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Bitcoin's Wild Ride Shows It's Not Real Money

27 points by T-A 14y ago

ttrreeww 14y ago
Really? The Japanese Yen is acting a lot like BitCoin the last few months, only it's going down, not up...
- bowmessage 14y ago
  I think you might have missed yesterday's bitcoin events, the bubble popped.
  - DavidBradbury 14y ago
    But that's okay, because bitcoins aren't "real money".
- enoch_r 14y ago
  This is true for a rather extreme value of "a lot": The USD is worth about 7.3% more JPY today than on January 25, and 300% more BTC today than yesterday.
- InclinedPlane 14y ago
  The Yen has fluctuated between 125 per USD and 75 per USD over the past 10 years. BTC has fluctuated between $260 USD per and $120 per over the last 10 days. These are horses of a different color.
  - ttrreeww 14y ago
    The Yen has lost close to 25% of it's value in the last few month. We are talking trillion+. Bitcoin is like thousands of times smaller, so volatility adjusted for size/time, the two are similar.
    - InclinedPlane 14y ago
      Yes and no. Because international exchange values are not always completely relevant to real currencies. Exchange rates impact the cost of exports and imports, and a weak exchange rate can actually be a good thing sometimes because it makes export goods more competitively priced. Meanwhile, back home the cost of bread, or housing, or smartphones may not fluctuate at all so the currency is still plenty stable. With a pseudo-currency like bitcoin that is dominated by speculation the exchange rate is pretty much everything.
devindotcom 14y ago
As opposed to "real" money like the dozens that have totally crashed over the last few decades? I'm not planning on buying my groceries with bitcoins any time soon, but saying a four-year-old currency in the first throes of popularity and stress-testing, and using inadequate means for it at that, is "not real money" seems awfully shortsighted.
- InclinedPlane 14y ago
  If you're not planning to buy groceries with bitcoins any time soon then bitcoin isn't going to be a currency any time soon.
  - derefr 14y ago
    What do you call a volatile commodity used as an ephemeral financial instrument for the (anonymous) transfer of value, which is immediately converted into a more stable commodity (e.g. a currency) after it's received? "Non-fiat cheques", perhaps?
    - tptacek 14y ago
      The same thing you'd call a tulip bulb, or a share of Pets.com stock. The only basis you seem to be using to qualify Bitcoin is that it (often) has a spot price.
      - morsch 14y ago
        Pets.com stock isn't being put forward as an immediate medium of exchange for services and goods, though. And if it was, we might want to have a word describing that commonality with BTC. As long as BTC is nothing more than an investment, I agree.
        tptacek 14y ago
        The dollar is more than just a commodity with a liquid market. It is also a store of value that is stable enough that it can be used as a unit of account. Bitcoin can't currently be: its value could double tomorrow, or go to zero. If the dollar doubled or went to zero tomorrow, Bitcoin would be irrelevant, because there wouldn't be an Internet to transact in it over. The reality is that every item for Bitcoin-denominated sale has an underlying intended value denominated in dollars; the correspondance between BTC and USD is (a) virtually always unbreakable and (b) wishful and fraught for (depending on phase of moon) buyer and seller alike. The notion of Bitcoin as "money" is counterfeit for the overwhelming majority of its users; for one group, BTC is a P2P alternative to Paypal; for the other, they're virtual tulip bulbs.
sks 14y ago
Given the volatility you may doubt the longevity of bitcoin as a currency, but since you can exchange it for some goods and services it looks like Real Money to me (at least right now).
- tptacek 14y ago
  There are places you can exchange packs of cigarettes or boxes of Tide detergent for goods and services, too.
  - sks 14y ago
    If we get down to the basics I think anything that is a medium of exchange is a currency. So in some circles cigarettes and Tide work as currency. Though these "currencies" are not legal tender.
    - tptacek 14y ago
      Money is a store of value, a medium of exchange, and a unit of account. A store of value is something you could accept in payment for work and hold on to. A medium of exchange is something a shoemaker can use to obtain bread from a baker who doesn't want shoes. A unit of account is something with a value stable enough that you can measure the value of arbitrary goods with it; like the Bloomberg article says, it's what enables a cheesemaker to put a price tag on cheese without forcing her to become a currency speculator. Which of these functions does Bitcoin have?
