Rising value making BitCoiners tightfisted?

[gigabytecoin]

I was just talking with a friend earlier today...

Basically we both agreed that "anybody who will currently spend their bitcoins on anything is an idiot"... (or not good with numbers, doesn't care about personal wealth, etc, etc..)

Which brings me back to one of my main arguments that bitcoin is simply a store of value, not a currency.

Bitcoin is a great tool for secretive billionaires to store their ill gotten gains.

Unfortunately at the moment it's not so great to use as a currency.

By the time I walk out of the bitcoin grocer whom I just paid 0.8 BTC for a gallon of delicious milk that you can only purchase from said bitcoin accepting grocer... the price of that same gallon has dropped to 0.79 BTC - because the buying power of my bitcoins has just increased.

I don't absolutely need that milk right now anyways I suppose... There is another old dummy of a grocer up the street who actually accepts USD in exchange for milk - LOL - I think I have a few of those left around somewhere...

The BTC value has risen... causing the people to hoard their BTC, which will cause the value to rise, which will lead to more press and cause people to hoard their BTC, which will case the value to rise, which will lead to more press and cause people to hoard their BTC....

Not sure yet if this is a good or a bad thing. But I am 99% sure this is a bad thing.
/rambling

Are you saying that it's reasonable to spend your wealth on milk, but not reasonable to spend it on bitcoins, wait a day, then spend the bitcoins on milk? Is it more or less dumb to buy coins, wait a week, then buy milk?

Under your assumptions shouldn't you put all of your wealth in coins and then spend sparingly from them?

How is this a bad thing? Don't we all get rich if you are right?

No, I am saying that it is reasonable to spend my depreciating wealth on milk, and to hoard my appreciating wealth.

This is a bad thing because it will eventually lead to nobody selling any of their bitcoins.

I suppose if everyone in the entire world ends up converting their wealth to bitcoins however... which is where this feedback loop takes us if it all doesn't collapse after the first few bubbles... then merchants would move from accepting dollars exclusively to bitcoins exclusively.

I can't see there being much "in between" as we currently are experiencing.

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[marcus_of_augustus]

The fact that it is highly deflationary actually encourages people to accept it as payment ... it is the opposite of an impediment to adoption, it is in fact a huge incentive.

Just take a look at all the merchants who would love to be getting paid in BTC. And you can be sure they will spend it only if they really need to.

Tight-fisted, you sure, ya betcha.

[FreeMoney]

No, I am saying that it is reasonable to spend my depreciating wealth on milk, and to hoard my appreciating wealth.
 

Isn't it also reasonable to use your depreciating wealth to buy appreciating wealth?

[gigabytecoin]

The fact that it is highly deflationary actually encourages people to accept it as payment ... it is the opposite of an impediment to adoption, it is in fact a huge incentive.

Just take a look at all the merchants who would love to be getting paid in BTC. And you can be sure they will spend it only if they really need to.

Tight-fisted, you sure, ya betcha.

Which is another point we discussed...

Eventually (and not far down the line as it stands right now)... bitcoins will be hoarded.

Either you are a miner/hoarder.... a miner/seller.... a buyer/hoarder.... a buyer/seller... a salesman/seller... or a salesman/hoarder.

If the buyer of the product is not smart enough to realize what he is doing and hoard his bitcoins, the salesman most probably is. If that salesman is not smart enough to hoard them, then the next salesman probably is.

Eventually we are left with only 7,200 bitcoins being created per day and divided up to a market that is hungry for hundreds of thousands if not millions of bitcoins per day (because they have heard by now that it's a great investment).

Bitcoin is deemed illegal in a major country, a large selloff occurs, and the entire market crashes - forever.

[luv2drnkbr]

Yes, but shouldn't there be a wealth effect kicking in? "I'm rich bitch!" and share the booty?

If thats the case, I will make sure to ring up buffet and gates and ask them for some money right now.

