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Serious question: How is BTC going to ever achieve the price stability required for a currency?
by brucephillips 9y ago
Serious question: How is BTC going to ever achieve the price stability required for a currency?
- api 9y ago... or the transaction volume?
- brndnmtthws 9y agoThe volume will increase in line with adoption.
- brucephillips 9y agoIsn't this tautological? What does "adoption" mean if not "transaction volume"?
- brndnmtthws 9y agoI assume the parent was referring to the trade volume, which is significantly lower than more established assets.
- brucephillips 9y agoAh, I interpreted it to mean transaction volume, since that's an indicator of BTC's utility beyond speculation.
- astrange 9y agoIs that before or after they figure out how to do more than 7 BTC transactions a second?
- brndnmtthws 9y agoWhy are people so obsessed with stability? Prices can float freely.
- brucephillips 9y agoCurrencies, at least traditionally, are a store of value. You don't want stores of values to be volatile. Though I suppose the end game for BTC could be a transfer mechanism that no one actually holds. It would still be subject to flash crashes, though.
- Frogolocalypse 9y agoAs a person who uses bitcoin as a store of value, i am quite ok with it being worth 10x what it was less than a year ago. More volatility for me please.
- throwaway2048 9y agoyou might be a lot less happy when that means 1/10th of the value.
- Frogolocalypse 9y agoIf i were you I'd be dumping my USD then.
- brndnmtthws 9y agoWhich is better, a currency that's guaranteed to decrease in value over time, or one with a fixed supply that has historically increased in value consistently? I think with the volatility everything tends to average out. And the economic theory that currency must be inflationary is widely accepted as correct, but I don't really understand why or what the first principles are behind that claim.
- brucephillips 9y agoIf you're explicitly asking about USD vs. BTC, I'll definitely take USD, which has a strong history of stability. BTC certainly doesn't have that. Maybe BTC is going to appreciate or stabilize for the next century, but why would I risk that?
- lifty 9y agoIt is likely that volatility will drop a lot once and if it gains widespread adoption.
- brucephillips 9y agoI don't know much about monetary policy. Why does adoption imply price stability?
- lifty 9y agoI don't think there are any guarantees, but the reasoning is that widespread adoption implies that the violent capital inflows have subdued and a more stable equilibrium is reached. Of course, panics can still happen for various reasons (security breaches, outlawing it etc).
- brucephillips 9y agoWhat about violent capital outflows?
- mtgx 9y agoRight now there are still trillions of dollars that could go into Bitcoin (potentially), and the more of that money gets converted into Bitcoin, the more its price increases (because the number of Bitcoins is relatively stable from month to month or even year to year, so it's logical that 1BTC will cost more when $1 trillion are put into Bitcoin than when $100 billion are put into Bitcoin). As Bitcoin gets closer to its "maximum potential" (which could very well be the total world transactions being done in Bitcoin, or say 50% of them, if Bitcoin's share of total cryptocurrency market cap remains the same as it is now), the price should stabilize, as there wouldn't be extra money that could be put into Bitcoin, or at least not much more than there already is. Also, there's a big difference between adding $100 billion into Bitcoin when the total Bitcoin market cap is $100 billion before that, and adding $100 billion when Bitcoin's market cap is $10 trillion. That's why when Bitcoin's market cap will represent a much larger share of the world transactions, its price should become increasingly more stable.
- kyleschiller 9y agoI'm not an expert, but from what I've read it sounds like derivatives (i.e futures) might help. https://qz.com/1144262/the-cftcs-green-light-for-bitcoin-futures-could-help-tame-the-market/ https://qz.com/1144262/the-cftcs-green-light-for-bitcoin-fut...
- brucephillips 9y agoAh, I didn't realize derivatives were illegal until now. Thanks! Why haven't derivative exchanges popped up in unregulated markets, the same way that ICOs have avoided US regulators.
- JepZ 9y agoWell, traditional currencies were stable because of the gold standard, but nowadays the stability of bitcoin comes from the miners and the difficulty setting, while the stability of national currencies is controlled by institutions like the FED. Nevertheless, at the moment there is an increased global demand for bitcoins due to the many people and organizations who are joining the system. The only problem is that due to high demand the bitcoin value to normal currencies quote increases so rapidly that it attracts even more people, which could lead to many people loosing their interest in bitcoin as soon as the growth rates cool down. So let's hope the cool down will happen gradually. That way we should not be afraid of the bubble.
- brucephillips 9y ago> the stability of bitcoin comes from the miners and the difficulty setting The mining system controls the supply, not the value.
- slededit 9y agoOnly in the short term. The difficulty adjustment eventually makes changes in mining capacity moot.
- brucephillips 9y agoI consider the difficult adjustment to be part of the "mining system". My point is that BTC self-regulates supply, not value. Value is determined by the (volatile) market.
- JepZ 9y agoAnd I thought 'supply and demand' define 'value'. So when you control the 'supply' you should be able to control the value to some extend. Granted, as the mining system can only add coins the control is limited.
- emodendroket 9y agoOK, so we have shown that inflation of Bitcoins would not be likely if they were in wide use. Have you considered deflation at all? Deflation is great if you're holding the currency to speculate, but not if it's running an economy.
- acchow 9y agoWith derivatives.