      - sks 14y ago
        Bitcoins slipped into speculative realm a couple of weeks ago and probably after the crash the speculators will exit the market. A stable bitcoin can easily serve the three functions you listed above. As I said in my first comment this volatility raises questions about longvity of bitcoins but they have not ceased to be real money, at least for now. It is just a 3-4 year old technology lets wait and watch how this plays out before writing it off completely.
dasil003 14y ago
I'm far from bullish on Bitcoin, but this article strikes me as irrational nonsense. Why is the fact that Bitcoin is volatile today proof that it will always be volatile? There's no secondary analysis, just reiteration of this one axiom as if it were an irrefutable fact. The whole article sounds like someone in finance making their bet against Bitcoin and being really loud about it in hopes that everyone else will agree and it becomes a self-fulfilling prophecy.
- InclinedPlane 14y ago
  Isn't the onus on bitcoin to prove its stability? All anyone needs to do is say "hey, bitcoin is not a suitable currency right now, don't use it". There is no contractual requirement for them to review the long-term potential of bitcoin, they aren't bitcoin salesmen. If bitcoin boosters can't make a strong enough case for the currency to override the objections of the moment then that's on them.
  - NewAccnt 14y ago
    Bitcoins stability is enforced by the market, not a single controlling party (large holders manipulating the market excepted, but their ability to do so has a hard limit). This is a mathematical fact that can be proven with a scientific proof. Contemporary currencies on the other hand are veiled in secrecy in process, and the market simply accepts them as stable for the benefit of society, which is taken advantage of regularly by those who control those currencies.
    - danjumasule 14y ago
      Dear Mister NewAccnt My name is Danjuma Sule, one of the sons of major Gen Gumel Danjuma Sule, The late Nigeria's former minister of mines and power in the regime of the late former Nigeria's military Head of state, Gen Sanni Abacha. When my father died he left me an inheritance of 1302422.34343422 bitcoins. Unfortunately bitcoin exchanges are not yet set up in Nigerian currency and I am in need of a young techno wizard with a bank account denominated in US dollars to assist me in gaining access to my inheritance. It is on this basis I am seeking for assistance. Your percentage is negotiable. Please note; your age and profession doesn't really matter in this transaction. Waiting for your immediate response and bank account specifics. Regards, Danjuma Sule
ryguytilidie 14y ago
Why test a hypothesis when you can just make it?
- tptacek 14y ago
  Explain a bit more?
andrewcooke 14y ago
what an awful title. i wonder if the title was changed by someone who didn't write the article? "real money" doesn't appear in the text (which is concerned with whether it is stable, not real) and is obviously going to trigger, well, see posts here...
- tptacek 14y ago
  Most headlines are not written by the article author.
johnnyg 14y ago
This is nuts. Bitcoin is doing what free markets do, fluctuate relative to demand. The QE-to-infinity is the fake stuff.
- tptacek 14y ago
  You could have said literally the same thing about Pets.com stock.
PaperclipTaken 14y ago
It depends on how you define 'real money.' Bitcoin is a real medium of exchange. It offers advantages that you cannot get from any centralized currency. It is cryptographically protected, it runs on a distributed network, it's (relative to other currencies) easy to use anonymously on a global scale, and it has a large userbase. Bitcoin's volatility is a weakness, but it's not an achilles heel. Bitcoin has many strengths that are completely unmatched by any other currency. People use it for these strengths, and people will continue to use it for these strengths regardless of how much it is worth. That's why bitcoin will not die until there is something to replace it. Bitcoin can't be used to store value (due to volatility), but that doesn't mean that it can't be used as a medium of exchange. (USD -> Bitcoin -> Silk Road, and vice-versa)
- anologwintermut 14y ago
