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I'd say there's a simpler explanation. Bitcoin has a limited predictable supply, so its price is mostly a function of the demand. And demand correlates with exp

I'd say there's a simpler explanation. Bitcoin has a limited predictable supply, so its price is mostly a function of the demand. And demand correlates with expectations, that typically follow the hype cycle [0]. I'm not sure how much someone managed to single-handedly manipulate the price, but the plain old human psychology, FOMO and the positive feedback loop for media writing about bitcoin demand definitely played their role. All by the book really. [0] https://en.wikipedia.org/wiki/Hype_cycle https://en.wikipedia.org/wiki/Hype_cycle

Bucephalus355 8y ago
Whenever some kind of good has a truly limited supply, that can fuel the most massive of bubbles by making the “bubble” look rational at first. The bubble hides itself under the guise of being about “supply and demand”. The one thing that leaps to mind is the Japanese real estate speculation in the 1980’s. Everyone claimed, very logically, that Japan is a mountainous island with very limited space, so real estate would be almost sure to go up in value. Ultimately, the market crashed, and hasn’t recovered even 25 years later. Curiously, at the height of the housing crisis homes were about 5.5 times the median national income. In San Francisco right now (another place where supply looks limited by the water) homes there are 17.2 times the median national income.
- sbov 8y ago
  > Curiously, at the height of the housing crisis homes were about 5.5 times the median national income. In San Francisco right now (another place where supply looks limited by the water) homes there are 17.2 times the median national income. You're comparing national home prices in Japan vs national income in Japan. Then you're comparing local prices in SF to national income in the USA. You're then comparing these comparisons to show SF is super inflated. This makes no sense.
  - jaredklewis 8y ago
    In 2016, it seems SF median household income was $96,677 [1] and that the median house price was $1.31 million [2]. Couldn't find more recent number for income. That a 13.6 median price to income ratio. 2018 median house price is $1.61 million, so for wages to keep up the 2018 median income would need to be $118,382 to maintain the 13.6 ratio. Edit: I agree with parent it probably still doesn't make sense to compare cities with nations. These numbers are just for your entertainment. I think median price-to-income ratio for Tokyo now is now about 4. I am sure in the bubble it was much higher. Though again apples to oranges, it seems that the peak bubble average price to average income ratio for Tokyo was 18 [3]. 1. https://www.deptofnumbers.com/income/california/san-francisco/ https://www.deptofnumbers.com/income/california/san-francisc... 2. https://sf.curbed.com/2018/4/5/17201888/san-francisco-median-home-house-price-average-2018 https://sf.curbed.com/2018/4/5/17201888/san-francisco-median... 3. http://japanpropertycentral.com/2014/08/apartment-price-to-income-ratio-worsens-nationwide-but-improves-in-tokyo-and-osaka/ http://japanpropertycentral.com/2014/08/apartment-price-to-i...
    - nishantvyas 8y ago
      You also have to account the rise in population, which translates to higher demand. Not sure Japan had similar Demand/Supply to SF before bust. The average annual gain in SF since 2010 came to 11,173 persons, and the median is 10,824. The overall population increase of 78,593 amounts to an estimated spike of more than 9.75 percent. For comparison, that’s a higher year-over-year increase than seven of the ten most populous counties in the country, including number-one ranked Los Angeles County (up 0.1 percent since 2016), Orange County (0.4 percent), and San Diego County (0.6 percent). Breakdown of how the city has grown since the last full census in 2010, with SF’s official population of 805,770 at the time: 2011: +10,524 (816,294) 2012: +14,112 (830,406) 2013: +10,486 (841,270) 2014: +11,988 (853,258) 2015: +13,062 (866,320) 2016: +9,783 (876,103) 2017: +8,260 (884,363) 1. https://sf.curbed.com/2018/3/26/17165370/san-francisco-population-2017-census-increase https://sf.curbed.com/2018/3/26/17165370/san-francisco-popul...
    - cycrutchfield 8y ago
      SF median household income is vastly distorted by rent control and prop 13, which allow very many people to live there who otherwise would not be able to afford to live there. Therefore the above measure is not an apples-to-oranges comparison to the Japan data.
- kgwgk 8y ago
