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Market cap is the main reason in my opinion. The more people get involved the less volatile it is going to be. You should see how volatile BTC was in 2011-2012,

Market cap is the main reason in my opinion. The more people get involved the less volatile it is going to be. You should see how volatile BTC was in 2011-2012, what is happening right now is nothing in comparison.

nwah1 9y ago
The main reason for the volatility is that there is no actual use for them, and no entrenched demand via a tax system. The price of bitcoin can literally fall to zero. With fiat currency, achieving that would require the government losing its power to enforce tax collection. People losing interest in a fad seems to be a bigger risk than a governmental collapse.
- danharaj 9y ago
  > there is no actual use for them There's a use for BTC, it's just illegal.
  - nwah1 9y ago
    I'm not convinced that bitcoin mixers provide anonymity guarantees. Cash is still better for illegal transfers. I've also heard overpaying for rare paintings and real estate are common ways that criminals transfer large sums of money.
  - v64 9y ago
    Cash can be used for illegal purposes too. Private, unencumbered, tax-free transactions have licit purposes as well.
    - nwah1 9y ago
      How are you encumbered with normal currency? And how are you able to avoid taxes with bitcoin in a way that is legal?
      - v64 9y ago
        > How are you encumbered with normal currency? A simple example would be if I want to pay someone a large amount of money (>$10,000) privately. Using credit or a check creates a financial record. Cash is the only way to keep the transaction completely private. With such a large sum, it can become non-trivial to transport that much cash, especially internationally. There's also the obvious issue of securely transporting that much physical currency. With cryptocurrency, I can transport arbitrary units of value over the internet with the security of cryptography. You may argue that there's no legitimate transaction that would occur at that high of a dollar amount, but I think that's a matter of opinion, and that individuals should be able to transact one to one without involving any third parties to transfer value. > And how are you able to avoid taxes with bitcoin in a way that is legal? This is a bit of a gray area. At the most illicit end, it's a total tax dodge by laundering/concealing income. At the legal end, I understand that there are cases where the taxes you're supposed to pay on bitcoin gains works out better than if you had made that gain through a stock or other type of investment. I haven't converted large amounts of cryptocurrency to USD or vice versa, so I'm not totally familiar with the IRS reporting for crypto assets.
    - root_axis 9y ago
      So what? Their point is that cash has other uses as well besides the illegal ones. I would argue that bitcoin has some additional uses besides the illegal ones, but they're extremely niche.
      - v64 9y ago
        Part of the reason why the US Dollar is so valuable is because of its extensive use in illicit operations. Even if a cryptocurrency is used for illegal purposes, that use increases its value for licit activities, as niche as they may be.
  - SippinLean 9y ago
    That monitor I bought on Overstock with BTC was an illegal purchase?! Why didn't you warn me!
  - lloyd-christmas 9y ago
    It definitely propped up by illegal activity, but to say it's only for that is silly: http://www.townandcountrymag.com/society/money-and-power/a10207209/montessori-schools-bitcoin/ http://www.townandcountrymag.com/society/money-and-power/a10... That's one of rich private pre-schools in NYC. Last I checked, educating 6 year olds isn't illegal. "It’s just really another payment option, Ciocca says. "If you don’t want to use it then by all means pay with a check—no harm, no foul."
- andrewla 9y ago
  I should give up on this, but I keep hearing this argument about tax collection. You can make an argument that fixed dollar amount taxes (almost like property taxes) drive direct demand for the currency. I need to pay $100, so I need to get that $100 -- if it costs me all my horses and gold to get it, then I have to buy it. You can even argue historically (in a manner analogous to the "Mises Regression Theorem") that some of the value of fiat currency derives from this historical usage. But all modern taxes (really, even, over time, property taxes) are driven by the underlying value, not by a fixed amount, and thus create no actual demand for the currency. If the government requires that I pay 10% of my income, and my income is 10 cows, it does not matter what the price of cows in dollars is -- I owe the dollar equivalent of a cow. If dollars are expensive, then I trade one cow for a few dollars and pay that, if dollars are cheap, I trade one cow for a lot of dollars and pay that. There is no net demand created by this, and I don't know why people keep claiming that. The other side, the "actual use", is definitely a real thing -- price discovery is very difficult when there is no real commerce, and until a complete supply chain can be priced in the currency, it's going to be hard for there to be any stabilizing pressure.
  - nwah1 9y ago
    The US federal government financed itself for the 19th century using land sales, tariffs, and little else. Selling land, for USD, and USD only, is certainly one way that it made USD valuable. Property taxes are very much the same kind of thing, as you mention. In effect, it makes landowners into tenants to the extent that the land is taxed. The government, being defined as the entity with sovereignty over a given region and a monopoly on force in that region, it is in effect a landlord at root. And it can make people pay to live in the area it controls. It currently strays from this role by taxing other things as well, and in so doing is generally destructive to output. But taxes on land and natural resources have no deadweight loss and historically have been the major source of government revenue. So, in effect, fiat currency is land-backed. And land value comes from the value of the location, the desirability of living there, and the productive capacity of the region... which are in turn affected by government policy.
    - nwah1 9y ago
- rothbardrand 9y ago
  There are two jurisdictions that I know about which take tax payments in bitcoin-- in Switzerland and part of Japan (maybe all of Japan) But this is irrelevant. Taxes have nothing to do with a currencies value. The tax rates in the US vs the EU do not affect the Dollar to Euro exchange rate. This argument seems to be more a product of some sort of ideological fetish for taxation than an economic perspective.
jackpot51 9y ago
I think people get confused by the units. A $4500 to $3500 drop feels worse than a $4.5 to $3.5 drop. Keep reminding people that bitcoins have fractions!