  Bitcoin is harder to use anonymously than cash. Transactions are between pseudonyms and there is a huge amount of information one can get from that. From some view points, it is worse than credit cards since all of the data is public. Now, that might be fixable, but as of right now it is a problem. see : https://news.ycombinator.com/item?id=5535321 https://news.ycombinator.com/item?id=5535321
- Retric 14y ago
  If I hand you 50 cents there is no way to back track it whatsoever. With bitcoins every single transaction is public. So I fail to see any inherent ananimity advantage. Some peole might like the fact that current bitcoin banks are unregulated, but in just about every way that counts to normal people bitcoins are worse than cash. PS: Want real ananimity online, buy visa gift card with cash.
ultim8k 14y ago
While euro is?
eah13 14y ago
'Real' or not, there's just not enough stuff priced in BTC (regardless of the exchange rate) and not enough volume of trade by market making sized traders yet. The more of that stuff that happens the more 'real' it gets.
acabal 14y ago
I don't own any Bitcoins, but the concept interests me. (I'm no economist either so these musings are probably entirely wrong or unfounded.) I can't help but feel like all this hooplah about Bitcoin's "price" on the dollar is missing the point of Bitcoin. People are measuring Bitcoin's worth by how many dollars it costs; is that really the measure of worth of a currency, or simply the measure of worth of a dollar? It would be much fairer for people to measure Bitcoin's worth by (for example) how many gallons of milk or how many pounds of rice you could buy with it. But since we need to somehow know how much this medium of exchange is worth, and since Bitcoin still has very low adoption, we're using the dollar as a way of assigning worth to these imaginary collections of bits, and that makes it a target of speculation and bubble mentalities. In other words, we should tie its worth to something useful you could actually spend it on, instead of just using as it as a Monopoly-money "investment vehicle". IMHO Bitcoin will never be able to be taken seriously until the price is pegged to some physical product of real-world value. Until then, it'll just be a USD proxy and thus functionally worthless to anyone but academics, speculators, crypto-nerds, and black marketeers who don't understand that Bitcoins aren't truly anonymous. The system has a chicken-and-egg problem of adoption, and right now given the poor PR it's receiving it looks like it's heading in the wrong direction.
- dragontamer 14y ago
  Overall, well said. But IMO there's nothing wrong with BTC being "only" a proxy currency. It'd solve a technical problem. (in particular, it'd be a decentralized Paypal). http://blockchain.info/charts/n-transactions http://blockchain.info/charts/n-transactions Anyway, this is the graph I watch actually. Every bitcoin transaction is public, so it is possible to count every single one, as well as it's value. The more transactions there are, the better it's adoption rate. BTC price is missing the point. The real story is how many people are _using_ the damn thing.
- wmf 14y ago
  This has come up several times. The buying power of a dollar has changed very little in the last month but the buying power of Bitcoin has increased, no matter how you measure it.
Frozenlock 14y ago
Bloomberg is giving another view here: https://www.youtube.com/watch?v=6SLPy89gPE0 https://www.youtube.com/watch?v=6SLPy89gPE0
kaoD 14y ago
What!? Bloomberg took advantage of Bitcoin's unregulation to criticise it? I wouldn't have expected it!
malandrew 14y ago
Actually, gaining acceptance in the financial markets is probably the best thing that can happen to BitCoin long term. If BitCoin slowly but surely keeps providing utility and gains financial market volume, it will eventually stabilize in price. It's volatile now because the outstanding value of BitCoins is about$ $1 Billion, but the amount of investors trading it are capable of causing it take big swings. This makes it an attractive market to play in since the amount that can be made in a single day is high. This should eventually increase the number of investors in the market, increasing the total value of the market. If this goes on for long enough, the outstanding market value will grow and BitCoin will stabilize further and further, making it more suitable as a currency. BitCoin right now is like the market for a low volume commodity like Caviar. But it could eventually become like the market for a high volume commodity like corn, but with all the benefits of being able to spend it electronically anywhere. Basically, investor interest in the volatility now will eventually drive it to becoming a better currency faster.

