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The appreciation and depreciation of Bitcoin is one of the things I don’t really understand. I get currency, capital flow, and asset to capital conversions. But

The appreciation and depreciation of Bitcoin is one of the things I don’t really understand. I get currency, capital flow, and asset to capital conversions. But for Bitcoin, where exactly is the value? Why is holding one Bitcoin appreciating so much faster compared to the USD? Is it because us as a society is perceiving the value of Bitcoin to appreciate (even though it’s illogical IMO to think so)?

tomlue 6y ago
The value of bitcoin doesn't need to increase in absolute terms for its USD value to increase.
- snicksnak 6y ago
  This makes no sense to me. Isn't the value of bitcoin measured in USD?
  - gruez 6y ago
    The price of USD can go down.
absolutelyrad 6y ago
I'd like to think that in 10 years, Bitcoin or some other cryptocurrency would be one of the reserve currencies held by central banks. But there's no going back. Cryptocurrencies have their place, and they're here to stay.
gruez 6y ago
>Why is holding one Bitcoin appreciating so much faster compared to the USD? Is it because us as a society is perceiving the value of Bitcoin to appreciate (even though it’s illogical IMO to think so)? Same reason why asset (stocks, housing) prices have skyrocketed even though there's a pandemic going on: money printing.
- jayd16 6y ago
  This doesn't make any sense to me or at least doesn't answer the question "why bitcoin?" Gold doesn't have the same curve as BTC. Neither does pretty much anything else. Why has Bitcoin alone gone up 20% in the last month?
  - hn_throwaway_99 6y ago
    I think it's easier to understand BTC valuation (and, indeed, many individual stocks, e.g. see what happened to Hertz earlier this year) if you think of it like an MMO game instead of an asset that is valued based on some analysis of discounted future cash flows. When an asset has so much volatility, many people are just gambling on when they can get in and get out, underlying fundamentals be damned.
  - notJim 6y ago
    Better marketing?
- NovemberWhiskey 6y ago
  And yet, somehow, during various other periods of money printing its value has crashed. So are you asserting this period of money printing is different, and if so how? edit Even the post facto explanations of Bitcoins price fluctuations generally do not seem to be agreed or understood.
  - shakezula 6y ago
    "History doesn't repeat itself, but it rhymes" We can look at how economics have worked in the past to get some hints about the present, but ultimately we have no idea. We may have just entered a new era of financial and economic patterns, or we may be teetering on the verge of complete and literal collapse that would put the Great Depression to shame and have absolutely no idea. We just don't know. Unemployment rates are slowly going back down, and the economy seems to have come to grips with how to handle the virus over the summer, so for now I think we're probably good, but the long term effects of COVID's shock to the system and the tax breaks we passed before it are probably at least 6-12 months away from starting to materialize.
deleted 6y ago
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vmception 6y ago
The -coin and -currency terminology are skeumorphs. these assets have nothing to do with currency while they absolutely do inherit the transfer mechanics like a currency. they inherit some aspect of every asset class that has ever existed while having none of the limitations of any one asset class. Any limitation they do have now can be addressed in a software update. That's a new feature across asset classes, and some market participants value that. Given the limited supply, there can be supply shocks as ore market participants value its attributes.
deleted 6y ago
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AntiImperialist 6y ago
It's the same reason why stocks of companies go up and down: perceived value.
feanaro 6y ago
Yes, and perhaps it isn't so illogical.
olalonde 6y ago
It's largely a collective delusion, it has value because people believe it has value. Fiat currencies and gold are arguably in that same category.
- ur-whale 6y ago
  >Fiat currencies and gold are arguably in that same category. Anything trade-able is in the same category. Things only have value because someone, somewhere is ready to buy it. It's called supply and demand.
  - olalonde 6y ago
    To clarify, what I meant was specifically "exchange value". The sole purpose of buying Bitcoin or USD is to exchange it at some later point in time. There are practically no other uses. As opposed to the many trade-able things which can be consumed, used, exploited, etc. Of course it's not black and white. Gold has some intrinsic value but its "intrinsic value demand" (e.g. industrial uses) only accounts for a tiny share of total demand.
ur-whale 6y ago
You may want to consider that the value of Bitcoin a constant. The implication is that the value of the USD isn't.
- hn_throwaway_99 6y ago
  > You may want to consider that the value of Bitcoin a constant. That seems like a foolhardy assumption given that what I can go to the store and buy with $1 stays relatively constant day-to-day, while what I can buy with 1 BTC fluctuates wildly.
