6 ms·

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 w

by 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.
- SilasX 14y ago
  >Long term? People stop using bitcoin. Long term? People stop using Weimar Deutschmarks, Austro-Hungarian Whatevers, French Francs, shells/wampum, doubloons, US dollars ...
- el_senor_duerpo 14y ago
  This is exactly right. The problem is in some respects worse than stated. After the last bubble, it appears as though speculators did leave. However, every time the demand increases sharply for bitcoins, they return. After all, who could resist such a fantastic arbitrage opportunity?
- Aqueous 14y ago
  I've very rarely seen something with a > 1 Billion market cap and millions of users simply disappear. (To use an unrelated example, even MySpace still exists :) Very simply, the more users are in Bitcoin the more vendors there will be who accept BitCoin. The more goods and services can be bought in Bitcoin during the relatively smooth periods the greater the proportion of people who like to have the currency for currency purposes, because it can be used to buy goods and services. There will be 'induced traffic', a network effect - more roads into Bitcoin will pop up because there's an incentive to start an exchange (you make money off of each transaction, after all!). More roads = greater demand for more BitCoin. It is the fact that some buying power of BitCoin still exists even given the boom/bust cycles that will support the currency in the long run, and that this buying power will on average be higher on every contraction than the previous contraction. The fact that an anonymous, decentralized currency that prevents double-spending is desirable (i.e. has inherent value) to a lot of people will also support this buying power, and support the currency in the long run.
  - InclinedPlane 14y ago
    Geocities, lycos, CompuServe, Excite@Home, so many others. Those were all companies which sold at a billion dollars or many billions of dollars and have sense been shut down or are worth a tiny fraction of that amount today. And those are just examples from the last 20 years, we could go back to nearly countless examples of other speculative bubbles going back centuries.
el_senor_duerpo 14y ago
I think it does describe what happens in the long term. Basically, if the thing can never get off the ground in the short term, then it will never get off the ground in the long term. Every surge in popularity has the high likelihood of setting off a speculative bubble. As the rate of increase in the stock of bitcoins decelerates, this problem will only get worse.
anologwintermut 14y ago
Long term someone takes the core technical advances and detaches it from the libertarian economic* ideals and creates bitcoin ++ with a fixedish rate inflationary money supply and maybe some limits on trade volumes to limit volatility. Oh, and you don't use a fucking magic card exchange as the primary way people get into or out of your currency. *you may or may not agree with those ideals but it probably wasn't the best idea to try a new technical solution to currency and a economic philosophy about currency/central banks at the same time)
- el_senor_duerpo 14y ago
  Two quick remarks. First, there already are many virtual/digital currencies, some of which simply peg their currencies to the dollar. But nobody really cares. Why? Well, what's the point? It's just a slightly less convenient form of a dollar. Second, we all already do use digital currency. Actual, physical currency (and deposits at the Fed) are called the monetary base or "high powered money". However, most people transact goods using debit cards, which is called "inside money". These are privately created dollars, and they change hands digitally. So, we're already there. (I'm avoiding credit cards since those are technically loans, not money).
  - anologwintermut 14y ago
    Im general I agree with you and I'm not sure bitcoin++ will work either. But I think it has to happen and fail before the idea is really and truely dead. I think no one cares for a large number of reasons but one of them is because you'd need to trust the people who run most of those currencies(i'm ignoring the bitcoin clones) and if you are going to trust someone, might as well trust a regulated entity like a bank. Just look at how paypal screws people? Why trust someone else even more sketchy. However, precisely because pay pall screws people it might end up being the case that there is some market for a non centralized online payment system. But it certainly can't be deflationary and it ought to avoid rampant speculation. I wonder what would happen if every 30 minutes the currency inflated by 100% percent. It would make sure no one ever held inflatcoin. You'd just use it as a transaction medium.
el_senor_duerpo 14y ago
Here's the problem. You're talking about traders, but where is the capital? You can't have a financial market purely based on currency speculation. If we're going to talk about bitcoins as though it were an asset (store of value), rather than a money supple (unit of account or medium of exchange), then we need to verify which properties of an asset it possesses. Do bitcoins provide a consumption utility stream? Do they yield dividends. What sorts of productive risk-taking do they represent? When I buy a stock, it will perform well if the risks it takes in providing mutually beneficial exchange with business and households are successful. For bitcoins, there is no systematic market risk, because there is no capital stock. Why? The same reason as always. Deflation increases the burden of debt which decreases investment, even though the economy is awash in savings. Our national economies do not possess cycles as you describe them. Here's a good article about macroeconomic business cycles: http://noahpinionblog.blogspot.com/2013/02/is-business-cycle-cycle.html http://noahpinionblog.blogspot.com/2013/02/is-business-cycle.... While the level of inflation fluctuates in our economy, it does so on a much smaller scale: http://en.wikipedia.org/wiki/File:US_Historical_Inflation_Ancient.svg http://en.wikipedia.org/wiki/File:US_Historical_Inflation_An.... What really jumps out from that graph is how the best economic prosperity the world has ever seen coincides with fiat currency ending the threat of deflation.

by Aqueous 14y ago

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.