27 points by T-A 14y ago

ttrreeww 14y ago

Really? The Japanese Yen is acting a lot like BitCoin the last few months, only it's going down, not up...

bowmessage 14y ago
I think you might have missed yesterday's bitcoin events, the bubble popped.
- DavidBradbury 14y ago
  But that's okay, because bitcoins aren't "real money".
enoch_r 14y ago
This is true for a rather extreme value of "a lot": The USD is worth about 7.3% more JPY today than on January 25, and 300% more BTC today than yesterday.
InclinedPlane 14y ago
The Yen has fluctuated between 125 per USD and 75 per USD over the past 10 years. BTC has fluctuated between $260 USD per and $120 per over the last 10 days. These are horses of a different color.
- ttrreeww 14y ago
  The Yen has lost close to 25% of it's value in the last few month. We are talking trillion+. Bitcoin is like thousands of times smaller, so volatility adjusted for size/time, the two are similar.
  - InclinedPlane 14y ago
    Yes and no. Because international exchange values are not always completely relevant to real currencies. Exchange rates impact the cost of exports and imports, and a weak exchange rate can actually be a good thing sometimes because it makes export goods more competitively priced. Meanwhile, back home the cost of bread, or housing, or smartphones may not fluctuate at all so the currency is still plenty stable. With a pseudo-currency like bitcoin that is dominated by speculation the exchange rate is pretty much everything.

devindotcom 14y ago

As opposed to "real" money like the dozens that have totally crashed over the last few decades? I'm not planning on buying my groceries with bitcoins any time soon, but saying a four-year-old currency in the first throes of popularity and stress-testing, and using inadequate means for it at that, is "not real money" seems awfully shortsighted.

InclinedPlane 14y ago
If you're not planning to buy groceries with bitcoins any time soon then bitcoin isn't going to be a currency any time soon.
- derefr 14y ago
  What do you call a volatile commodity used as an ephemeral financial instrument for the (anonymous) transfer of value, which is immediately converted into a more stable commodity (e.g. a currency) after it's received? "Non-fiat cheques", perhaps?
  - tptacek 14y ago
    The same thing you'd call a tulip bulb, or a share of Pets.com stock. The only basis you seem to be using to qualify Bitcoin is that it (often) has a spot price.
    - morsch 14y ago
      Pets.com stock isn't being put forward as an immediate medium of exchange for services and goods, though. And if it was, we might want to have a word describing that commonality with BTC. As long as BTC is nothing more than an investment, I agree.
      - tptacek 14y ago
        The dollar is more than just a commodity with a liquid market. It is also a store of value that is stable enough that it can be used as a unit of account. Bitcoin can't currently be: its value could double tomorrow, or go to zero. If the dollar doubled or went to zero tomorrow, Bitcoin would be irrelevant, because there wouldn't be an Internet to transact in it over. The reality is that every item for Bitcoin-denominated sale has an underlying intended value denominated in dollars; the correspondance between BTC and USD is (a) virtually always unbreakable and (b) wishful and fraught for (depending on phase of moon) buyer and seller alike. The notion of Bitcoin as "money" is counterfeit for the overwhelming majority of its users; for one group, BTC is a P2P alternative to Paypal; for the other, they're virtual tulip bulbs.

sks 14y ago

Given the volatility you may doubt the longevity of bitcoin as a currency, but since you can exchange it for some goods and services it looks like Real Money to me (at least right now).

