41 ms·

"There is no capital nor wealth creation to speak of; only as much money as was put in. While somebody may buy a bitcoin for $1 and then sell it for $200, no va

by vyrotek 14y ago

"There is no capital nor wealth creation to speak of; only as much money as was put in. While somebody may buy a bitcoin for $1 and then sell it for $200, no value was added in this process, so it is simply a transfer of wealth. The people who profit will do so by taking from those who lose. As the deflationary feedback amplifies the desire to hoard, the exchanges will become illiquid. Eventually, buyers will give up while waiting in absurdly long queues, and demand will loosen. Soon after, things will turn pear-shaped as the world's fastest liquidation occurs. The exchange rate will fall faster than orders can be fulfilled, so that less than $2.5 billion is recovered. After all, it was never really there anyway." Nailed it.

ctbeiser 14y ago
"As the deflationary feedback amplifies the desire to hoard, the exchanges will become illiquid." The rest of it makes perfect sense, but why would we think this, rather than that market forces will drive prices up, and people will sell as a result, fulfilling demand?
- rhizome 14y ago
  market forces will drive prices up, and people will sell as a result, fulfilling demand? I'm no economist, but I'm pretty sure this state of affairs is not guaranteed.
  - el_senor_duerpo 14y ago
    I am an economist, and I have no idea what that means. Sounds to me like confusion over two things: (i) the difference between "supply and demand" and the "quantity supplied" or "quantity demanded" and (ii) equilibrium. The circular logic is a tell tale sign. Price goes up, so people demand less, so price goes down, so people demand more... That's the whole point of equilibrium. Where does all of that net out.
    - rhizome 14y ago
      I think they are trying to say that demand forces supply.
      - el_senor_duerpo 14y ago
        Exactly, that's a huge mistake. Shifts in demand cause shifts in supply? That's not obvious at all. The whole point is that supply and demand have different determinants, but they mutually determine quantities and prices.
- surrealize 14y ago
  If you see it going up, why would you sell? In the deflationary spiral scenario, it'll just keep on going up, so it's in your interest to hold on.
  - wmf 14y ago
    We see people selling at $100 and $200; would we expect people to not sell at $10,000?
    - surrealize 14y ago
      Sure, some people will sell, the question is whether or not the amount of selling is large enough to keep the price from spiraling upward. If you predict that there will be lots of selling, then you're assuming that people aren't (on average) responding to the incentive to hold.
SilasX 14y ago
So people haven't priced their knowledge of the limited supply of bitcoins into their bids? They're too stupid to realize growth will slow asymptotically despite this having been announced years ago and built into the protocol? Are you the kind to suggest "hey, I know how to make money! Invest in hot dogs like, right before the 4th of July, and then sell right after!"?
ricardobeat 14y ago
> The exchange rate will fall faster than orders can be fulfilled Is that possible? In the event of a crash all buy orders will be fulfilled, ordered by price/time. The exchange rate can't move if there are no orders being executed.
- el_senor_duerpo 14y ago
  Well, here's Mt. Gox today: http://bitcoinity.org/markets/mtgox/USD http://bitcoinity.org/markets/mtgox/USD And here's what happened on another exchange while Mt. Gox was down: http://bitcoinity.org/markets/btce/USD http://bitcoinity.org/markets/btce/USD
Aqueous 14y ago
This describes what happens in the short term, probably repeatedly. But what happens in the long term? Traders learn; they adjust with respect to risk. People will become acquainted with the volatility of the BitCoin currency and adjust their buying and selling practices as a result. People will hold onto the currency longer because they've seen it crash before and recover. The curve will flatten and become a slope. As the rate of deflation steadies and shrinks transactions will begin again. As more and more users flow into the BitCoin economy mass-sellings will have less and less effect because most people who hold the currency will not be responding to short term blips in the price - i.e., day trading. As the volume goes up the chance that a small number of people can destabilize the currency will shrink. There will still be bubbles but they will become cyclic on a longer period, happening on intervals of years as opposed to hours and days, much like in national economies.
- samegreatsleeve 14y ago
  >Traders learn; they adjust with respect to risk. Ha ha ha ha No. Traders learn, and then they die, and are replaced by new traders, who haven't learned.
- brown9-2 14y ago