deleted 6y ago
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hirako2000 6y ago
There is arguably far less value for most fiat curencies, at least for future use, maybe we still have a working fiat system today. Let's assume bitcoin becomes the dominant currency for payments down the road. At its max supply, each bitcoin would be worth well over 10 million USD (in today's value of USD). And it would keep increasing in "value" because of its deflation scheme (unless of course conscencius vote for upping the supply limit for whatever reason) So, we have a fiat currency on one side, manipulated by (at best) incompetent politicians, suffering inflation in the near term with all the stimulus we absurdly accept, a growing global debt, without a solution to repay in the horizon. And on the other side, a sane monetary policy system backed by a very solid network (all those farms + battle tested software). In a 5+ years, these comments will look funny when people will argue that a 100k bitcoin is overvalued.
- AnimalMuppet 6y ago
  > Let's assume bitcoin becomes the dominant currency for payments down the road. What if we don't assume that?
  - hirako2000 6y ago
    The exact opposite would be that bitcoin value eventually drops to zero. No use, no value. It's a possibility. And I don't have a crystal ball. People will make that choice. Fiat currencies may solve its deficiencies and we will happily with them. Given how global and digital the world is becoming, crypto currencies would most likely be somewhat popular anyways, unless something better comes along.
syllable_studio 6y ago
So glad you asked! I wrote a blog post about exactly this. My answer is "The Network is the value." The price of a bitcoin reflects the value of the network using it. https://blog.syllablehq.com/the-network-is-the-value/ https://blog.syllablehq.com/the-network-is-the-value/
flignats 6y ago
It's the world's first globally accessible, decentralized, transparent, immutable ledger.
asdfadsfgfdda 6y ago
1. facilitating "illegal" activities (ransomware, dodging capital controls and taxes, drugs, etc), similar to cash 2. speculation: "Someone speculating on Bitcoin over a week cares little about its fundamental value: even if you told her that Bitcoin would crash to zero for sure in three years, it would make essentially no dent in her trading profits, since you can make a lot of money in a volatile market over the course of a week if you get on the right side of the volatility." https://review.chicagobooth.edu/finance/2018/article/bitcoin-market-isn-t-irrational https://review.chicagobooth.edu/finance/2018/article/bitcoin...
OliverGilan 6y ago
You need to understand the point of money in the first place. For most of human history economies were structured around trade without money. You would trade spices for cattle and things like that. Once we started mining gold and silver it became convenient to say, hey, these metals are useful for certain things but they're also very convenient to use as a medium for trade. So instead of you always needing another asset to trade, you can sell your asset for gold or silver, and then later on you can trade your gold or silver for a different asset. So let's say you wanted to sell your cow badly but there were no spices to buy yet with it. Well now you could sell the cow for gold and then later when a new shipment of spices came in you could use some or all of that gold to buy the spices. Hence money was born. This is basically how all money works, as a medium for productivity and assets. Enter modern governments who print paper currency because it's far more convenient than gold but for the most part it was the same principle. When the US was still on the gold standard the idea was that the US government stored all the gold and any US dollar technically represented a share of gold in the US vaults. In fact if you were a foreign country with USD you could redeem your USD for gold. We abandoned the gold standard ~1971 and started printing fiat money which isn't technically backed by anything. There's a bunch of controversy around this but the undeniable fact is that now the Fed can and does manipulate the USD to cause inflation and deflation at certain times. So why is holding one Bitcoin appreciating so much faster than the USD? Because the Fed is TRYING to cause inflation with the USD. They've said themselves that they are trying to target about 2% inflation I believe, (I could be wrong on that target). You do this by increasing the supply of USD whereas Bitcoin has a fixed supply so it's inherently deflationary. So is it illogical to place value in Bitcoin? Maybe but the same can be said of the USD, moreso. Not only is it not backed by anything, it's inherently inflationary and loses value over time. Bitcoin doesn't. So if you get a paycheck for being a productive worker and you want a medium to store that value of productivity Bitcoin seems like a logical medium to store it in so that you know later on you can withdraw and it won't have lost it's value to inflation. Ofc, it could lose its value in other ways but that's the same with any asset.