nwah1 9y ago

The main reason for the volatility is that there is no actual use for them, and no entrenched demand via a tax system. The price of bitcoin can literally fall to zero. With fiat currency, achieving that would require the government losing its power to enforce tax collection. People losing interest in a fad seems to be a bigger risk than a governmental collapse.

danharaj 9y ago
> there is no actual use for them There's a use for BTC, it's just illegal.
- nwah1 9y ago
  I'm not convinced that bitcoin mixers provide anonymity guarantees. Cash is still better for illegal transfers. I've also heard overpaying for rare paintings and real estate are common ways that criminals transfer large sums of money.
- v64 9y ago
  Cash can be used for illegal purposes too. Private, unencumbered, tax-free transactions have licit purposes as well.
  - nwah1 9y ago
    How are you encumbered with normal currency? And how are you able to avoid taxes with bitcoin in a way that is legal?
    - v64 9y ago
      > How are you encumbered with normal currency? A simple example would be if I want to pay someone a large amount of money (>$10,000) privately. Using credit or a check creates a financial record. Cash is the only way to keep the transaction completely private. With such a large sum, it can become non-trivial to transport that much cash, especially internationally. There's also the obvious issue of securely transporting that much physical currency. With cryptocurrency, I can transport arbitrary units of value over the internet with the security of cryptography. You may argue that there's no legitimate transaction that would occur at that high of a dollar amount, but I think that's a matter of opinion, and that individuals should be able to transact one to one without involving any third parties to transfer value. > And how are you able to avoid taxes with bitcoin in a way that is legal? This is a bit of a gray area. At the most illicit end, it's a total tax dodge by laundering/concealing income. At the legal end, I understand that there are cases where the taxes you're supposed to pay on bitcoin gains works out better than if you had made that gain through a stock or other type of investment. I haven't converted large amounts of cryptocurrency to USD or vice versa, so I'm not totally familiar with the IRS reporting for crypto assets.
  - root_axis 9y ago
    So what? Their point is that cash has other uses as well besides the illegal ones. I would argue that bitcoin has some additional uses besides the illegal ones, but they're extremely niche.
    - v64 9y ago
      Part of the reason why the US Dollar is so valuable is because of its extensive use in illicit operations. Even if a cryptocurrency is used for illegal purposes, that use increases its value for licit activities, as niche as they may be.
- SippinLean 9y ago
  That monitor I bought on Overstock with BTC was an illegal purchase?! Why didn't you warn me!
- lloyd-christmas 9y ago
  It definitely propped up by illegal activity, but to say it's only for that is silly: http://www.townandcountrymag.com/society/money-and-power/a10207209/montessori-schools-bitcoin/ http://www.townandcountrymag.com/society/money-and-power/a10... That's one of rich private pre-schools in NYC. Last I checked, educating 6 year olds isn't illegal. "It’s just really another payment option, Ciocca says. "If you don’t want to use it then by all means pay with a check—no harm, no foul."
andrewla 9y ago
I should give up on this, but I keep hearing this argument about tax collection. You can make an argument that fixed dollar amount taxes (almost like property taxes) drive direct demand for the currency. I need to pay $100, so I need to get that $100 -- if it costs me all my horses and gold to get it, then I have to buy it. You can even argue historically (in a manner analogous to the "Mises Regression Theorem") that some of the value of fiat currency derives from this historical usage. But all modern taxes (really, even, over time, property taxes) are driven by the underlying value, not by a fixed amount, and thus create no actual demand for the currency. If the government requires that I pay 10% of my income, and my income is 10 cows, it does not matter what the price of cows in dollars is -- I owe the dollar equivalent of a cow. If dollars are expensive, then I trade one cow for a few dollars and pay that, if dollars are cheap, I trade one cow for a lot of dollars and pay that. There is no net demand created by this, and I don't know why people keep claiming that. The other side, the "actual use", is definitely a real thing -- price discovery is very difficult when there is no real commerce, and until a complete supply chain can be priced in the currency, it's going to be hard for there to be any stabilizing pressure.
- nwah1 9y ago
  The US federal government financed itself for the 19th century using land sales, tariffs, and little else. Selling land, for USD, and USD only, is certainly one way that it made USD valuable. Property taxes are very much the same kind of thing, as you mention. In effect, it makes landowners into tenants to the extent that the land is taxed. The government, being defined as the entity with sovereignty over a given region and a monopoly on force in that region, it is in effect a landlord at root. And it can make people pay to live in the area it controls. It currently strays from this role by taxing other things as well, and in so doing is generally destructive to output. But taxes on land and natural resources have no deadweight loss and historically have been the major source of government revenue. So, in effect, fiat currency is land-backed. And land value comes from the value of the location, the desirability of living there, and the productive capacity of the region... which are in turn affected by government policy.
  - nwah1 9y ago
rothbardrand 9y ago
There are two jurisdictions that I know about which take tax payments in bitcoin-- in Switzerland and part of Japan (maybe all of Japan) But this is irrelevant. Taxes have nothing to do with a currencies value. The tax rates in the US vs the EU do not affect the Dollar to Euro exchange rate. This argument seems to be more a product of some sort of ideological fetish for taxation than an economic perspective.

jackpot51 9y ago

I think people get confused by the units. A $4500 to $3500 drop feels worse than a $4.5 to $3.5 drop. Keep reminding people that bitcoins have fractions!