The Rise of Bitcoin Cost

[kangasbros]

If there is lots of volatility, it probably offers lots of opportunities for speculators/bot-writers/traders to profit from the volatility. SO the problem could fix itself.

[JoelKatz]

Isn't it the case that with low (even if stable) prices, any large transaction in an exchange will move the market, thus causing volatility?

I believe so.

The only way to a more stable and functional market is increase in "market cap" (a misnomer) - and since supply is set in stone, this means increase in exchange rates (influx of fiat capital).

I agree. To some extent, the price of a bitcoin is a measure of the success of bitcoins. (Though indirectly.)

[norulezapply]

Bitcoin prices rise...

Not sure what the problem is, I would love to know why.

No problems here, chief!

[niko]

To some extent, the price of a bitcoin is a measure of the success of bitcoins. (Though indirectly.)

This is an important point. Perhaps trivial, but many miss it: if Bitcoin ever succeeds, the exchange rates will have to be many times higher than they are today. The other way around is not necessarily true: high price doesn't indicate the success (wide adoption). Lots of fiat capital doesn't necessarily mean lots of users and diversity.

[DeathAndTaxes]

Isn't it the case that with low (even if stable) prices, any large transaction in an exchange will move the market, thus causing volatility? The recurring joke here is that current btc economy cannot even sustain a fancy yacht or a house being traded without volatility.

The only way to a more stable and functional market is increase in "market cap" (a misnomer) - and since supply is set in stone, this means increase in exchange rates (influx of fiat capital).

Yes.  However two things are needed.  A larger money supply AND sufficient market depth (doesn't matter where it will all arbitrage).  For Bitcoin, the larger money supply requires higher exchange rates (not just pump and dump but sustainable higher exchange rates due to real demand).   The deeper market depth will come with higher prices, larger players, more economic activity, and more mature exchanges/platforms.

The USD:EUR exchange rate has low volatility not just because both economies are large but also because the Forex market has massive depth.  It takes hundreds of millions in trades to move the market in any meaningful way.

[evoorhees]

It started rising after Butterfly Labs started taking payment in BTC for their new mining equipment.

It also started rising after April 15. April 15th must've caused it!

[donatello]

I too am curious to know why a rise in price is perceived as a problem.

Use as a medium of exchange is critical to Bitcoin's long-term success. Instability in value makes a currency harder to use as a medium of exchange. Imagine, for example, if you placed a large purchase on a Bitcoin credit card and the value of Bitcoins doubled. Or imagine if your rent was in Bitcoins and then the value of Bitcoins doubled.

Part of using something as a medium of exchange is you hold those things to plan for future purchases.  If you're paying rent in BTC and holding dollars, you're doing it wrong imo.

Anyways, Bitcoin is used by a tiny amount of people right now.  You're not gonna get to the point of "long-term success" without it going up a bunch.

[goxed]

probably due to the success of sr.
http://www.newscientist.com/blogs/onepercent/2012/08/silk-road-bitcoin-illegal.html

[Serge]

probably due to the success of sr.
http://www.newscientist.com/blogs/onepercent/2012/08/silk-road-bitcoin-illegal.html

wired uk and forbes picked up the story

http://www.wired.co.uk/news/archive/2012-08/06/silk-road-drugs
http://www.forbes.com/sites/andygreenberg/2012/08/06/black-market-drug-site-silk-road-booming-22-million-in-annual-mostly-illegal-sales/

[JoelKatz]

I too am curious to know why a rise in price is perceived as a problem.

Use as a medium of exchange is critical to Bitcoin's long-term success. Instability in value makes a currency harder to use as a medium of exchange. Imagine, for example, if you placed a large purchase on a Bitcoin credit card and the value of Bitcoins doubled. Or imagine if your rent was in Bitcoins and then the value of Bitcoins doubled.

Part of using something as a medium of exchange is you hold those things to plan for future purchases.  If you're paying rent in BTC and holding dollars, you're doing it wrong imo.

Sure, that solves the problem for people who have enough wealth stored that they can stash the money to pay all their future rent when they enter into the rental agreement. However, for ordinary people, having their rent suddenly cost twice as much of their income would be devastating.

[Cablez]

The research discovered that there was a very tight coupling between the Silk Road and Bitcoin market, saying that "daily sales on Silk Road correspond to almost 20 percent fo the average daily volume of US dollar to Bitcoin exchanges on Mt.Gox. As a result, a potentially effective intervention policy would be to destabilise the value of the Bitcoin, creating instability in the market.

Well boys, it looks like its on!!

[Serge]

The research discovered that there was a very tight coupling between the Silk Road and Bitcoin market, saying that "daily sales on Silk Road correspond to almost 20 percent fo the average daily volume of US dollar to Bitcoin exchanges on Mt.Gox. As a result, a potentially effective intervention policy would be to destabilise the value of the Bitcoin, creating instability in the market.

Well boys, it looks like its on!!

If they cut fiat access to major bitcoin exchanges, bitcoin will just go into shadows evolving more advanced decentralized exchanges. Even if value of bitcoin drops with panic at that point, in the end Bitcoin will come out only stronger and more resilient.


edit: the quoted comment taken out of context, researchers actually gave 4 suggestions on "potential intervention strategies": a) Attacking the (tor) network; b) Attacking the financial infrastructure; c) Attacking the delivery model & d) Laissez-faire - do nothing.  To follow author's logic with accepting "attacking financial infrastructure", it should start with fiat - as it is widely used in all sorts of crime.

[donatello]

I too am curious to know why a rise in price is perceived as a problem.

Use as a medium of exchange is critical to Bitcoin's long-term success. Instability in value makes a currency harder to use as a medium of exchange. Imagine, for example, if you placed a large purchase on a Bitcoin credit card and the value of Bitcoins doubled. Or imagine if your rent was in Bitcoins and then the value of Bitcoins doubled.

Part of using something as a medium of exchange is you hold those things to plan for future purchases.  If you're paying rent in BTC and holding dollars, you're doing it wrong imo.

Sure, that solves the problem for people who have enough wealth stored that they can stash the money to pay all their future rent when they enter into the rental agreement. However, for ordinary people, having their rent suddenly cost twice as much of their income would be devastating.

To me having 6-12 months of rent saved seems fairly "ordinary" when you enter into a rental agreement. (I'm sleeping in the woods before I'm coughing up like most of my net worth on rent.)

But regardless, I don't think it makes much sense to make long-term contracts in BTC right now. Your hypothetical person should be getting income in BTC if it makes sense to do rent contracts that way.

When it's widely used, then it can be stable, but stability now would just mean bitcoin is never widely used.

[anu]

High BTC price is mainly a good thing, as it stabilizes the price - a 1$ movement in price is huge when price is 5$, and a minor thing when price is 100$

That's not really a good argument -  there's no reason why the absolute volatility of the price should be constant, rather than proportional to the price itself. What is a good argument is that higher price implies more people which implies a more diffuse community and therefore more stability due to the random walk effect.

It is. Back in November buying a car for $30K would move the price more than 20% back and forth (you buying the BTC and the car dealer selling them again). Today, the same deal would barely be noticeable.