Bitcoin price increases are just getting started

[dacoinminster]

we do have a stock exchange:  GLBSE and we have stock to trade Ubitex and Dishwara

And that is awesome, but as I mentioned earlier, this is very different from an anonymous predictions exchange.

Consider the uses:
  - I could bet that bitcoin won't be on the front page of the new york times this year. Somebody at NYT with the power to make it happen could take the other side.
  - I could bet that a certain Libyan dictator won't be assassinated. His housekeeper could take the other side.
  - I could bet that a thousand shaved monkeys with bitcoin tattoos won't invade the white house lawn

You get the picture. Obviously an assassination market could lead to some very bad things, but that would be unavoidable in a decentralized unregulated market.

[1714057068]

1714057068

[Vandroiy]

If Google starts using BTC as currency for the Android market, it's likely that a good part of the forum users here will have the money to buy a new PC, car or house depending on how early they entered.

Seriously. If this goes onto a global scale, which is still very unlikely but could happen, well. It depends where you end up. You see it as something barely notable, like Kenya? GDP $65.95 billion. Or something the techies know and feel, like South Korea? GDP $1.467 trillion?

If macroscopic financial trading shifts to Bitcoin, we can't even estimate prices reasonably, other than wildly guessing when mBTC beats the USD. (Which will happen in any non-failure scenario soon enough because of heavy USD inflation.)

But we're not there yet. Not in users, usability, support, hell I still believe the protocol is not stable after minting. The hype is nice and all, but there's A LOT to be fixed still. Hyping price jumps are nice but only do so much, we need this thing polished, used in more real trading, and designed fit for real market sizes. Prices are either just getting started or they'll just drop again if nobody overcomes current weaknesses. That top-or-flop question is much more interesting than estimating some later price within some scenario.

[dacoinminster]

But we're not there yet. Not in users, usability, support, hell I still believe the protocol is not stable after minting. The hype is nice and all, but there's A LOT to be fixed still. Hyping price jumps are nice but only do so much, we need this thing polished, used in more real trading, and designed fit for real market sizes. Prices are either just getting started or they'll just drop again if nobody overcomes current weaknesses. That top-or-flop question is much more interesting than estimating some later price within some scenario.

You are quite right about usability, but usability will get better really fast as more developers get interested.

As for the protocol, if there is a weak point there we are all doomed, but I personally think that anything like that would have been exploited by now.

[Vandroiy]

As for the protocol, if there is a weak point there we are all doomed, but I personally think that anything like that would have been exploited by now.

That's a long story. From what I can tell, the transaction fee system doesn't do what it should and has parameters coded into the protocol currently that might have to be changed later. I believe this can be solved, but certainly not as simply as most believe. If you care, see this thread, and also the one linked from there:

http://bitcointalk.org/index.php?topic=6576.0

I get this feeling Bitcoin development is a little heavy on the hacker side right now, and a little fuzzy on design and dynamics. Seriously, the whole transaction fee system, I don't really see where it's going. It's as if every difficult part has been "solved" by adding a free parameter. Where the costs go, who fixes the values in the end -- it's not finished. But we already have millions of dollars in there from people who certainly have differing opinions on this stuff. This can get dangerous.

[dacoinminster]

I too have considered posting comments questioning the viability of bitcoin, just so that prices would fall and I could buy some more.

Instead, I started this thread so I could sit back and watch the early adopters get filthy rich. Maybe one of them will send me a tip someday

[unk]

@dacoinminster, i believe you keep making the same analytical mistake, which is to be estimating the size of a 'market' and assuming that that size directs the fundamental value of a bitcoin. in the way you seem to want to be analyzing the fundamental value of a bitcoin, the proper measure is instead the demand for a bitcoin in equilibrium.

as a test, consider: what would prevent the scenario you describe (which is unlikely anyway for all sorts of reasons, and is actually not novel with you; there were discussions about it months ago) from being done with bitcoins that are at a tenth of their present value? a hundred? ten times? a hundred times? you're telling a story about fundamental value that is entirely orthogonal to fundamental value. it would be like saying that the price of hard disks has to increase because of all the new bandwidth devoted to youtube and bittorrent.