Wow you picked the worst possible people for that joke.  Gates and Buffet are the most charitable people on the planet.  You should have gone with Trump.  He's one of the least charitable wealthy people.

[gigabytecoin]

No, I am saying that it is reasonable to spend my depreciating wealth on milk, and to hoard my appreciating wealth.
 

Isn't it also reasonable to use your depreciating wealth to buy appreciating wealth?

Yes, but that's besides the point. I currently still need depreciating wealth to live. Nobody accepts bitcoins for milk here in Toronto unfortunately.

I have mined some bitcoins, but no way in hell would I sell them or buy anything with them, right now at least... I took grade 9 math =)

Don't get me wrong. I have made donations in the past. I want bitcoin to succeed. I just don't think it will in the sense that most people on this board are hoping it will.

[FreeMoney]

No, I am saying that it is reasonable to spend my depreciating wealth on milk, and to hoard my appreciating wealth.
 

Isn't it also reasonable to use your depreciating wealth to buy appreciating wealth?

Yes, but that's besides the point. I currently still need depreciating wealth to live. Nobody accepts bitcoins for milk here in Toronto unfortunately.

I have mined some bitcoins, but no way in hell would I sell them or buy anything with them, right now at least... I took grade 9 math =)

Okay, to be simple lets say you get paid 2X each week and need X to live. You put X into bitcoin right away as savings. Now along comes someone selling milk for BTC (at the same rate for simplicity). You realize, ah ha, now I put X + milk budget into BTC each week and make a little extra since I get the appreciation right up until the second I buy.

I want to buy everything with bitcoin. Then I don't have to hold any dollars.

[marcus_of_augustus]

Different age groups have different wants/needs and therefore spending habits.

Young people who are mining now will probably spend it up cause they need stuff ... sex 'n drugs 'n rock 'n roll mostly and who can blame (I would if I was young again, i did then too ...)

Middle aged people tend to save more and oldest spend up again or bequeath. Comes around and goes around, v. hard to not look at it through you own prism and say wth?

Young fella just starting out is better off spending up and getting the woman of his dreams than salting BTC away on his memory stick "for investment" and being lonely at 45 ... just saying.

[gigabytecoin]

No, I am saying that it is reasonable to spend my depreciating wealth on milk, and to hoard my appreciating wealth.
 

Isn't it also reasonable to use your depreciating wealth to buy appreciating wealth?

Yes, but that's besides the point. I currently still need depreciating wealth to live. Nobody accepts bitcoins for milk here in Toronto unfortunately.

I have mined some bitcoins, but no way in hell would I sell them or buy anything with them, right now at least... I took grade 9 math =)

Okay, to be simple lets say you get paid 2X each week and need X to live. You put X into bitcoin right away as savings. Now along comes someone selling milk for BTC (at the same rate for simplicity). You realize, ah ha, now I put X + milk budget into BTC each week and make a little extra since I get the appreciation right up until the second I buy.

I want to buy everything with bitcoin. Then I don't have to hold any dollars.

You are correct there. Prices of milk at my supermarket do increase every year.

I don't know what I'm arguing to be honest.

Perhaps I am worried that bitcoins will literally change the world as we know it. That people will cease to purchase frivolous items lest they be able to purchase more frivolous items tomorrow. And that society/capitalism/virtually everything as we know it will grind to a halt.

OR I am worried that this will not happen.

Either way Bitcoin fails miserably imho. Perhaps I am just being more pessimistic than usual.

@minute_of_angle: sure, some people will spend their money, but eventually, if there is even one person in this world with a brain, every bitcoin will end up being hoarded inside of his wallet.dat file.

[FreeMoney]

Okay, to be clear I'm not saying to spend up all your coins. I'm just saying that if you've come to the conclusion that it's such a sure thing that it is foolish to spend any then you need to be buying more.
 
