wiki/Illegal_drug_trade

1% of this market would easily put BTC/USD into the hundreds of dollars, maybe surpass a thousand.

[SgtSpike]

Interesting, so you're thinking something along the lines of an Intrade for bitcoin that could effectively substitute for shares of a company stock. I hadn't thought of that. Definitely could work, but we seem a ways off from something like that.

Yes, but think bigger. If I can place a wager based on any external variable, I can not only speculate on stocks, I can also speculate on sporting events, political races, and anything else that people want to bet on. All I need is a counterparty to take the other side of the bet, a trusted mediator to hold the money, and a way to advertise my bet so that my counterparty can find me (and so I can see other people's advertised bets).

Didn't someone just announce a website to do exactly that with bitcoins a few days ago?

[dacoinminster]

Didn't someone just announce a website to do exactly that with bitcoins a few days ago?

Please post a link. I think maybe you are talking about the bitcoin stock exchange?

I glanced at that site. Looked like they were going to start a stock exchange where companies register and are traded in bitcoins. That may be a good idea, but it is not at all what I am imagining.

[Terpie]

Didn't someone just announce a website to do exactly that with bitcoins a few days ago?

Please post a link. I think maybe you are talking about the bitcoin stock exchange?

I glanced at that site. Looked like they were going to start a stock exchange where companies register and are traded in bitcoins. That may be a good idea, but it is not at all what I am imagining.

You're imagining a predictions market almost exactly like Intrade, except it will allow all predictions including company-specific (something Intrade does not allow). I think it's a good idea.

[marcus_of_augustus]

Yeah its called BetFair

we just need a BetFair for bitcoin ... anybody can be the book and anybody can be the punter.

[dacoinminster]

You're imagining a predictions market almost exactly like Intrade, except it will allow all predictions including company-specific (something Intrade does not allow). I think it's a good idea.

Ah - I thought InTrade was just another stock trading platform.

Yes, that is exactly what I am talking about, EXCEPT it has to be decentralized somehow (like the informal system using mediators I described above) or hosted anonymously (like the silk road).

Regardless of HOW it happens, the important thing is that it WILL happen. Whether it happens with bitcoins or some other e-currency is anybody's guess. Still, I ain't selling MY bitcoins

Oh, and by the way, there is a huge first-mover advantage to the first system set up to do this. Once people are trading somewhere, it can be very hard to start a competitor (think of ebay's 9% fees versus all those free auction sites).

And . . . go!

[ericools]

Good reason to think so if you ask me.  I think though considering the very small size of the bitcoin economy, how well it seems to work and the lack of any good competing service that the legitimate business could have just as much value to offer.  The really big one in my eyes is what happens when an online retailer like Amazon realizes how much money they can save not paying Visa MasterCard for every transaction.  I suspect that so long as no fatal flaw is found online stores will gradually notice and accept the coins starting with the small stores we see now and progressing slowly upward as larger operations realize the potential savings.  This is also what really needs to happen to keep bitcoin from being a legislative target.  Visa/MC/PP are big, but if enough people are making money in bitcoins the greed will keep it safe from big brother.

Imagine what would happen if Amazon were to offer a 1% discount for using bitcoins, and just .5% of it's $36billion revenue started to come from bitcoins.

[marcus_of_augustus]

Or it could be a market along the lines of an insider information market ... like the CIA might be interested in trading secrets upon ... (really?, yep) or industrial espionage or really dirty political secrets are traded .. like a morph of wikileaks and bitcoin

[AtlasONo]

impatiently waiting for billions of something to move into bitcoin