the fatwallet discussion gets this right, at least in concept. http://www.fatwallet.com/forums/finance/1090435/m15946753/#m15946753. you can plug in whatever figures you want to that kind of analysis, but at least it gives a good way to think about it.

as to the specifics of what you're saying, bitcoin is probably not anonymous enough to achieve it, and it's not clear there's enough demand for it. pretty anonymous betting and bookmaking institutions exist in most developed countries outside the united states, and they haven't taken over the economy or caused those countries' currencies to skyrocket. the fees for more mainstream transactions are already not very high, and most large traders don't care much about anonymity (or even the pseudonymity bitcoin provides).

the more typical story of bitcoin as a potentially useful payment system for goods and service is both more compelling and more realistic.

[erikpukinskis]

3) The world's first trillionaire (by USD valuation) will be one of the first big investors in bitcoins.

I just did the math on this and I actually think It's unlikely.

1) davidonpda estimated that satoshi could have on the order of 1.5 million bitcoins.  That's 30% of outstanding bitcoins, but it will decrease to 7%. 

2) It seems unlikely that anyone would, or even could buy a 30% stake in bitcoin today. At today's rates that would cost something like $50 million... and that's if you could get liquidity at that price point.  I'm not sure you could buy 1.5 million bitcoins at any price.

3) For satoshi's 7% stake in a 21m bitcoin supply to make him a trillionaire, the bitcoin economy needs to be worth $14 trillion total. That's the entire US GDP.  The only way for that to happen is if bitcoin becomes the standard currency for an economy the size of the US, Europe, China, or everyone else combined.

But I suppose given inflation of the dollar, we'll all bit USD trillionaires someday.

[kiba]

3) For satoshi's 7% stake in a 21m bitcoin supply to make him a trillionaire, the bitcoin economy needs to be worth $14 trillion total. That's the entire US GDP.  The only way for that to happen is if bitcoin becomes the standard currency for an economy the size of the US, Europe, China, or everyone else combined.

But I suppose given inflation of the dollar, we'll all bit USD trillionaires someday.

The bitcoin economy spans the globe and it's very possible that the bitcoin economy is so efficient that it reaches 14 trillion dollars in output anyway.

[FreeMoney]

3) The world's first trillionaire (by USD valuation) will be one of the first big investors in bitcoins.

I just did the math on this and I actually think It's unlikely.

1) davidonpda estimated that satoshi could have on the order of 1.5 million bitcoins.  That's 30% of outstanding bitcoins, but it will decrease to 7%. 

2) It seems unlikely that anyone would, or even could buy a 30% stake in bitcoin today. At today's rates that would cost something like $50 million... and that's if you could get liquidity at that price point.  I'm not sure you could buy 1.5 million bitcoins at any price.

3) For satoshi's 7% stake in a 21m bitcoin supply to make him a trillionaire, the bitcoin economy needs to be worth $14 trillion total. That's the entire US GDP.  The only way for that to happen is if bitcoin becomes the standard currency for an economy the size of the US, Europe, China, or everyone else combined.

But I suppose given inflation of the dollar, we'll all bit USD trillionaires someday.

In addition to needing Bitcoin to dominate the currency world he would have to turn down buying mansions and yachts and space travel when he was a mere billionaire in order to preserve his stash in full.

[dacoinminster]

@dacoinminster, i believe you keep making the same analytical mistake, which is to be estimating the size of a 'market' and assuming that that size directs the fundamental value of a bitcoin. in the way you seem to want to be analyzing the fundamental value of a bitcoin, the proper measure is instead the demand for a bitcoin in equilibrium.

as a test, consider: what would prevent the scenario you describe (which is unlikely anyway for all sorts of reasons, and is actually not novel with you; there were discussions about it months ago) from being done with bitcoins that are at a tenth of their present value? a hundred? ten times? a hundred times? you're telling a story about fundamental value that is entirely orthogonal to fundamental value. it would be like saying that the price of hard disks has to increase because of all the new bandwidth devoted to youtube and bittorrent.

the fatwallet discussion gets this right, at least in concept. http://www.fatwallet.com/forums/finance/1090435/m15946753/#m15946753. you can plug in whatever figures you want to that kind of analysis, but at least it gives a good way to think about it.

as to the specifics of what you're saying, bitcoin is probably not anonymous enough to achieve it, and it's not clear there's enough demand for it. pretty anonymous betting and bookmaking institutions exist in most developed countries outside the united states, and they haven't taken over the economy or caused those countries' currencies to skyrocket. the fees for more mainstream transactions are already not very high, and most large traders don't care much about anonymity (or even the pseudonymity bitcoin provides).

the more typical story of bitcoin as a potentially useful payment system for goods and service is both more compelling and more realistic.

