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Bitcoin's price at the first of November was $197. That's around a 250% increase over the course of two and a half weeks. General question: if you expect the

by jmduke 13y ago

Bitcoin's price at the first of November was $197. That's around a 250% increase over the course of two and a half weeks. General question: if you expect the price of Bitcoin to continue this rate of growth, does the rational consumer have any reason to spend? I don't follow BTC too closely, but it feels as though there's an innate conflict between its role as a speculative investment and its role as a currency.

dragontamer 13y ago
One area of speculation is whether or not the rise of CryptoLocker virus has inflated BTC prices. With victims that number "in the tens of millions", many people are being FORCED to use BTC, whether they want to speculate or not. http://www.coindesk.com/tens-millions-uk-may-targeted-cryptolocker-bitcoin-ransomware-gang/ http://www.coindesk.com/tens-millions-uk-may-targeted-crypto...
3pt14159 13y ago
Good question! Yes you have a reason to spend. While it is true that bad money drives out good, in this case we are not comparing equivalent monies. The reason is that in order to buy drugs safely online you MUST spend bitcoin. So even if you are just converting temporarily to make the transaction happen, we don't get the liquidity freezes that most hard currencies had during scrip floods. For example, Joe wants drugs, he takes $1000 to Frank for a bitcoin. Joe sends the bitcoin to Charlie's address for some cocaine. Charlie sells the bitcoin for $1000 in order to buy some cocaine from his importer. Its status as sole-use currency for certain transactions provides liquidity to the market.
- Brakenshire 13y ago
  That hardly seems like a full currency, just a short-term transfer medium, with a very dubious role as a long-term store of value.
  - PeterisP 13y ago
    If X works great as the short-term transfer medium, then it keeps/raises in value, and becomes good also as a long-term store of value. If X starts to fail as the transfer medium, then the value collapses as well. No matter if X is dollars, gold coins, bitcoin, cowrie shells or whatever - in practice the transactional usage is so much larger than 'store of value' that it dominates value/pricing.
    - Brakenshire 13y ago
      > If X works great as the short-term transfer medium, then it keeps/raises in value, and becomes good also as a long-term store of value. This seems very simplistic. Is there evidence that the value of a currency is directly related to transactional volume? It's obviously not the case that that is the sole factor. Even if that were true, your point is contradictory. As you say, 'If X starts to fail as the transfer medium, then the value collapses as well', and there's nothing that guarantees Bitcoin will become a serious transactional currency, or if it does, won't be supplanted by something else. Under no circumstances is this a place where you'd want to store substantial savings that weren't set aside for speculation.
      - PeterisP 13y ago
        1) please read ".. and becomes good also as a long-term store of value." as ".. and becomes good also as a long-term store of value while it lasts as a great short-term transfer medium". 2) I don't recall anything about a relation to pure transactional volume, but there is definitely very direct relation between the liquidity and ease of transactions and currency value; any significant changes in liquidity have a quick and lasting effect on value.
    - rsynnott 13y ago
      > If X works great as the short-term transfer medium, then it keeps/raises in value Why? Currently, if you're using bitcoin as a token of exchange, the safest approach is to get rid of it as soon as you receive it (particularly if you're in a low-margin business, though few currently selling things for bit coins are in low-margin businesses).
gnaritas 13y ago
> but it feels as though there's an innate conflict between its role as a speculative investment and its role as a currency. Exactly the reason a deflationary by nature currency isn't going to succeed as a currency. Bitcoin might want to be a currency, but it isn't a currency, it's a commodity like Gold and its deflationary nature dooms it to be.
- polarix 13y ago
  Pulverizing the dead horse: it will hold value like gold, but its infinite divisibility and ease of transport make it more like an evolved currency.
  - gnaritas 13y ago
    Good currencies aren't about divisibility or about holding value long term, they're about being useful for exchange. Being deflationary by nature makes Bitcoin a bad currency, but a good commodity (once it settles down). A good currency slowly inflates.
    - rsynnott 13y ago
      Not even a good commodity; its extreme volatility makes it more like a penny stock.
      - gnaritas 13y ago
        Yes, true for now, but I'm assuming it'll settle down eventually after and if it goes mainstream. Edited above to reflect.
        rsynnott 13y ago
        Bit of a chicken and egg problem, really; if you're selling something, you probably don't want to be using bitcoin unless you're either a True Believer, or your product has extremely high margins and you're confident that use of bitcoin won't cannibalise use of more stable payment options. If you make a 5% margin on your product, you don't want that to be erased by a currency shift. The big non-True Believer users thus far have largely been either illegal materials, or ultra-high-margin things (reddit gold, Humble Indie Bundle etc).
deleted 13y ago
[deleted]
nly 13y ago
Stable inflationary currencies also fail the everyman. If you're smart you protect wealth through investment and 'saving' back in to the fractional reserve banking system scheme. Reality check though... most people have very little savings and zero, or next to zero, investments... and why should they? With the exception of ensuring a good future quality of life with a pension (largely 'taken care of' by your employer) many people have no interest in such investment. Velocity of money will certainly be lower under a deflationary currency in a highly speculative environment, but nothing gets around the fact that when I want a soda, or when I need to buy a house I'm going to do so, regardless of the 'price' of Bitcoin. And long long term, why would I, in my day to day life, even care what the price of Bitcoin is against the Dollar any more than I care about the price of the Dollar against the Thai Baht? Do people living in Eurozone countries still convert back to their pre-€ currencies to get a sense of value?
- rsynnott 13y ago
  > With the exception of ensuring a good future quality of life with a pension (largely 'taken care of' by your employer) many people have no interest in such investment. They may not know they do, but it's likely that their employer, say, is dependent on investment and/or cheap credit. They are also rather likely to have long-term debt (mortgages etc); that can get very ugly in a deflationary spiral, as wages drop but the debt remains.

by jmduke 13y ago

dragontamer 13y ago

One area of speculation is whether or not the rise of CryptoLocker virus has inflated BTC prices. With victims that number "in the tens of millions", many people are being FORCED to use BTC, whether they want to speculate or not. http://www.coindesk.com/tens-millions-uk-may-targeted-cryptolocker-bitcoin-ransomware-gang/ http://www.coindesk.com/tens-millions-uk-may-targeted-crypto...