tomlue 6y ago

The value of bitcoin doesn't need to increase in absolute terms for its USD value to increase.

snicksnak 6y ago
This makes no sense to me. Isn't the value of bitcoin measured in USD?
- gruez 6y ago
  The price of USD can go down.

absolutelyrad 6y ago

I'd like to think that in 10 years, Bitcoin or some other cryptocurrency would be one of the reserve currencies held by central banks. But there's no going back. Cryptocurrencies have their place, and they're here to stay.

gruez 6y ago

>Why is holding one Bitcoin appreciating so much faster compared to the USD? Is it because us as a society is perceiving the value of Bitcoin to appreciate (even though it’s illogical IMO to think so)? Same reason why asset (stocks, housing) prices have skyrocketed even though there's a pandemic going on: money printing.

jayd16 6y ago
This doesn't make any sense to me or at least doesn't answer the question "why bitcoin?" Gold doesn't have the same curve as BTC. Neither does pretty much anything else. Why has Bitcoin alone gone up 20% in the last month?
- hn_throwaway_99 6y ago
  I think it's easier to understand BTC valuation (and, indeed, many individual stocks, e.g. see what happened to Hertz earlier this year) if you think of it like an MMO game instead of an asset that is valued based on some analysis of discounted future cash flows. When an asset has so much volatility, many people are just gambling on when they can get in and get out, underlying fundamentals be damned.
- notJim 6y ago
  Better marketing?
NovemberWhiskey 6y ago
And yet, somehow, during various other periods of money printing its value has crashed. So are you asserting this period of money printing is different, and if so how? edit Even the post facto explanations of Bitcoins price fluctuations generally do not seem to be agreed or understood.
- shakezula 6y ago
  "History doesn't repeat itself, but it rhymes" We can look at how economics have worked in the past to get some hints about the present, but ultimately we have no idea. We may have just entered a new era of financial and economic patterns, or we may be teetering on the verge of complete and literal collapse that would put the Great Depression to shame and have absolutely no idea. We just don't know. Unemployment rates are slowly going back down, and the economy seems to have come to grips with how to handle the virus over the summer, so for now I think we're probably good, but the long term effects of COVID's shock to the system and the tax breaks we passed before it are probably at least 6-12 months away from starting to materialize.

deleted 6y ago

[deleted]

vmception 6y ago

The -coin and -currency terminology are skeumorphs. these assets have nothing to do with currency while they absolutely do inherit the transfer mechanics like a currency. they inherit some aspect of every asset class that has ever existed while having none of the limitations of any one asset class. Any limitation they do have now can be addressed in a software update. That's a new feature across asset classes, and some market participants value that. Given the limited supply, there can be supply shocks as ore market participants value its attributes.

deleted 6y ago

[deleted]

AntiImperialist 6y ago

It's the same reason why stocks of companies go up and down: perceived value.

feanaro 6y ago

Yes, and perhaps it isn't so illogical.

olalonde 6y ago

It's largely a collective delusion, it has value because people believe it has value. Fiat currencies and gold are arguably in that same category.

ur-whale 6y ago
>Fiat currencies and gold are arguably in that same category. Anything trade-able is in the same category. Things only have value because someone, somewhere is ready to buy it. It's called supply and demand.
- olalonde 6y ago
  To clarify, what I meant was specifically "exchange value". The sole purpose of buying Bitcoin or USD is to exchange it at some later point in time. There are practically no other uses. As opposed to the many trade-able things which can be consumed, used, exploited, etc. Of course it's not black and white. Gold has some intrinsic value but its "intrinsic value demand" (e.g. industrial uses) only accounts for a tiny share of total demand.

ur-whale 6y ago

You may want to consider that the value of Bitcoin a constant. The implication is that the value of the USD isn't.

hn_throwaway_99 6y ago
> You may want to consider that the value of Bitcoin a constant. That seems like a foolhardy assumption given that what I can go to the store and buy with $1 stays relatively constant day-to-day, while what I can buy with 1 BTC fluctuates wildly.