  It was said at the time that the Imperial Palace was worth more than all the real estate in California. https://amaral.northwestern.edu/blog/how-much-was-japanese-imperial-palace-worth https://amaral.northwestern.edu/blog/how-much-was-japanese-i...
  - joejerryronnie 8y ago
    They should have sold the Imperial Palace and bought California
    - stcredzero 8y ago
      It was probably impossible to find a buyer.
- usefulcat 8y ago
  As I understand it, for a variety of reasons, the value of a home tends to fall much more rapidly over time in Japan compared to the US. This probably means that if you're going to get a loan to buy a house in Japan, it's probably going to be for a lot less (relatively) and/or for a shorter period of time than you could generally get in the US, which will put significant downward pressure on home prices (again, as compared to the US). Put another way, the more people are spending razing and rebuilding on a given supply of land, the less they'll be able to spend on the land itself.
- spinlock 8y ago
  Why are you comparing regional prices to national income?
  - thecrazyone 8y ago
    I'm an economics noob, but is `comparing regional prices to national income` in some way technically wrong or misleading in some way?
tomkarlo 8y ago
Is the supply really "limited"? Sure, there's finite number of "coins" that can be generated. But unlike physical objects, there's not really any special property of that unit. Also, you can just generate a new currency of more units and similar utility (as has happened many times recently.) Objects in the real world have utility that's directly linked to their unit value. That's not necessarily true for Bitcoin... if it goes up 10X, I can just use 1/10 as much and get the same exact transaction result. So why is it "limited" from a supply/demand perspective?
- mr_spothawk 8y ago
  while the supply of digital coins is infinite (you could fork btc, or any other chain, or create different coins that could then be forked) the supply of Bitcoins is finite & knowable. this is a component of the argument by "maximalists" who suggest that alternate coins/tokens are bullshit by design, and anybody who thinks they aren't is necessarily in favor of inflationary money. > Objects in the real world have utility that's directly linked to their unit value. Could you explain what this means to you? I don't understand what you're saying
  - cecilpl2 8y ago
    Bigger diamonds are more desirable than larger diamonds, not because of the price, but because they look better and are sparklier and harder to lose and all sorts of other real-world metrics. If I want $1000 of bitcoin, I don't care whether that value is in 1 BTC, 100BTC, or 0.0001BTC. They are otherwise identical to me. Therefore, the fact that the total of all bitcoins in circulation can't exceed 23 million is irrelevant unless you care about the value of 1 BTC, which is only the case if you are trying to sell them for more than you paid.
    - tomkarlo 8y ago
      What he said above: unless you have a long or short position, you don't care whether you get a full unit or some fraction thereof. There are some elements of behavior economics that counter this - people like to buy lower-priced coins and stocks because they get "more" of them, from a unit perspective. But rationally, there's no reason to consider 1 BTC @ $10 any different from 0.1 BTC @ $100, hence the number of "units" seems potentially irrelevant.
joe_the_user 8y ago
Why can't it be both? (Hype cycle and manipulation). Indeed, any theory of manipulation has to involve a managed hype cycle. If a small number of people and organizations controlled both bitcoin supply and bitcoin trading and had the ability generate tether, they could "prime the pump" of the hype cycle to get attention and a rise in price. They'd then cash out money from the folks who put dollars into bitcoin. But once the hype cycle turned, they could slow down trading in bitcoin, slow down the cashing-out of tether, and print new tether so that a bust wouldn't be evident in the price, and so that an actual mass exodus from bitcoin into real dollars wouldn't be possible. Thus bitcoin prices could be sustained at an apparently high level, with even a few upward bumps, for a while.
the_cat_kittles 8y ago
i just want to tip my hat to such a succinct, and in my view accurate summary.
JumpCrisscross 8y ago
> Bitcoin has a limited predictable supply Lots of things have predictably limited supplies. Most of them don't go through a hype cycle.
JKCalhoun 8y ago
Agreed. I heard millennials (mainly) looking at the desolate financial future that awaits them and deciding to roll the dice and throw what little cash they had into Bitcoin. Sad on many levels.