tptacek 14y ago
There are places you can exchange packs of cigarettes or boxes of Tide detergent for goods and services, too.
- sks 14y ago
  If we get down to the basics I think anything that is a medium of exchange is a currency. So in some circles cigarettes and Tide work as currency. Though these "currencies" are not legal tender.
  - tptacek 14y ago
    Money is a store of value, a medium of exchange, and a unit of account. A store of value is something you could accept in payment for work and hold on to. A medium of exchange is something a shoemaker can use to obtain bread from a baker who doesn't want shoes. A unit of account is something with a value stable enough that you can measure the value of arbitrary goods with it; like the Bloomberg article says, it's what enables a cheesemaker to put a price tag on cheese without forcing her to become a currency speculator. Which of these functions does Bitcoin have?
    - sks 14y ago
      Bitcoins slipped into speculative realm a couple of weeks ago and probably after the crash the speculators will exit the market. A stable bitcoin can easily serve the three functions you listed above. As I said in my first comment this volatility raises questions about longvity of bitcoins but they have not ceased to be real money, at least for now. It is just a 3-4 year old technology lets wait and watch how this plays out before writing it off completely.

dasil003 14y ago

I'm far from bullish on Bitcoin, but this article strikes me as irrational nonsense. Why is the fact that Bitcoin is volatile today proof that it will always be volatile? There's no secondary analysis, just reiteration of this one axiom as if it were an irrefutable fact. The whole article sounds like someone in finance making their bet against Bitcoin and being really loud about it in hopes that everyone else will agree and it becomes a self-fulfilling prophecy.

InclinedPlane 14y ago
Isn't the onus on bitcoin to prove its stability? All anyone needs to do is say "hey, bitcoin is not a suitable currency right now, don't use it". There is no contractual requirement for them to review the long-term potential of bitcoin, they aren't bitcoin salesmen. If bitcoin boosters can't make a strong enough case for the currency to override the objections of the moment then that's on them.
- NewAccnt 14y ago
  Bitcoins stability is enforced by the market, not a single controlling party (large holders manipulating the market excepted, but their ability to do so has a hard limit). This is a mathematical fact that can be proven with a scientific proof. Contemporary currencies on the other hand are veiled in secrecy in process, and the market simply accepts them as stable for the benefit of society, which is taken advantage of regularly by those who control those currencies.
  - danjumasule 14y ago
    Dear Mister NewAccnt My name is Danjuma Sule, one of the sons of major Gen Gumel Danjuma Sule, The late Nigeria's former minister of mines and power in the regime of the late former Nigeria's military Head of state, Gen Sanni Abacha. When my father died he left me an inheritance of 1302422.34343422 bitcoins. Unfortunately bitcoin exchanges are not yet set up in Nigerian currency and I am in need of a young techno wizard with a bank account denominated in US dollars to assist me in gaining access to my inheritance. It is on this basis I am seeking for assistance. Your percentage is negotiable. Please note; your age and profession doesn't really matter in this transaction. Waiting for your immediate response and bank account specifics. Regards, Danjuma Sule

ryguytilidie 14y ago

Why test a hypothesis when you can just make it?

tptacek 14y ago
Explain a bit more?

andrewcooke 14y ago

what an awful title. i wonder if the title was changed by someone who didn't write the article? "real money" doesn't appear in the text (which is concerned with whether it is stable, not real) and is obviously going to trigger, well, see posts here...

tptacek 14y ago
Most headlines are not written by the article author.

johnnyg 14y ago

This is nuts. Bitcoin is doing what free markets do, fluctuate relative to demand. The QE-to-infinity is the fake stuff.

tptacek 14y ago
You could have said literally the same thing about Pets.com stock.

PaperclipTaken 14y ago

It depends on how you define 'real money.' Bitcoin is a real medium of exchange. It offers advantages that you cannot get from any centralized currency. It is cryptographically protected, it runs on a distributed network, it's (relative to other currencies) easy to use anonymously on a global scale, and it has a large userbase. Bitcoin's volatility is a weakness, but it's not an achilles heel. Bitcoin has many strengths that are completely unmatched by any other currency. People use it for these strengths, and people will continue to use it for these strengths regardless of how much it is worth. That's why bitcoin will not die until there is something to replace it. Bitcoin can't be used to store value (due to volatility), but that doesn't mean that it can't be used as a medium of exchange. (USD -> Bitcoin -> Silk Road, and vice-versa)