deleted 6y ago

[deleted]

hirako2000 6y ago

There is arguably far less value for most fiat curencies, at least for future use, maybe we still have a working fiat system today. Let's assume bitcoin becomes the dominant currency for payments down the road. At its max supply, each bitcoin would be worth well over 10 million USD (in today's value of USD). And it would keep increasing in "value" because of its deflation scheme (unless of course conscencius vote for upping the supply limit for whatever reason) So, we have a fiat currency on one side, manipulated by (at best) incompetent politicians, suffering inflation in the near term with all the stimulus we absurdly accept, a growing global debt, without a solution to repay in the horizon. And on the other side, a sane monetary policy system backed by a very solid network (all those farms + battle tested software). In a 5+ years, these comments will look funny when people will argue that a 100k bitcoin is overvalued.

AnimalMuppet 6y ago
> Let's assume bitcoin becomes the dominant currency for payments down the road. What if we don't assume that?
- hirako2000 6y ago
  The exact opposite would be that bitcoin value eventually drops to zero. No use, no value. It's a possibility. And I don't have a crystal ball. People will make that choice. Fiat currencies may solve its deficiencies and we will happily with them. Given how global and digital the world is becoming, crypto currencies would most likely be somewhat popular anyways, unless something better comes along.

syllable_studio 6y ago

So glad you asked! I wrote a blog post about exactly this. My answer is "The Network is the value." The price of a bitcoin reflects the value of the network using it. https://blog.syllablehq.com/the-network-is-the-value/ https://blog.syllablehq.com/the-network-is-the-value/

flignats 6y ago

It's the world's first globally accessible, decentralized, transparent, immutable ledger.

asdfadsfgfdda 6y ago

1. facilitating "illegal" activities (ransomware, dodging capital controls and taxes, drugs, etc), similar to cash 2. speculation: "Someone speculating on Bitcoin over a week cares little about its fundamental value: even if you told her that Bitcoin would crash to zero for sure in three years, it would make essentially no dent in her trading profits, since you can make a lot of money in a volatile market over the course of a week if you get on the right side of the volatility." https://review.chicagobooth.edu/finance/2018/article/bitcoin-market-isn-t-irrational https://review.chicagobooth.edu/finance/2018/article/bitcoin...

OliverGilan 6y ago

You need to understand the point of money in the first place. For most of human history economies were structured around trade without money. You would trade spices for cattle and things like that. Once we started mining gold and silver it became convenient to say, hey, these metals are useful for certain things but they're also very convenient to use as a medium for trade. So instead of you always needing another asset to trade, you can sell your asset for gold or silver, and then later on you can trade your gold or silver for a different asset. So let's say you wanted to sell your cow badly but there were no spices to buy yet with it. Well now you could sell the cow for gold and then later when a new shipment of spices came in you could use some or all of that gold to buy the spices. Hence money was born. This is basically how all money works, as a medium for productivity and assets. Enter modern governments who print paper currency because it's far more convenient than gold but for the most part it was the same principle. When the US was still on the gold standard the idea was that the US government stored all the gold and any US dollar technically represented a share of gold in the US vaults. In fact if you were a foreign country with USD you could redeem your USD for gold. We abandoned the gold standard ~1971 and started printing fiat money which isn't technically backed by anything. There's a bunch of controversy around this but the undeniable fact is that now the Fed can and does manipulate the USD to cause inflation and deflation at certain times. So why is holding one Bitcoin appreciating so much faster than the USD? Because the Fed is TRYING to cause inflation with the USD. They've said themselves that they are trying to target about 2% inflation I believe, (I could be wrong on that target). You do this by increasing the supply of USD whereas Bitcoin has a fixed supply so it's inherently deflationary. So is it illogical to place value in Bitcoin? Maybe but the same can be said of the USD, moreso. Not only is it not backed by anything, it's inherently inflationary and loses value over time. Bitcoin doesn't. So if you get a paycheck for being a productive worker and you want a medium to store that value of productivity Bitcoin seems like a logical medium to store it in so that you know later on you can withdraw and it won't have lost it's value to inflation. Ofc, it could lose its value in other ways but that's the same with any asset.