Bucephalus355 8y ago

Whenever some kind of good has a truly limited supply, that can fuel the most massive of bubbles by making the “bubble” look rational at first. The bubble hides itself under the guise of being about “supply and demand”. The one thing that leaps to mind is the Japanese real estate speculation in the 1980’s. Everyone claimed, very logically, that Japan is a mountainous island with very limited space, so real estate would be almost sure to go up in value. Ultimately, the market crashed, and hasn’t recovered even 25 years later. Curiously, at the height of the housing crisis homes were about 5.5 times the median national income. In San Francisco right now (another place where supply looks limited by the water) homes there are 17.2 times the median national income.

sbov 8y ago
> Curiously, at the height of the housing crisis homes were about 5.5 times the median national income. In San Francisco right now (another place where supply looks limited by the water) homes there are 17.2 times the median national income. You're comparing national home prices in Japan vs national income in Japan. Then you're comparing local prices in SF to national income in the USA. You're then comparing these comparisons to show SF is super inflated. This makes no sense.
- jaredklewis 8y ago
  In 2016, it seems SF median household income was $96,677 [1] and that the median house price was $1.31 million [2]. Couldn't find more recent number for income. That a 13.6 median price to income ratio. 2018 median house price is $1.61 million, so for wages to keep up the 2018 median income would need to be $118,382 to maintain the 13.6 ratio. Edit: I agree with parent it probably still doesn't make sense to compare cities with nations. These numbers are just for your entertainment. I think median price-to-income ratio for Tokyo now is now about 4. I am sure in the bubble it was much higher. Though again apples to oranges, it seems that the peak bubble average price to average income ratio for Tokyo was 18 [3]. 1. https://www.deptofnumbers.com/income/california/san-francisco/ https://www.deptofnumbers.com/income/california/san-francisc... 2. https://sf.curbed.com/2018/4/5/17201888/san-francisco-median-home-house-price-average-2018 https://sf.curbed.com/2018/4/5/17201888/san-francisco-median... 3. http://japanpropertycentral.com/2014/08/apartment-price-to-income-ratio-worsens-nationwide-but-improves-in-tokyo-and-osaka/ http://japanpropertycentral.com/2014/08/apartment-price-to-i...
  - nishantvyas 8y ago
    You also have to account the rise in population, which translates to higher demand. Not sure Japan had similar Demand/Supply to SF before bust. The average annual gain in SF since 2010 came to 11,173 persons, and the median is 10,824. The overall population increase of 78,593 amounts to an estimated spike of more than 9.75 percent. For comparison, that’s a higher year-over-year increase than seven of the ten most populous counties in the country, including number-one ranked Los Angeles County (up 0.1 percent since 2016), Orange County (0.4 percent), and San Diego County (0.6 percent). Breakdown of how the city has grown since the last full census in 2010, with SF’s official population of 805,770 at the time: 2011: +10,524 (816,294) 2012: +14,112 (830,406) 2013: +10,486 (841,270) 2014: +11,988 (853,258) 2015: +13,062 (866,320) 2016: +9,783 (876,103) 2017: +8,260 (884,363) 1. https://sf.curbed.com/2018/3/26/17165370/san-francisco-population-2017-census-increase https://sf.curbed.com/2018/3/26/17165370/san-francisco-popul...
  - cycrutchfield 8y ago
    SF median household income is vastly distorted by rent control and prop 13, which allow very many people to live there who otherwise would not be able to afford to live there. Therefore the above measure is not an apples-to-oranges comparison to the Japan data.
kgwgk 8y ago
It was said at the time that the Imperial Palace was worth more than all the real estate in California. https://amaral.northwestern.edu/blog/how-much-was-japanese-imperial-palace-worth https://amaral.northwestern.edu/blog/how-much-was-japanese-i...
- joejerryronnie 8y ago
  They should have sold the Imperial Palace and bought California
  - stcredzero 8y ago
    It was probably impossible to find a buyer.
usefulcat 8y ago
As I understand it, for a variety of reasons, the value of a home tends to fall much more rapidly over time in Japan compared to the US. This probably means that if you're going to get a loan to buy a house in Japan, it's probably going to be for a lot less (relatively) and/or for a shorter period of time than you could generally get in the US, which will put significant downward pressure on home prices (again, as compared to the US). Put another way, the more people are spending razing and rebuilding on a given supply of land, the less they'll be able to spend on the land itself.
spinlock 8y ago
Why are you comparing regional prices to national income?
- thecrazyone 8y ago
  I'm an economics noob, but is `comparing regional prices to national income` in some way technically wrong or misleading in some way?