anologwintermut 14y ago
Bitcoin is harder to use anonymously than cash. Transactions are between pseudonyms and there is a huge amount of information one can get from that. From some view points, it is worse than credit cards since all of the data is public. Now, that might be fixable, but as of right now it is a problem. see : https://news.ycombinator.com/item?id=5535321 https://news.ycombinator.com/item?id=5535321
Retric 14y ago
If I hand you 50 cents there is no way to back track it whatsoever. With bitcoins every single transaction is public. So I fail to see any inherent ananimity advantage. Some peole might like the fact that current bitcoin banks are unregulated, but in just about every way that counts to normal people bitcoins are worse than cash. PS: Want real ananimity online, buy visa gift card with cash.

ultim8k 14y ago

While euro is?

eah13 14y ago

'Real' or not, there's just not enough stuff priced in BTC (regardless of the exchange rate) and not enough volume of trade by market making sized traders yet. The more of that stuff that happens the more 'real' it gets.

acabal 14y ago

I don't own any Bitcoins, but the concept interests me. (I'm no economist either so these musings are probably entirely wrong or unfounded.) I can't help but feel like all this hooplah about Bitcoin's "price" on the dollar is missing the point of Bitcoin. People are measuring Bitcoin's worth by how many dollars it costs; is that really the measure of worth of a currency, or simply the measure of worth of a dollar? It would be much fairer for people to measure Bitcoin's worth by (for example) how many gallons of milk or how many pounds of rice you could buy with it. But since we need to somehow know how much this medium of exchange is worth, and since Bitcoin still has very low adoption, we're using the dollar as a way of assigning worth to these imaginary collections of bits, and that makes it a target of speculation and bubble mentalities. In other words, we should tie its worth to something useful you could actually spend it on, instead of just using as it as a Monopoly-money "investment vehicle". IMHO Bitcoin will never be able to be taken seriously until the price is pegged to some physical product of real-world value. Until then, it'll just be a USD proxy and thus functionally worthless to anyone but academics, speculators, crypto-nerds, and black marketeers who don't understand that Bitcoins aren't truly anonymous. The system has a chicken-and-egg problem of adoption, and right now given the poor PR it's receiving it looks like it's heading in the wrong direction.

dragontamer 14y ago
Overall, well said. But IMO there's nothing wrong with BTC being "only" a proxy currency. It'd solve a technical problem. (in particular, it'd be a decentralized Paypal). http://blockchain.info/charts/n-transactions http://blockchain.info/charts/n-transactions Anyway, this is the graph I watch actually. Every bitcoin transaction is public, so it is possible to count every single one, as well as it's value. The more transactions there are, the better it's adoption rate. BTC price is missing the point. The real story is how many people are _using_ the damn thing.
wmf 14y ago
This has come up several times. The buying power of a dollar has changed very little in the last month but the buying power of Bitcoin has increased, no matter how you measure it.

Frozenlock 14y ago

Bloomberg is giving another view here: https://www.youtube.com/watch?v=6SLPy89gPE0 https://www.youtube.com/watch?v=6SLPy89gPE0

kaoD 14y ago

What!? Bloomberg took advantage of Bitcoin's unregulation to criticise it? I wouldn't have expected it!

malandrew 14y ago

Actually, gaining acceptance in the financial markets is probably the best thing that can happen to BitCoin long term. If BitCoin slowly but surely keeps providing utility and gains financial market volume, it will eventually stabilize in price. It's volatile now because the outstanding value of BitCoins is about$ $1 Billion, but the amount of investors trading it are capable of causing it take big swings. This makes it an attractive market to play in since the amount that can be made in a single day is high. This should eventually increase the number of investors in the market, increasing the total value of the market. If this goes on for long enough, the outstanding market value will grow and BitCoin will stabilize further and further, making it more suitable as a currency. BitCoin right now is like the market for a low volume commodity like Caviar. But it could eventually become like the market for a high volume commodity like corn, but with all the benefits of being able to spend it electronically anywhere. Basically, investor interest in the volatility now will eventually drive it to becoming a better currency faster.