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Why should Bitcoin cost so much just because the future may depend on it? That's a good case for why it will continue to exist, but it could also exist and do i

Why should Bitcoin cost so much just because the future may depend on it? That's a good case for why it will continue to exist, but it could also exist and do it's job at $1.00 / btc. I think it's a couple of things that Buffett is looking at. First, like gold, Bitcoin is not a business and does not produce earnings. Second, people seem to be buying it for no other reason than that they think it'll keep going up. That's usually a good argument for the asset not being a bargain. Third, Buffett is self admittedly not an expert when it comes to tech.

DennisP 9y ago
Because the price of any currency is proportional to GDP/velocity, and since it's costly to exchange cryptocurrency with fiat, there's a limit to how high the velocity can go.
- brucephillips 9y ago
  > Because the price of any currency is proportional to GDP/velocity wat
- FabHK 9y ago
  The quantity of money is proportional to nominal GDP/velocity (in the quantity theory of money). This doesn't tell you anything about the "price of a currency" in another currency, ie the exchange rate.
  - DennisP 9y ago
    So you're claiming that if Bitcoin did $1 trillion dollars worth of transactions in a year, and people held it for a year on average, that wouldn't necessarily imply a total value for all bitcoins of $1 trillion?
    - imtringued 9y ago
      The total value of all bitcoins could still be $10 trillion or $100 billion.
      - DennisP 9y ago
        I'm curious how you think that could actually happen. If the value is $100 billion and it changes hands once per year, then that's $100 billion that changed hands, and the GDP is $100 billion. If it changed hands twice, that's a GDP of $200 billion. Note that I'm not making a price prediction; I'm just saying that if the price is low, and the velocity isn't unrealistically high, then that necessarily means that Bitcoin is playing a minor role in the economy because it trivially implies a low aggregate value of transactions. Conversely if the price is high, Bitcoin still might be playing a minor role, if the average velocity is very low because lots of people are holding coins for a long time. But for Bitcoin to play a major role in the economy, it would need either a high price or a high velocity, so the aggregate value of transactions is a major portion of GDP. A really high velocity would require fast and extremely cheap conversions with fiat, so you can hold fiat and convert to/from bitcoin at transaction time.
    - FabHK 9y ago
      The quantity theory of money is concerned with one currency at a time. The trick in your paragraph above is that you introduced “$1 trillion dollar”. Of course, if you say that the sum of all transactions (in BTC) has a certain USD value, then you’ve brought the exchange rate in (through the back door).
pejrich 9y ago
> but it could also exist and do it's job at $1.00 / btc. Probably one of the stupidest comments I've read on here. You display not even a basic understanding of how Bitcoin or economics work. If I have a successful company with 100 shares. People will want those shares which will drive the price up. To fix the price at $1.00, or to dilute shares to keep the price at $1.00 is just ridiculous.
- defertoreptar 9y ago
  Who's saying anything about "fixing" a price or diluting shares? Bitcoin's exchange rate is a function of supply in demand. It could exist and do its job with low demand (e.g. $1.00 / btc) or high demand (today's price). What is the reason for the high demand? The answer is speculation that the price will continue to rise. The point I was making is that if people were using it only as a only as a currency, then the price very well could be $1.00 / btc. The reason it's so high is because people in large numbers are buying and holding it as an investment, reducing the supply.
pjc50 9y ago
What people are overlooking is that it's really easy to start a new cryptocurrency. There's no reason why the first mover should remain dominant for ever, or even that there needs to be a single dominant global cryptocurrency for all purposes.
- AstralStorm 9y ago
  This is only a valid argument if it is hard or too expensive to exchange between first and nth mover.

DennisP 9y ago

Because the price of any currency is proportional to GDP/velocity, and since it's costly to exchange cryptocurrency with fiat, there's a limit to how high the velocity can go.

brucephillips 9y ago
> Because the price of any currency is proportional to GDP/velocity wat
FabHK 9y ago
The quantity of money is proportional to nominal GDP/velocity (in the quantity theory of money). This doesn't tell you anything about the "price of a currency" in another currency, ie the exchange rate.
- DennisP 9y ago
  So you're claiming that if Bitcoin did $1 trillion dollars worth of transactions in a year, and people held it for a year on average, that wouldn't necessarily imply a total value for all bitcoins of $1 trillion?
  - imtringued 9y ago
    The total value of all bitcoins could still be $10 trillion or $100 billion.
    - DennisP 9y ago
      I'm curious how you think that could actually happen. If the value is $100 billion and it changes hands once per year, then that's $100 billion that changed hands, and the GDP is $100 billion. If it changed hands twice, that's a GDP of $200 billion. Note that I'm not making a price prediction; I'm just saying that if the price is low, and the velocity isn't unrealistically high, then that necessarily means that Bitcoin is playing a minor role in the economy because it trivially implies a low aggregate value of transactions. Conversely if the price is high, Bitcoin still might be playing a minor role, if the average velocity is very low because lots of people are holding coins for a long time. But for Bitcoin to play a major role in the economy, it would need either a high price or a high velocity, so the aggregate value of transactions is a major portion of GDP. A really high velocity would require fast and extremely cheap conversions with fiat, so you can hold fiat and convert to/from bitcoin at transaction time.
  - FabHK 9y ago
    The quantity theory of money is concerned with one currency at a time. The trick in your paragraph above is that you introduced “$1 trillion dollar”. Of course, if you say that the sum of all transactions (in BTC) has a certain USD value, then you’ve brought the exchange rate in (through the back door).

pejrich 9y ago

> but it could also exist and do it's job at $1.00 / btc. Probably one of the stupidest comments I've read on here. You display not even a basic understanding of how Bitcoin or economics work. If I have a successful company with 100 shares. People will want those shares which will drive the price up. To fix the price at $1.00, or to dilute shares to keep the price at $1.00 is just ridiculous.

defertoreptar 9y ago
Who's saying anything about "fixing" a price or diluting shares? Bitcoin's exchange rate is a function of supply in demand. It could exist and do its job with low demand (e.g. $1.00 / btc) or high demand (today's price). What is the reason for the high demand? The answer is speculation that the price will continue to rise. The point I was making is that if people were using it only as a only as a currency, then the price very well could be $1.00 / btc. The reason it's so high is because people in large numbers are buying and holding it as an investment, reducing the supply.

pjc50 9y ago

What people are overlooking is that it's really easy to start a new cryptocurrency. There's no reason why the first mover should remain dominant for ever, or even that there needs to be a single dominant global cryptocurrency for all purposes.

AstralStorm 9y ago
This is only a valid argument if it is hard or too expensive to exchange between first and nth mover.