tomkarlo 8y ago

Is the supply really "limited"? Sure, there's finite number of "coins" that can be generated. But unlike physical objects, there's not really any special property of that unit. Also, you can just generate a new currency of more units and similar utility (as has happened many times recently.) Objects in the real world have utility that's directly linked to their unit value. That's not necessarily true for Bitcoin... if it goes up 10X, I can just use 1/10 as much and get the same exact transaction result. So why is it "limited" from a supply/demand perspective?

mr_spothawk 8y ago
while the supply of digital coins is infinite (you could fork btc, or any other chain, or create different coins that could then be forked) the supply of Bitcoins is finite & knowable. this is a component of the argument by "maximalists" who suggest that alternate coins/tokens are bullshit by design, and anybody who thinks they aren't is necessarily in favor of inflationary money. > Objects in the real world have utility that's directly linked to their unit value. Could you explain what this means to you? I don't understand what you're saying
- cecilpl2 8y ago
  Bigger diamonds are more desirable than larger diamonds, not because of the price, but because they look better and are sparklier and harder to lose and all sorts of other real-world metrics. If I want $1000 of bitcoin, I don't care whether that value is in 1 BTC, 100BTC, or 0.0001BTC. They are otherwise identical to me. Therefore, the fact that the total of all bitcoins in circulation can't exceed 23 million is irrelevant unless you care about the value of 1 BTC, which is only the case if you are trying to sell them for more than you paid.
  - tomkarlo 8y ago
    What he said above: unless you have a long or short position, you don't care whether you get a full unit or some fraction thereof. There are some elements of behavior economics that counter this - people like to buy lower-priced coins and stocks because they get "more" of them, from a unit perspective. But rationally, there's no reason to consider 1 BTC @ $10 any different from 0.1 BTC @ $100, hence the number of "units" seems potentially irrelevant.

joe_the_user 8y ago

Why can't it be both? (Hype cycle and manipulation). Indeed, any theory of manipulation has to involve a managed hype cycle. If a small number of people and organizations controlled both bitcoin supply and bitcoin trading and had the ability generate tether, they could "prime the pump" of the hype cycle to get attention and a rise in price. They'd then cash out money from the folks who put dollars into bitcoin. But once the hype cycle turned, they could slow down trading in bitcoin, slow down the cashing-out of tether, and print new tether so that a bust wouldn't be evident in the price, and so that an actual mass exodus from bitcoin into real dollars wouldn't be possible. Thus bitcoin prices could be sustained at an apparently high level, with even a few upward bumps, for a while.

the_cat_kittles 8y ago

i just want to tip my hat to such a succinct, and in my view accurate summary.

JumpCrisscross 8y ago

> Bitcoin has a limited predictable supply Lots of things have predictably limited supplies. Most of them don't go through a hype cycle.

JKCalhoun 8y ago

Agreed. I heard millennials (mainly) looking at the desolate financial future that awaits them and deciding to roll the dice and throw what little cash they had into Bitcoin. Sad on many levels.