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Surely there's an easier, legal and potentially cheaper solution open to any government that wants to shut down bitcoin: buy up each and every bitcoin they can

Surely there's an easier, legal and potentially cheaper solution open to any government that wants to shut down bitcoin: buy up each and every bitcoin they can lay their hands on. I would have thought it would wreck havoc with the market (there's no reason why the government couldn't use multiple fronts rather than buying under the same wallet), and past a certain point make it impossible to trade in bitcoin without inducing a headache. However, I accept that I know next-to-nothing about how money markets really work; please let me know where I might be going wrong :)

danenania 15y ago
That scheme would fail due to basic forces of supply and demand. The government in this case would be a de facto market maker and the price would naturally get pushed up to the maximum amount the government is willing to spend as speculators continually test the limit, which if the government has an 'acquire all bitcoins at any cost' mission, means the limits of its overall solvency. It's actually a similar scenario to what's currently going on in the bond markets. The Fed steps in any time bonds have a weak auction. Traders, knowing this, buy lots of bonds. It's basically a free roll for them because they know the Fed will always step in to prevent a major dip in price--and this cycle will continue until the Fed itself (aka, the dollar) collapses. So who knows, maybe they are dumb enough to try! :)
- mootothemax 15y ago
  Thanks, your explanation is really helping me to understand! :-D One potentially embarrassingly stupid question: you mention the government becoming a market maker. As far as I'm aware, it's not unknown for traders to spot an opportunity and corner the market. Surely Bitcoin's in an early enough stage to still do so?
gasull 15y ago
> Surely there's an easier, legal and potentially cheaper solution open to any government that wants to shut down bitcoin: buy up each and every bitcoin they can lay their hands on. Some people won't sell. And all this would do is making bitcoins more expensive in dollars (deflation). Prices in bitcoins would adjust. No problem at all.
- mootothemax 15y ago
  Some people won't sell. And all this would do is making bitcoins more expensive in dollars (deflation). Prices in bitcoins would adjust. No problem at all. Great if it's not a problem: can you tell me why in a bit more detail please? :) You see, I love the idea of bitcoin, but this is the one thought I can't get out of my head. Say the government drives up the price of bitcoin, as you suggest. Every hour of every day, deflation takes place... but the government aren't selling any of theirs, and if nobody else is selling, it sounds like we rapidly head towards a stalemate where bitcoin becomes ridiculously hard to exchange in either direction.
  - gasull 15y ago
    Bitcoin is divisible to one tenth of it, if I remember correctly. Prices in bitcoins can be adjusted to reflect the deflation. Merchants are already using MtGox API and ticker so they set a price in dollars, and the displayed price in bitcoins is updated as the BTC/USD exchange goes up or down in MtGox, automatically. Extending your argument, the Government could try to mess up buying up a lot of bitcoins, to force deflation, then selling them all to force inflation, and so on. Good luck with that, because that would be very expensive in dollars (buying high and selling low). And if the Federal Reserve did this with out-of-thin-air dollars, it would just weaken the dollar in the long term, what would be good for Bitcoin. Some people say the Fed has being trying this price suppression with gold. I don't know if that's true. But apparently nothing has stopped gold to go to the roof in the last 10 years.

danenania 15y ago

That scheme would fail due to basic forces of supply and demand. The government in this case would be a de facto market maker and the price would naturally get pushed up to the maximum amount the government is willing to spend as speculators continually test the limit, which if the government has an 'acquire all bitcoins at any cost' mission, means the limits of its overall solvency. It's actually a similar scenario to what's currently going on in the bond markets. The Fed steps in any time bonds have a weak auction. Traders, knowing this, buy lots of bonds. It's basically a free roll for them because they know the Fed will always step in to prevent a major dip in price--and this cycle will continue until the Fed itself (aka, the dollar) collapses. So who knows, maybe they are dumb enough to try! :)

mootothemax 15y ago
Thanks, your explanation is really helping me to understand! :-D One potentially embarrassingly stupid question: you mention the government becoming a market maker. As far as I'm aware, it's not unknown for traders to spot an opportunity and corner the market. Surely Bitcoin's in an early enough stage to still do so?

gasull 15y ago

> Surely there's an easier, legal and potentially cheaper solution open to any government that wants to shut down bitcoin: buy up each and every bitcoin they can lay their hands on. Some people won't sell. And all this would do is making bitcoins more expensive in dollars (deflation). Prices in bitcoins would adjust. No problem at all.

mootothemax 15y ago
Some people won't sell. And all this would do is making bitcoins more expensive in dollars (deflation). Prices in bitcoins would adjust. No problem at all. Great if it's not a problem: can you tell me why in a bit more detail please? :) You see, I love the idea of bitcoin, but this is the one thought I can't get out of my head. Say the government drives up the price of bitcoin, as you suggest. Every hour of every day, deflation takes place... but the government aren't selling any of theirs, and if nobody else is selling, it sounds like we rapidly head towards a stalemate where bitcoin becomes ridiculously hard to exchange in either direction.
- gasull 15y ago
  Bitcoin is divisible to one tenth of it, if I remember correctly. Prices in bitcoins can be adjusted to reflect the deflation. Merchants are already using MtGox API and ticker so they set a price in dollars, and the displayed price in bitcoins is updated as the BTC/USD exchange goes up or down in MtGox, automatically. Extending your argument, the Government could try to mess up buying up a lot of bitcoins, to force deflation, then selling them all to force inflation, and so on. Good luck with that, because that would be very expensive in dollars (buying high and selling low). And if the Federal Reserve did this with out-of-thin-air dollars, it would just weaken the dollar in the long term, what would be good for Bitcoin. Some people say the Fed has being trying this price suppression with gold. I don't know if that's true. But apparently nothing has stopped gold to go to the roof in the last 10 years.