  Or perhaps the masses will never adopt a currency that requires them to become "acquainted with the volatility of the BitCoin currency and adjust their buying and selling practices as a result", especially when the current status quo offers none of these pitfalls.
- InclinedPlane 14y ago
  Long term? People stop using bitcoin. You theorize that the boom/bust swings will diminish in intensity until eventually bitcoin becomes stable. Others theorize that the boom/bust cycles will grow in severity until eventually everyone just gives up on bitcoin. So far there's very little evidence for the stability option and a lot of evidence (and economic theory) for the speculative bubble theory. Do you have any evidence of the "market share" of bitcoin users who are in the market for purely currency reasons growing relative to that of those who are in the market for purely speculative reasons? From everything I can find out it seems as though the reverse is true.
zenocon 14y ago
Did he? Time will tell. Every article that portends doom via deflationary measures trots out the same 'ol tired arguments and examples (great depression, hoarders, etc.) You have to admit this is new ground. There are a lot of new ideas here (i.e. divisible to 8 decimal places, de-centralized, etc.) The charts were interesting, but the headline is pure bunk. No one knows -- but one thing is for sure: this is disruptive technology. Bitcoin may not survive, but finance won't be the same hereafter.
- dragonwriter 14y ago
  > Every article that portends doom via deflationary measures trots out the same 'ol tired arguments and examples (great depression, hoarders, etc.) You have to admit this is new ground. In what relevant sense to deflation and its effects is it new? > There are a lot of new ideas here (i.e. divisible to 8 decimal places, de-centralized, etc.) How are any of these relevant to the incentives created by deflation?
  - zenocon 14y ago
    Bitcoin is an infant. Hoarders will happen, sure. We'll see what happens in the long term. Gold as a fixed medium may not be practical to slice to 8 decimal places, but then again...the central authority that is in charge of deciding that never tried. They just gave up and Keynes won. Let's see what happens.
    - dragonwriter 14y ago
      Continuing to repeat "Bitcoin is new; Bitcoin is sudividable; Keynes bad; central bank bad" isn't actually an argument as to how any new features of Bitcoin, including its subdivisability, change any of the incentives related to deflation. If you've got an argument, make it, but as far as I can see there's just conspiracy theories about the status quo and wishful thinking with no coherent basis for Bitcoin.
      - zenocon 14y ago
hotpockets 14y ago
I don't get this argument. Bitcoin lets you do things you can't do without it. That's not zero sum, that's creating value that wasn't there before. And we are only at the beginning. Pretty much no one understands what can be done with it in the future. Smart property, oracles, etc.
- Nursie 14y ago
  Such as?
  - hotpockets 14y ago
    I listed two examples, not sure what you're looking for. But, this page has more: https://en.bitcoin.it/wiki/Contracts https://en.bitcoin.it/wiki/Contracts
- el_senor_duerpo 14y ago
  I'm pretty sure I explained the value of use of bitcoins as a medium of exchange in footnote 2. The convenience and ability to facilitate transactions on the black/grey market might cause bitcoins to trade at a slight premium. On the other hand, volatility, concerns over hacking, exchange lag, and the threat of future government regulation may overshadow this and cause them to trade at a slight discount. I split the difference and assume that prices in the bitcoin economy adjust relative to the spot price, so that the real exchange rate is one-to-one. The problem isn't with the utility of a crypo currency in the abstract. It's that this will never come to fruition with built-in flaws like deflation, which inevitably lead to bubbles.
  - hotpockets 14y ago
    But you seemed to leave out an important component of valuation, unrealized capability. The protocol supports more than has been implemented.
mattm 14y ago
> Nailed it Can you point to a specific event in history where this actually occurred? Because so far all I've seen are people theorizing what will happen in this situation. Your argument would carry more weight if you backed it up.
flyinRyan 14y ago
>There is no capital nor wealth creation to speak of; only as much money as was put in. While somebody may buy a bitcoin for $1 and then sell it for $200, no value was added in this process, so it is simply a transfer of wealth. So like 90%+ of what the stock market does then?
- el_senor_duerpo 14y ago
  Sure, lots of the stock market is arbitrage. While bubbles form in different markets, they are all eventually followed by a correction. The problem with bitcoin is that there is no fundamental asset underlying the currency. So when there's a correction, there's no sense of where the bottom is.