3pt14159 13y ago

Good question! Yes you have a reason to spend. While it is true that bad money drives out good, in this case we are not comparing equivalent monies. The reason is that in order to buy drugs safely online you MUST spend bitcoin. So even if you are just converting temporarily to make the transaction happen, we don't get the liquidity freezes that most hard currencies had during scrip floods. For example, Joe wants drugs, he takes $1000 to Frank for a bitcoin. Joe sends the bitcoin to Charlie's address for some cocaine. Charlie sells the bitcoin for $1000 in order to buy some cocaine from his importer. Its status as sole-use currency for certain transactions provides liquidity to the market.

Brakenshire 13y ago
That hardly seems like a full currency, just a short-term transfer medium, with a very dubious role as a long-term store of value.
- PeterisP 13y ago
  If X works great as the short-term transfer medium, then it keeps/raises in value, and becomes good also as a long-term store of value. If X starts to fail as the transfer medium, then the value collapses as well. No matter if X is dollars, gold coins, bitcoin, cowrie shells or whatever - in practice the transactional usage is so much larger than 'store of value' that it dominates value/pricing.
  - Brakenshire 13y ago
    > If X works great as the short-term transfer medium, then it keeps/raises in value, and becomes good also as a long-term store of value. This seems very simplistic. Is there evidence that the value of a currency is directly related to transactional volume? It's obviously not the case that that is the sole factor. Even if that were true, your point is contradictory. As you say, 'If X starts to fail as the transfer medium, then the value collapses as well', and there's nothing that guarantees Bitcoin will become a serious transactional currency, or if it does, won't be supplanted by something else. Under no circumstances is this a place where you'd want to store substantial savings that weren't set aside for speculation.
    - PeterisP 13y ago
      1) please read ".. and becomes good also as a long-term store of value." as ".. and becomes good also as a long-term store of value while it lasts as a great short-term transfer medium". 2) I don't recall anything about a relation to pure transactional volume, but there is definitely very direct relation between the liquidity and ease of transactions and currency value; any significant changes in liquidity have a quick and lasting effect on value.
  - rsynnott 13y ago
    > If X works great as the short-term transfer medium, then it keeps/raises in value Why? Currently, if you're using bitcoin as a token of exchange, the safest approach is to get rid of it as soon as you receive it (particularly if you're in a low-margin business, though few currently selling things for bit coins are in low-margin businesses).

gnaritas 13y ago

> but it feels as though there's an innate conflict between its role as a speculative investment and its role as a currency. Exactly the reason a deflationary by nature currency isn't going to succeed as a currency. Bitcoin might want to be a currency, but it isn't a currency, it's a commodity like Gold and its deflationary nature dooms it to be.

polarix 13y ago
Pulverizing the dead horse: it will hold value like gold, but its infinite divisibility and ease of transport make it more like an evolved currency.
- gnaritas 13y ago
  Good currencies aren't about divisibility or about holding value long term, they're about being useful for exchange. Being deflationary by nature makes Bitcoin a bad currency, but a good commodity (once it settles down). A good currency slowly inflates.
  - rsynnott 13y ago
    Not even a good commodity; its extreme volatility makes it more like a penny stock.
    - gnaritas 13y ago
      Yes, true for now, but I'm assuming it'll settle down eventually after and if it goes mainstream. Edited above to reflect.
      - rsynnott 13y ago
        Bit of a chicken and egg problem, really; if you're selling something, you probably don't want to be using bitcoin unless you're either a True Believer, or your product has extremely high margins and you're confident that use of bitcoin won't cannibalise use of more stable payment options. If you make a 5% margin on your product, you don't want that to be erased by a currency shift. The big non-True Believer users thus far have largely been either illegal materials, or ultra-high-margin things (reddit gold, Humble Indie Bundle etc).

deleted 13y ago

[deleted]

nly 13y ago

Stable inflationary currencies also fail the everyman. If you're smart you protect wealth through investment and 'saving' back in to the fractional reserve banking system scheme. Reality check though... most people have very little savings and zero, or next to zero, investments... and why should they? With the exception of ensuring a good future quality of life with a pension (largely 'taken care of' by your employer) many people have no interest in such investment. Velocity of money will certainly be lower under a deflationary currency in a highly speculative environment, but nothing gets around the fact that when I want a soda, or when I need to buy a house I'm going to do so, regardless of the 'price' of Bitcoin. And long long term, why would I, in my day to day life, even care what the price of Bitcoin is against the Dollar any more than I care about the price of the Dollar against the Thai Baht? Do people living in Eurozone countries still convert back to their pre-€ currencies to get a sense of value?

rsynnott 13y ago
> With the exception of ensuring a good future quality of life with a pension (largely 'taken care of' by your employer) many people have no interest in such investment. They may not know they do, but it's likely that their employer, say, is dependent on investment and/or cheap credit. They are also rather likely to have long-term debt (mortgages etc); that can get very ugly in a deflationary spiral, as wages drop but the debt remains.