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What will stop bitcoin's price from going up? I just keep thinking that other than new laws or something getting hacked there is no reason for the price to not

What will stop bitcoin's price from going up? I just keep thinking that other than new laws or something getting hacked there is no reason for the price to not just keep creeping up.

sillysaurus3 9y ago
This kind of thinking is what leads to tulip bubbles. BTC has real value, but either BTC is the one asset in history which has no ceiling, or it will reach it eventually. The question is, when?
ericflo 9y ago
Bitcoin's main product is trust, so if trust in the system decreases, the price will drop. If someone demonstrated a security flaw and began to exploit it, that would likely do it.
deleted 9y ago
[deleted]
BenoitEssiambre 9y ago
It can't go up forever because the knowledge of that trend would make more and more people invest in them. At some point this would cause people to build stashes of tokens instead of investing in real businesses with real production capacity. When this trend would become widespread enough, it would eventually cause global production capacity to drop. That's right, when enough people do it, token hoarding displaces investment in businesses and factories and lowers global production capacity. This means token hoarding causes a future drop in things available to buy with these very tokens. Eventually there will be people who want to buy real things with their stock of tokens. The tokens will be chasing fewer goods which would mean prices for stuff would rise (tokens would lose value). This could happen suddenly when people with large stockpiles of tokens notice that value is dropping and that there are tons of other tokens waiting on the sideline ready to make it drop even further. Hoarders might rush to get rid of their stockpile all at the same time before they're worthless which would cause their fall to worthlessness. This drop would bring the tokens closer to their natural intrinsic value of zero. The cycle can then start again, such is aggregate economics. The 1920s and 1930s suffered from this type of production drop but with gold tied currencies instead of cryptocoins. It happened to a lesser extent in 2007 when western world central banks failed to keep inflation rates high enough. It's important for the world's sake to not let deflationary currencies become too popular. When savings or financial promises are insufficiently tied to future production or to accumulation of real goods, there will be disappointment when many people try to exchange them for real stuff. That is true for crypto currencies as well as government currencies (that is why the system is designed to make banks invest people's money in real businesses and minimize the proportion of money that is stockpiled idly). It's true that crypto currencies are currently not widely held enough to significantly affect the aggregate economy but speculation already keeps them volatile and the knowledge that as they get more popular, there will be more macroeconomic pressures towards volatility keeps the speculation wild and cryptocoins unstable. Currencies that are not designed to lose value over time can not be stable. Intrinsically worthless tokens engineered to have better than market risk adjusted, liquidity adjusted, real returns compared to real productive investment will always fluctuate increasingly wildly as they get more popular.
- omarchowdhury 9y ago
  This is the soundest commentary I have encountered regarding the Bitcoin phenomenon since 2008. Sure, a lot of people will denounce Bitcoin, even central bankers will assign doom to it, but never assert why. Is your background in economics? What literature or resource do you recommend I read to understand more of what you understand? May I contact you?
  - BenoitEssiambre 9y ago
    My background is not in economics but the financial crisis of 2008 and its aftermath kept me interested on the subject long enough to develop a general understanding of macro. I would say the economists who most shape my views would be Nick Rowe ( http://worthwhile.typepad.com/worthwhile_canadian_initi/nick-rowe/ http://worthwhile.typepad.com/worthwhile_canadian_initi/nick... ), David Beckworth ( http://macromarketmusings.blogspot.ca/ http://macromarketmusings.blogspot.ca/ ) and sometimes the more controversial but always entertaining Scott Sumner ( http://www.themoneyillusion.com/ http://www.themoneyillusion.com/ ) . A while back, I wanted to do as a side project, a game with a realistic macro economy but I got stuck at the learning phase and never got around to do the game (the rabbit hole went deeper than I had imagined). While I was researching, I put some of my musings about what I was learning in a few posts here: http://bessiambre.tumblr.com/ http://bessiambre.tumblr.com/ then later kind of summarized the views that I had formed in the following medium post: https://medium.com/@b.essiambre/the-world-deserves-a-pay-raise-302f25efd82a https://medium.com/@b.essiambre/the-world-deserves-a-pay-rai... I'm sure my conclusions are simplistic and over-general compared to those of real economists. My email is b.essiambre@gmail.com. Don't hesitate to write if you have questions.