by vyrotek 14y ago

ctbeiser 14y ago

"As the deflationary feedback amplifies the desire to hoard, the exchanges will become illiquid." The rest of it makes perfect sense, but why would we think this, rather than that market forces will drive prices up, and people will sell as a result, fulfilling demand?

rhizome 14y ago
market forces will drive prices up, and people will sell as a result, fulfilling demand? I'm no economist, but I'm pretty sure this state of affairs is not guaranteed.
- el_senor_duerpo 14y ago
  I am an economist, and I have no idea what that means. Sounds to me like confusion over two things: (i) the difference between "supply and demand" and the "quantity supplied" or "quantity demanded" and (ii) equilibrium. The circular logic is a tell tale sign. Price goes up, so people demand less, so price goes down, so people demand more... That's the whole point of equilibrium. Where does all of that net out.
  - rhizome 14y ago
    I think they are trying to say that demand forces supply.
    - el_senor_duerpo 14y ago
      Exactly, that's a huge mistake. Shifts in demand cause shifts in supply? That's not obvious at all. The whole point is that supply and demand have different determinants, but they mutually determine quantities and prices.
surrealize 14y ago
If you see it going up, why would you sell? In the deflationary spiral scenario, it'll just keep on going up, so it's in your interest to hold on.
- wmf 14y ago
  We see people selling at $100 and $200; would we expect people to not sell at $10,000?
  - surrealize 14y ago
    Sure, some people will sell, the question is whether or not the amount of selling is large enough to keep the price from spiraling upward. If you predict that there will be lots of selling, then you're assuming that people aren't (on average) responding to the incentive to hold.

SilasX 14y ago

So people haven't priced their knowledge of the limited supply of bitcoins into their bids? They're too stupid to realize growth will slow asymptotically despite this having been announced years ago and built into the protocol? Are you the kind to suggest "hey, I know how to make money! Invest in hot dogs like, right before the 4th of July, and then sell right after!"?

ricardobeat 14y ago

> The exchange rate will fall faster than orders can be fulfilled Is that possible? In the event of a crash all buy orders will be fulfilled, ordered by price/time. The exchange rate can't move if there are no orders being executed.

el_senor_duerpo 14y ago
Well, here's Mt. Gox today: http://bitcoinity.org/markets/mtgox/USD http://bitcoinity.org/markets/mtgox/USD And here's what happened on another exchange while Mt. Gox was down: http://bitcoinity.org/markets/btce/USD http://bitcoinity.org/markets/btce/USD

Aqueous 14y ago

This describes what happens in the short term, probably repeatedly. But what happens in the long term? Traders learn; they adjust with respect to risk. People will become acquainted with the volatility of the BitCoin currency and adjust their buying and selling practices as a result. People will hold onto the currency longer because they've seen it crash before and recover. The curve will flatten and become a slope. As the rate of deflation steadies and shrinks transactions will begin again. As more and more users flow into the BitCoin economy mass-sellings will have less and less effect because most people who hold the currency will not be responding to short term blips in the price - i.e., day trading. As the volume goes up the chance that a small number of people can destabilize the currency will shrink. There will still be bubbles but they will become cyclic on a longer period, happening on intervals of years as opposed to hours and days, much like in national economies.