SilasX 14y ago
>Long term? People stop using bitcoin. Long term? People stop using Weimar Deutschmarks, Austro-Hungarian Whatevers, French Francs, shells/wampum, doubloons, US dollars ...
el_senor_duerpo 14y ago
This is exactly right. The problem is in some respects worse than stated. After the last bubble, it appears as though speculators did leave. However, every time the demand increases sharply for bitcoins, they return. After all, who could resist such a fantastic arbitrage opportunity?
Aqueous 14y ago
I've very rarely seen something with a > 1 Billion market cap and millions of users simply disappear. (To use an unrelated example, even MySpace still exists :) Very simply, the more users are in Bitcoin the more vendors there will be who accept BitCoin. The more goods and services can be bought in Bitcoin during the relatively smooth periods the greater the proportion of people who like to have the currency for currency purposes, because it can be used to buy goods and services. There will be 'induced traffic', a network effect - more roads into Bitcoin will pop up because there's an incentive to start an exchange (you make money off of each transaction, after all!). More roads = greater demand for more BitCoin. It is the fact that some buying power of BitCoin still exists even given the boom/bust cycles that will support the currency in the long run, and that this buying power will on average be higher on every contraction than the previous contraction. The fact that an anonymous, decentralized currency that prevents double-spending is desirable (i.e. has inherent value) to a lot of people will also support this buying power, and support the currency in the long run.
- InclinedPlane 14y ago
  Geocities, lycos, CompuServe, Excite@Home, so many others. Those were all companies which sold at a billion dollars or many billions of dollars and have sense been shut down or are worth a tiny fraction of that amount today. And those are just examples from the last 20 years, we could go back to nearly countless examples of other speculative bubbles going back centuries.

el_senor_duerpo 14y ago

I think it does describe what happens in the long term. Basically, if the thing can never get off the ground in the short term, then it will never get off the ground in the long term. Every surge in popularity has the high likelihood of setting off a speculative bubble. As the rate of increase in the stock of bitcoins decelerates, this problem will only get worse.

anologwintermut 14y ago

Long term someone takes the core technical advances and detaches it from the libertarian economic* ideals and creates bitcoin ++ with a fixedish rate inflationary money supply and maybe some limits on trade volumes to limit volatility. Oh, and you don't use a fucking magic card exchange as the primary way people get into or out of your currency. *you may or may not agree with those ideals but it probably wasn't the best idea to try a new technical solution to currency and a economic philosophy about currency/central banks at the same time)

el_senor_duerpo 14y ago
Two quick remarks. First, there already are many virtual/digital currencies, some of which simply peg their currencies to the dollar. But nobody really cares. Why? Well, what's the point? It's just a slightly less convenient form of a dollar. Second, we all already do use digital currency. Actual, physical currency (and deposits at the Fed) are called the monetary base or "high powered money". However, most people transact goods using debit cards, which is called "inside money". These are privately created dollars, and they change hands digitally. So, we're already there. (I'm avoiding credit cards since those are technically loans, not money).
- anologwintermut 14y ago
  Im general I agree with you and I'm not sure bitcoin++ will work either. But I think it has to happen and fail before the idea is really and truely dead. I think no one cares for a large number of reasons but one of them is because you'd need to trust the people who run most of those currencies(i'm ignoring the bitcoin clones) and if you are going to trust someone, might as well trust a regulated entity like a bank. Just look at how paypal screws people? Why trust someone else even more sketchy. However, precisely because pay pall screws people it might end up being the case that there is some market for a non centralized online payment system. But it certainly can't be deflationary and it ought to avoid rampant speculation. I wonder what would happen if every 30 minutes the currency inflated by 100% percent. It would make sure no one ever held inflatcoin. You'd just use it as a transaction medium.

el_senor_duerpo 14y ago

Here's the problem. You're talking about traders, but where is the capital? You can't have a financial market purely based on currency speculation. If we're going to talk about bitcoins as though it were an asset (store of value), rather than a money supple (unit of account or medium of exchange), then we need to verify which properties of an asset it possesses. Do bitcoins provide a consumption utility stream? Do they yield dividends. What sorts of productive risk-taking do they represent? When I buy a stock, it will perform well if the risks it takes in providing mutually beneficial exchange with business and households are successful. For bitcoins, there is no systematic market risk, because there is no capital stock. Why? The same reason as always. Deflation increases the burden of debt which decreases investment, even though the economy is awash in savings. Our national economies do not possess cycles as you describe them. Here's a good article about macroeconomic business cycles: http://noahpinionblog.blogspot.com/2013/02/is-business-cycle-cycle.html http://noahpinionblog.blogspot.com/2013/02/is-business-cycle.... While the level of inflation fluctuates in our economy, it does so on a much smaller scale: http://en.wikipedia.org/wiki/File:US_Historical_Inflation_Ancient.svg http://en.wikipedia.org/wiki/File:US_Historical_Inflation_An.... What really jumps out from that graph is how the best economic prosperity the world has ever seen coincides with fiat currency ending the threat of deflation.