If Satoshi had designed bitcoins to stop at 21 billion, instead of 21 million, bitcoins would be worth 1000x less. If that's what you are saying about whether this is possible with cheaper bitcoins, then I agree with that part.

The equation I use is two parts:

1) How many USD are going to try to go into bitcoins?
2) What percentage of bitcoins are not for sale at any price (in the near term)?

The facts that I see driving stock traders towards bitcoins are as follows:
1) Cost per trade could theoretically be pennies instead of dollars (order 100x cheaper per trade)
2) Possibility to trade in ways that don't currently exist (like betting against stocks that have no shares available for short-borrowing, and have no options or futures contracts being traded - there are a huge number of little stocks that fit this description)
3) Possibility to trade anonymously (can you explain why you believe bitcoin is not anonymous enough for this?)
4) If designed correctly, there would be no central server which can be shut down to stop the trading activity
5) Ability to design and publish my own bet, on any security I want, and wait for somebody to take me up on it

Perhaps I haven't looked hard enough, but I haven't been able to find anyplace in the U.S. or outside the U.S. which offers even one of these advantages.

No matter what assumptions I make, the number of USD going into bitcoins always works out to be "at least a few billion USD". I doubt if half of the bitcoins in the world could be bought up, no matter how high the price goes, at least not in the near term.

It may be a long time before somebody becomes a trillionaire because of their bitcoin holdings, but I believe that bitcoins are more likely to bring about the world's first trillionaire than any other economic force I can think of.

[unk]

for your five-point list:

(1) why would fees be lower? there is nothing about the dollar that requires stock brokers in the us to charge $4.99.

(2) there still needs to be a bet-taker.  see (5).

(3) large amounts can easily be traced in bitcoin; even smaller amounts can be if users aren't careful. it takes quite a bit of effort to elude detection. plausible deniability is easier than avoiding all information leaks, but my sense of the parameters of your market was that you were imagining the latter would be more important than the former for bettors.

(4) that's true, but nearly all bets are already legal in many places. the only ones that aren't are horrific or at least very controversial, like assassination markets, and it's implausible to think those will involve trillions of dollars anytime soon.

(5) proposition betting is legal in the uk, and there are many, many bookmakers. it's stifled in the us because of gambling laws, but prediction markets in general are nothing new. bitcoin doesn't change that or even particularly make them harder to detect. (the biggest operational difficulty illegal bookmakers face is not currently 'how can people get us money and how can we return it?')

in general, most money doesn't even demand such markets, for basically the simple reason that you hit diminishing returns very quickly. you don't see large us hedge funds today moving money to the uk or elsewhere in order to engage in proposition bets with each other.

[Demandrel]

Unk is essentially correct that Bitcoin does not change anything with regards to many of the points brought up by dacoinminister.

For small stocks, it is tough enough to find liquidity for a basic buy/sell in the market, let alone some option trade.  To the extent you could just post a bid/ask on ANY trade anywhere, this might help, but I am not sure why this is related to Bitcoin itself.

The bigger point, and this is where I agree with daconminister, is anonymity.  If you can make bets on stocks without anyone knowing that it was you who actually made the bet, then you can make trades based on inside information without an issue.  This is the key.

And dacoinminister is right that to the extent there is a price differential between the two markets then an arbitrageur will step in and correct the mispricing.  This, and all of the other "black market" uses of Bitcoin, is why there is real VALUE in Bitcoin.

There is a reason, however, that Bitcoins will never reach the value that dacoinminister is talking about.  And that's because huge value accrues to early adopters.  Not only does huge value accrue to early adopters, it will CONTINUE to accrue to early adopters through deflation, because there is a limit on the number of Bitcoins that will ever be issued.  Competing with Bitcoin, however, is free.  You can create a new, comparable system, at any time, without cost (just adoption costs).  So if there is BILLIONS of dollars in value held by the originators of Bitcoins, then someone else has billions of dollars in incentives to create a new system... and to create a system where value does not consistently accrue to original holders through inflation.