I could imagine a person who can mine a few coins, but for some reason cannot buy any and perpetually has fewer coins than they consider their optimum amount. This person should not spend any.

[Basiley]

to clarify image - imagine thats US can't print more USD. physically can't.
what whould cost USD today, then ? ~appx number would be okay.

[FreeMoney]

@minute_of_angle: sure, some people will spend their money, but eventually, if there is even one person in this world with a brain, every bitcoin will end up being hoarded inside of his wallet.dat file.

A brain does not imply a preference for another coin instead of some pleasure or need.

What is this singularly brained person doing for everyone so as to get their coins that doesn't involve any outlay for employees or land or training or food even?

[Alex Beckenham]

people will cease to purchase frivolous items lest they be able to purchase more frivolous items tomorrow.

Never going to happen.

Time and time again it has been shown that most people want things TODAY, NOW, even if it makes more financial sense to wait until tomorrow.

That's why credit cards are so popular after all.

[jerfelix]

Secondly, and perhaps more important, what makes me comfortable about tipping someone or buying tangible goods with my fiat currency that I'm used to spending, is that I know I can earn them back later (what goes around comes around, in a positive sense).

However, with bitcoins, I feel like I'm giving them away for ever, since I don't run a business where I can accept Bitcoin (yet), and my monthly salary is paid to me in fiat currency. I assume this to be the case for many people. They treat bitcoins as they treat stock exchange shares, and not like a currency.

This is precisely the motivation behind this particular comic.  Until we can get the BitCoin economy rolling, the use of bitcoins for speculation is making it less useful for other things.

I think the "Cumulative BitCoin Days Destroyed" calculation demonstrates that the BitCoin market is actually healthier recently.  See http://forum.bitcoin.org/index.php?topic=9300.0 .

Basically, the system is currently creating about 6.3 Million Bitcoin days every day.  In layman's terms, that means that each day that goes by, the 6.3 Million bitcoins could have been hoarded for another day.   If a hoarder cashes in some of their "stash", then they "destroy" Bitcoin Days.  Destruction of BitCoin Days is a healthy thing.  It is a measure of circulation.

To date, there have been approximately 27.3 Billion Bitcoin days created.  And about 2.2% of those have been destroyed.  This figure has been rising steadily.  (See my post that I linked to, above).  Since this is RISING, this means that more and more bitcoins are being circulated - a very good thing for the future prospects of Bitcoins.

If you are a speculator, you'd be wise to keep an eye on that "cumulative Bitcoin Days Destroyed" figure.   If it begins going down, that means that less bitcoins are being circulated, and more are being hoarded.  That's the sign of a bubble forming.  (This may be hard to believe, but we're not in a bubble now - the cumulative bitcoin days destroyed is increasing, meaning there's more spending and less hoarding than there has been in the past!  This is a VERY good sign for the long-term viability of Bitcoins.)

If cumulative Bitcoin Days Destroyed begins to go down, that's an indication that people are "over-hoarding", and I would expect that hoarding to drive the price of Bitcoins up.  That's when you get irrational exuberance.  (I contend that the exuberance so far has been rational.)  You can make a lot of money in a bubble if your timing is good, but you can also lose a lot!  At some point, this will happen, and then the savvy speculator who notices the downturn in the rate of destruction of cumulative bitcoin days will begin cashing out, a little at a time, as the froth forms on the bubble and the price of the Bitcoin climbs.  This will actually circulate more Bitcoins, as the savvy speculator sells off his hoard.

Like every bubble, at the top of the market, the savvy speculator will be cashed out, while "the masses" will be trying to buy and hoard.  Then the slaughter of the lambs will begin.  People who bought in at the top will watch their speculation plummet.  And some will be exiting the market as it drops, bringing sanity back to the market.