samegreatsleeve 14y ago
>Traders learn; they adjust with respect to risk. Ha ha ha ha No. Traders learn, and then they die, and are replaced by new traders, who haven't learned.
brown9-2 14y ago
Or perhaps the masses will never adopt a currency that requires them to become "acquainted with the volatility of the BitCoin currency and adjust their buying and selling practices as a result", especially when the current status quo offers none of these pitfalls.
InclinedPlane 14y ago
Long term? People stop using bitcoin. You theorize that the boom/bust swings will diminish in intensity until eventually bitcoin becomes stable. Others theorize that the boom/bust cycles will grow in severity until eventually everyone just gives up on bitcoin. So far there's very little evidence for the stability option and a lot of evidence (and economic theory) for the speculative bubble theory. Do you have any evidence of the "market share" of bitcoin users who are in the market for purely currency reasons growing relative to that of those who are in the market for purely speculative reasons? From everything I can find out it seems as though the reverse is true.

zenocon 14y ago

Did he? Time will tell. Every article that portends doom via deflationary measures trots out the same 'ol tired arguments and examples (great depression, hoarders, etc.) You have to admit this is new ground. There are a lot of new ideas here (i.e. divisible to 8 decimal places, de-centralized, etc.) The charts were interesting, but the headline is pure bunk. No one knows -- but one thing is for sure: this is disruptive technology. Bitcoin may not survive, but finance won't be the same hereafter.

dragonwriter 14y ago
> Every article that portends doom via deflationary measures trots out the same 'ol tired arguments and examples (great depression, hoarders, etc.) You have to admit this is new ground. In what relevant sense to deflation and its effects is it new? > There are a lot of new ideas here (i.e. divisible to 8 decimal places, de-centralized, etc.) How are any of these relevant to the incentives created by deflation?
- zenocon 14y ago
  Bitcoin is an infant. Hoarders will happen, sure. We'll see what happens in the long term. Gold as a fixed medium may not be practical to slice to 8 decimal places, but then again...the central authority that is in charge of deciding that never tried. They just gave up and Keynes won. Let's see what happens.
  - dragonwriter 14y ago
    Continuing to repeat "Bitcoin is new; Bitcoin is sudividable; Keynes bad; central bank bad" isn't actually an argument as to how any new features of Bitcoin, including its subdivisability, change any of the incentives related to deflation. If you've got an argument, make it, but as far as I can see there's just conspiracy theories about the status quo and wishful thinking with no coherent basis for Bitcoin.
    - zenocon 14y ago

hotpockets 14y ago

I don't get this argument. Bitcoin lets you do things you can't do without it. That's not zero sum, that's creating value that wasn't there before. And we are only at the beginning. Pretty much no one understands what can be done with it in the future. Smart property, oracles, etc.

Nursie 14y ago
Such as?
- hotpockets 14y ago
  I listed two examples, not sure what you're looking for. But, this page has more: https://en.bitcoin.it/wiki/Contracts https://en.bitcoin.it/wiki/Contracts
el_senor_duerpo 14y ago
I'm pretty sure I explained the value of use of bitcoins as a medium of exchange in footnote 2. The convenience and ability to facilitate transactions on the black/grey market might cause bitcoins to trade at a slight premium. On the other hand, volatility, concerns over hacking, exchange lag, and the threat of future government regulation may overshadow this and cause them to trade at a slight discount. I split the difference and assume that prices in the bitcoin economy adjust relative to the spot price, so that the real exchange rate is one-to-one. The problem isn't with the utility of a crypo currency in the abstract. It's that this will never come to fruition with built-in flaws like deflation, which inevitably lead to bubbles.
- hotpockets 14y ago
  But you seemed to leave out an important component of valuation, unrealized capability. The protocol supports more than has been implemented.

mattm 14y ago

> Nailed it Can you point to a specific event in history where this actually occurred? Because so far all I've seen are people theorizing what will happen in this situation. Your argument would carry more weight if you backed it up.

flyinRyan 14y ago

>There is no capital nor wealth creation to speak of; only as much money as was put in. While somebody may buy a bitcoin for $1 and then sell it for $200, no value was added in this process, so it is simply a transfer of wealth. So like 90%+ of what the stock market does then?

el_senor_duerpo 14y ago
Sure, lots of the stock market is arbitrage. While bubbles form in different markets, they are all eventually followed by a correction. The problem with bitcoin is that there is no fundamental asset underlying the currency. So when there's a correction, there's no sense of where the bottom is.