The solution to this will be someone else creating a system where new coins are created as the economy grows, thereby maintaining price stability and eliminating deflation pushing value onto the original currency holders. 

[rezin777]

The solution to this will be someone else creating a system where new coins are created as the economy grows, thereby maintaining price stability and eliminating deflation pushing value onto the original currency holders. 

It's amazing how people resist posting for so long, when they have so much to share!

Personally, I would never use the system you suggest. I have to wonder how much value Bitcoin has simply because it does not grow beyond a certain limit.

[unk]

there's actually something interesting in what he said, which is that the main block chain has little special value as the foundation for a payments system. it's the bitcoin technology that provides that value. in the steady state, the competitive advantage of the main block chain over others is just in the hashing power that backs it, and that matters only to the extent your threat model cares about it (in view of, for example, your concern about double-spending and other security issues during the short term, if you plan on moving out of the currency immediately).

the more i read and post, the more i become convinced that bitcoin stands or falls as a payment system, and the rest -- including investment, speculation, and even storage of value in the main block chain -- is just noise. with respect to storing value, bitcoin doesn't do what other currencies (and precious metals) don't. you can't suddenly lock in value in a way that avoids what economists call the speculative 'beauty contest' game, and you can't hedge perfectly against future events.

of course you can't; that problem is beyond the scope of currency. if i want to save money 'perfectly', i need to answer the question 'what will i be spending it on?' and hedge accordingly. the 'perfect savings' problem is one of contract and investment, not currency. currency and precious metals (dollars, gold, bitcoin, etc.) substitute for investment only because people think they know what other people are going to value these instruments at in the future, but in almost all cases that's a speculative zero-sum exercise. the average currency trader loses money, and that won't be different for bitcoin.

[rezin777]

there's actually something interesting in what he said, which is that the main block chain has little special value as the foundation for a payments system. it's the bitcoin technology that provides that value. in the steady state, the competitive advantage of the main block chain over others is just in the hashing power that backs it, and that matters only to the extent your threat model cares about it (in view of, for example, your concern about double-spending and other security issues during the short term, if you plan on moving out of the currency immediately).

the more i read and post, the more i become convinced that bitcoin stands or falls as a payment system, and the rest -- including investment, speculation, and even storage of value in the main block chain -- is just noise. with respect to storing value, bitcoin doesn't do what other currencies (and precious metals) don't. you can't suddenly lock in value in a way that avoids what economists call the speculative 'beauty contest' game, and you can't hedge perfectly against future events.

of course you can't; that problem is beyond the scope of currency. if i want to save money 'perfectly', i need to answer the question 'what will i be spending it on?' and hedge accordingly. the 'perfect savings' problem is one of contract and investment, not currency. currency and precious metals (dollars, gold, bitcoin, etc.) substitute for investment only because people think they know what other people are going to value these instruments at in the future, but in almost all cases that's a speculative zero-sum exercise. the average currency trader loses money, and that won't be different for bitcoin.

It is interesting. I would suggest that the main block chain also has first mover advantage. Also, the properties of this specific block chain might also be valuable to some.

Of course, Bitcoin probably won't do any of the things that it wasn't designed to do, unless it's by accident. I would suggest that anyone who wants to store value spread their wealth. Bitcoin is potentially a better store of value than many other currencies though. What's important in savings is that you value and can use your savings for the rest of your life (or beyond if you are concerned about your offspring).

[Demandrel]

Rezin777:  In regards to being able to use the savings, unk made the point that if no one else wants to accept the currency in which you saved then they are not savings at all.  Bitcoin does not solve that problem.  I believe that one of the primary reasons Bitcoin will be constrained, and as a result supplanted in the future, is that there is a hard constraint on the number of coins in existence, which accrues massive value to the original holders or originators of the currency if the currency does in fact grow in terms of total GDP.  As a result, to the extent you are saving by putting your capital into Bitcoins, you are taking a very real risk of an alternative currency and a resulting lack of demand for Bitcoins.