So, bottom line, Bitcoins are not in an unhealthy bubble YET.   People are NOT hoarding more now than before; the rise in value of Bitcoins in recent weeks has actually caused many people to cash out some of their position.  This is often due to the fact that an individual's Bitcoin wealth is a disproportionate portion of their overall wealth.  If I were sitting on $1M worth of Bitcoin wealth, you better believe I would be slowly divesting myself of some (even though I'm bullish on the prospects of Bitcoin value).


One other thing to consider: there are many reasons why people might sell Bitcoins (including being bearish on Bitcoin value, but also including trying to diversify, getting money for an upcoming wedding, death and taxes, whatever!) but there are only two reasons why people might buy bitcoins:  For their utility (including spend-ability, entertainment value, learning value, or novelty value) or because they think the value is going to go up in the future.

legal disclaimer:  This is not financial advice!  I am not a licensed professional.  Past performance is not an indication of future results.  Your mileage may vary.  And although I am bullish on Bitcoins, I just got my first 0.12 bitcoins less than 12 hours ago.  (Feel free to send me some, if you got this far in this long post!   1BZbpx7wHAUcBgzAtH4KeogTmtgUrq5Nkk  .  I'm bitcoin poor! )

--

Edit:  There have been about 27.3 Billion Bitcoin-days created so far.  I had listed how many Bitcoin-minutes have been created, and incorrectly called it Bitcoin-days.  Fixed.

[Gabriel Beal]

I imagine there are a large number of miners that are trying to recoup the fixed costs that went into building their rigs.  I think they would be pretty tight fisted until they paid back their initial investment.  After that they probably want to enjoy the free money that comes rolling in.  Whether they enjoy it by converting it to USD (or native currency) and spending it or spending it in bitcoin probably hinges on how rapidly people start offering goods/services that are as good or better than their native currency equivalent.  

[zef]

The problem as I see it is that bitcoins are looked at as a "good" in itself, rather than a tool to facilitate trade and commerce. This is mainly because there are only a  small number of businesses willing to accept btc and the real value is unknown and very volatile at the moment.  Even if a "hoarder" with 100,000 coins wanted to spend it, theres very little worth spending it on, other than trading with others for another currency.  So it leaves people with a sort of "wait and see" attitude.  

Its also extremely risky for a business to start accepting these coins, since there is no way to gauge what the actual value will be once people start spending, making it difficult to price goods to anticipate volatility.  On the flip side the only way i see btc stabilizing is when speculation dies down and actual commerce starts happening.  Its kind of a catch 22.

[BitterTea]

It would be interesting to see a chart of your tips over time, set against the exchange rate.

Were your earlier tips smaller amounts, perhaps from people without a large number of bitcoin, and when the exchange rate went up they could no longer afford to spare even that small amount?

[mimarob]

This may sound really silly, but lately when I have felt like tipping someone off I have hesitated because of the growth. That is not so silly, but my impulse would be that I'd want to grab my credit card or paypal account and tip them that way, so I never see the bitcoins flashing away.

I also thought I'd have a spendings account and one savings account for my bitcoins.

Think I'll buy some right now, if I don't tip them away directly they will be worth more tip tomorrow :-)

[Timo Y]

Since the beginning of this year I have donated thousands of USD worth of BTC at the present exchange rate, so I kind of feel like I have exceeded my donation budget many times over for this year.  It's wrong to think of it that way of course, since I assume some of the recipients sell their BTC donations as soon as they come in.

Still, I have to force myself not to think of it that way. Human psychology is a bitch.

[Timo Y]

Its also extremely risky for a business to start accepting these coins, since there is no way to gauge what the actual value will be once people start spending, making it difficult to price goods to anticipate volatility.  On the flip side the only way i see btc stabilizing is when speculation dies down and actual commerce starts happening.  Its kind of a catch 22.

If you sell your BTC as soon as you recieve them, the risk is very low. Some merchants use scripts that place automated orders on mtgox for this purpose.

Speculation will never die down. It will continue to coexist with "actual commerce", and it will always constitute a large part of the economy, as is the case for most commodities.