What will stop bitcoin's price from going up? I just keep thinking that other than new laws or something getting hacked there is no reason for the price to not just keep creeping up.

sillysaurus3 9y ago

This kind of thinking is what leads to tulip bubbles. BTC has real value, but either BTC is the one asset in history which has no ceiling, or it will reach it eventually. The question is, when?

ericflo 9y ago

Bitcoin's main product is trust, so if trust in the system decreases, the price will drop. If someone demonstrated a security flaw and began to exploit it, that would likely do it.

deleted 9y ago

[deleted]

BenoitEssiambre 9y ago

It can't go up forever because the knowledge of that trend would make more and more people invest in them. At some point this would cause people to build stashes of tokens instead of investing in real businesses with real production capacity. When this trend would become widespread enough, it would eventually cause global production capacity to drop. That's right, when enough people do it, token hoarding displaces investment in businesses and factories and lowers global production capacity. This means token hoarding causes a future drop in things available to buy with these very tokens. Eventually there will be people who want to buy real things with their stock of tokens. The tokens will be chasing fewer goods which would mean prices for stuff would rise (tokens would lose value). This could happen suddenly when people with large stockpiles of tokens notice that value is dropping and that there are tons of other tokens waiting on the sideline ready to make it drop even further. Hoarders might rush to get rid of their stockpile all at the same time before they're worthless which would cause their fall to worthlessness. This drop would bring the tokens closer to their natural intrinsic value of zero. The cycle can then start again, such is aggregate economics. The 1920s and 1930s suffered from this type of production drop but with gold tied currencies instead of cryptocoins. It happened to a lesser extent in 2007 when western world central banks failed to keep inflation rates high enough. It's important for the world's sake to not let deflationary currencies become too popular. When savings or financial promises are insufficiently tied to future production or to accumulation of real goods, there will be disappointment when many people try to exchange them for real stuff. That is true for crypto currencies as well as government currencies (that is why the system is designed to make banks invest people's money in real businesses and minimize the proportion of money that is stockpiled idly). It's true that crypto currencies are currently not widely held enough to significantly affect the aggregate economy but speculation already keeps them volatile and the knowledge that as they get more popular, there will be more macroeconomic pressures towards volatility keeps the speculation wild and cryptocoins unstable. Currencies that are not designed to lose value over time can not be stable. Intrinsically worthless tokens engineered to have better than market risk adjusted, liquidity adjusted, real returns compared to real productive investment will always fluctuate increasingly wildly as they get more popular.

omarchowdhury 9y ago
This is the soundest commentary I have encountered regarding the Bitcoin phenomenon since 2008. Sure, a lot of people will denounce Bitcoin, even central bankers will assign doom to it, but never assert why. Is your background in economics? What literature or resource do you recommend I read to understand more of what you understand? May I contact you?
- BenoitEssiambre 9y ago
  My background is not in economics but the financial crisis of 2008 and its aftermath kept me interested on the subject long enough to develop a general understanding of macro. I would say the economists who most shape my views would be Nick Rowe ( http://worthwhile.typepad.com/worthwhile_canadian_initi/nick-rowe/ http://worthwhile.typepad.com/worthwhile_canadian_initi/nick... ), David Beckworth ( http://macromarketmusings.blogspot.ca/ http://macromarketmusings.blogspot.ca/ ) and sometimes the more controversial but always entertaining Scott Sumner ( http://www.themoneyillusion.com/ http://www.themoneyillusion.com/ ) . A while back, I wanted to do as a side project, a game with a realistic macro economy but I got stuck at the learning phase and never got around to do the game (the rabbit hole went deeper than I had imagined). While I was researching, I put some of my musings about what I was learning in a few posts here: http://bessiambre.tumblr.com/ http://bessiambre.tumblr.com/ then later kind of summarized the views that I had formed in the following medium post: https://medium.com/@b.essiambre/the-world-deserves-a-pay-raise-302f25efd82a https://medium.com/@b.essiambre/the-world-deserves-a-pay-rai... I'm sure my conclusions are simplistic and over-general compared to those of real economists. My email is b.essiambre@gmail.com. Don't hesitate to write if you have questions.