Perhaps there is some value in Bitcoins because there is demand from people who want a currency with an absolute constraint, but I believe this will ultimately limit the acceptance of the currency and create significant incentives for alternatives.

The only way you will have price stability in this currency, and as a result a currency that will gain widespread acceptance, is if you have the amount of currency fluctuate with the size of the economy which the currency represents.  If I can be confident that socks that cost 1 Bitcoin now will cost 1 Bitcoin, or 1.02 Bitcoins, next year, then I will much happier to hold that currency.  Otherwise the level of speculation inherent in holding the currency will limit widespread use. 

Whether it is Bitcoin or someone else, the fundamental concept that you can have a currency that is untraceable is here to stay and is going to change the world.  Given you can replicate the technology with a new chain at any time, however, a chain that allows for price stability will be the one that is ultimately accepted. 

[marcus_of_augustus]

(3) large amounts can easily be traced in bitcoin; even smaller amounts can be if users aren't careful. it takes quite a bit of effort to elude detection. plausible deniability is easier than avoiding all information leaks, but my sense of the parameters of your market was that you were imagining the latter would be more important than the former for bettors.

There is at least a few more tricks up the sleeve to guarantee fully anonymous transactions based upon the bitcoin p2p verified coin transaction network. Just add another layer like Open Transactions ....

.... the not fully anonymous argument is conditional and a red herring ... it should be not fully anonymous YET ... if its crypto arms race they want ....

[rezin777]

Rezin777:  In regards to being able to use the savings, unk made the point that if no one else wants to accept the currency in which you saved then they are not savings at all.  Bitcoin does not solve that problem.

The only way you will have price stability in this currency, and as a result a currency that will gain widespread acceptance, is if you have the amount of currency fluctuate with the size of the economy which the currency represents.

You're right, it doesn't. But it comes closer than other currencies. It makes more sense to save in a deflationary currency than an inflationary currency.

Price stability? I can give any logical reasons why such a thing should exist.

[unk]

well, it's not so much 'should exist' as 'something that people want and try to make happen'. for example, if i want to buy a house in brighton when i retire, i can save for that in pounds, but that isn't the optimal way of being sure i can get the house. i could save in bitcoins, but that's better than pounds only if i expect the value of bitcoins to track the value of the houses i might want to buy more than the pound does. same for gold, silver, oil, etc.

shares in an investment company that owns real-estate, localised as nearly as possible to brighton, would be better than all of those assuming i can find one that i trust to do what i want them to do. so we're measuring the monitoring/transaction costs of owning the company's shares against the 'tracking error' of the currencies, given my individual savings objectives.

it may be that bitcoin seems attractive as a value store only because fiat currencies seem so poor at it currently, but that's partly due to our particular moment in history and partly due to the particular group of activists that are influencing the discussion about bitcoin. the moment in history might change, though, and not everyone shares the political ideology of the early adopters. i still think bitcoin's role in payments is far more innovative than its role as a value store, speaking very broadly.

you once asked me about my 'theme' in forum discussions. i think this discussion has helped me to figure it out. it's as follows: if you're excited about bitcoin because you think of it as a get-rich-quick scheme and are hoping the value of a bitcoin will appreciate and solve all your financial problems, you're probably excited for the wrong reasons (or at least reasons i disagree with). instead, bitcoin is exciting for other sorts of reasons.

[rezin777]

it may be that bitcoin seems attractive as a value store only because fiat currencies seem so poor at it currently, but that's partly due to our particular moment in history and partly due to the particular group of activists that are influencing the discussion about bitcoin.

you once asked me about my 'theme' in forum discussions. i think this discussion has helped me to figure it out. it's as follows: if you're excited about bitcoin because you think of it as a get-rich-quick scheme and are hoping the value of a bitcoin will appreciate and solve all your financial problems, you're probably excited for the wrong reasons (or at least reasons i disagree with). instead, bitcoin is exciting for other sorts of reasons.

Bitcoin seems attractive if you understand inflation is theft and most fiat currencies are being inflated. Do you agree inflation is theft from those who hold the currency being inflated? This is true regardless of your political ideals.

I completely agree that if you are excited about Bitcoin as a get-rich-scheme, you are excited for the wrong reasons.