10 ms·

Bitcoin Price Pressure

110 points by arnauddri 12y ago

IvyMike 12y ago
> Anecdotally, I hear from merchants who start taking bitcoin that after an initial spike they see almost no volume. To me, this is one of the biggest problems with adoption--bitcoin doesn't offer much benefit to the typical consumer for mundane transactions. I'm about to buy a coffee machine on Overstock.com. There's no practical reason that bitcoins are better than what I'm going to do which is put it on my mastercard. And there's a lot of reasons that getting my money into bitcoin in the first place is a giant pain in the ass. Yeah, there are some potential situations that could change this, and if I lived in a country with massive inflation I might feel differently, but as it stands, I don't see any compelling reason to use bitcoin to make purchases.
- loopdoend 12y ago
  It doesn't benefit consumers for any transaction. Unless you consider the deed itself to be a benefit, outweighing all the negative. I don't. As a consumer, I don't like getting fucked by the spread on exchange rates on the buy AND sell sides when I try to pay in bitcoin. Want to buy some bitcoin? Unless you're doing it face-to-face you're going to get jacked a few percent. Want to spend them? Unless it's at a bitcoin-only merchant, jacked again. Add in the fact that I'm not getting whatever points my credit card would have given me, that I've got absolutely no recourse against the merchant, and that I have to worry about hackers stealing my money... there's no reason for me to use it.
  - driverdan 12y ago
    Two words: money transfers. Bitcoin works very well for low friction P2P transfers. This may be considered a solved problem in Europe where bank transfers are easy and the norm but in the US and other parts of the world it's unsolved and a pain in the ass. There is no easy way for me to transfer money to a friend other than handing them cash. You might suggest an awful centralized service like PayPal but there are plenty of problems with them too. What if I want to send money to a friend who lives in another country? Even harder. Bitcoin solves this problem.
    - smm2000 12y ago
      You can mail him a check - zero transaction fee and works every single time. No easy way to do it electronically though. Also you could not really do it with random strangers - risk of fraud is fairly high.
- gnaritas 12y ago
  Keeping your credit card number out of their database where it can't be hacked is a practical reason to use bitcoin. It reduces your risk of merchant's getting hacked, which happens all the time.
  - miros 12y ago
    Yeah but my credit card company protects me from that sort of fraud so it really isn't a practical concern.
    - gnaritas 12y ago
      Only if you notice and report it, people get skimmed all the time and never notice.
      - IvyMike 12y ago
        > people get skimmed all the time and never notice. Insert Mt.Gox joke here.
      - pbreit 12y ago
        There's an app for that: https://www.billguard.com/ https://www.billguard.com/
        gnaritas 12y ago
        Ha, why of course there is, I should have figured.
  - Goronmon 12y ago
    So, a merchant gets hacked and your credit card info is stolen. You notice fraudulent charges, call your credit card company and they reverse the charges and send you a new card. If someone gets access to your bitcoin wallet or whatever storage mechanism you are using fails, then that money is gone forever with no way to recover it. If you are a regular user with no need to make a political statement with the use of a non-traditional currency, what exactly about the second scenario sounds safer?
- sanderjd 12y ago
  I think it could (or maybe "should") be totally great for tiny payments. Less like 0.5BTC for a coffee machine, more like 0.001BTC for a single API request. It seems uniquely suited for tiny, frequent, low-risk payments. That doesn't seem like a very widespread business model, but maybe that's because it's been tough to do without something like bitcoin.
- miros 12y ago
  It's also worth pointing out that you are probably incurring significant fees when converting from your native currency into bitcoin. In addition, if you are holding bitcoins with the expectation that they will actually appreciate (i.e. the currency will deflate rather than inflate) you are effectively losing money by spending it, further discouraging you from engaging in the transaction. Krugman has enjoyed making this point a few times: http://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/ http://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/ http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfetters/ http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfett...
- acomjean 12y ago
  Odd because one of the benefits of Bit Coin is lower transaction fees that what credit card companies charge. One would think businesses would really like this and promote it.
  - a_c_s 12y ago
    The huge variations in price mean that a company could very easily lose more than the few, entirely predictable, percent the credit card companies charge.
    - mpyne 12y ago
      And adding the cost of insurance to account for the risk of having your hot wallet wiped out could ruin the transaction fee advantage all by itself.
- endeavor 12y ago
  When you say "the typical consumer", I think you are really saying "the typical, relatively wealthy consumer living in the first world". For the some billions of people on the Earth who don't have a stable currency, credit/debit cards, mortgages and other financial products Bitcoin has more benefits. Think of the WhatsApp demographic without a smart-phone.
  - mpyne 12y ago
    Honestly I think it would be the opposite; Bitcoin would be yet another way that the developed world has screwed over the developing world, once malicious actors realize that perfectly good wallet.dats exist on the cellphones of people who think that having sex with virgins cures AIDS.
MarkPNeyer 12y ago
> The other way to get enough buy pressure would be if many people started deciding they want to hold bitcoin as a hedge or a speculation. ding ding ding. that's all i'm doing. i've had a bunch for a while. i don't need the liquidity, so i figure i might as well hang on to them. i think a lot of us are in the same boat. if a group of 100,000 'crazy' and 'irrational' people all decided to put $100 USD a month into bitcoin, you'd create upward pressure on BTC, with a price floor of $43 usd [1] at current reward rates, rising as the reward rate drops. The rising floor would case the price of BTC to rise, even if the _only_ volume was 'crazy bitcoin believers putting $100 a month into it'. the fixed supply of coins and large supply of 'crazy people who think they'll make money because the price keeps going up' and make the 'crazy' belief that bitcoin will be worth more in the future become a self-fullfilling prophecy. the REAL thing that would cause it to flop is if these 'crazy' people all decided they wanted dollars instead of bitcoins. that would tank the price. but if they 'maintain the insanity' of holding onto a thing with a dollar price that flucauates wildly, their insanity becomes our reality. since most of these people think the dollar is a fucked up currency, they probably see the _dollar_ as being the thing that fluctuates wildly. anything looks crooked if you use a crazy straw as a ruler. possible objections: Q: how is this worth anything if it's just crazy people convinced that this thing will be worth something' A: 'it's because there is value in trust.' people that hold onto something they can't eat, live in or use because they think it's valuable will be right - IF they have their eating, living and other needs taken care of. that's it. that's all you need to understand. if you think a group of people who 1) have their basic needs met and 2) choose to hold onto something that could let them buy big houses, cars, fame, parties, drugs, sex, and elections because they think this other thing is' worth more, i'd suggest you're wrong to call them crazy. Q: there aren't 100,000 people in the world stupid enough to do this. A: in 2011 there were over 100k bitcoin addresses holding a balance [2]. i don't have stats on how many of them still do, but i'd suggest that these people would be 'stupid enough' to qualify. Q: those stupid people would all have to have $100 bucks extra a month, and not cash out any BTCs' A: $100 a month isn't that much, and if the 'stupid people' haven't cashed out at BTC being 100 or 1000 times what they paid for it, my guess is they don't really need the money. Q: if all they're doing is buying it, and they never sell, that makes no sense - why are they buying something they don't plan to use? A: because it makes them feel safe. all money is - all the financial markets and stock markets - all they are is a measure of how much people trust the world and think things will be ok. the use of numbers is also becuase people find that comfortable. a subjective measure of well being would never be taken seriously by the world as a 'measure of value' and yet that's essentially what the market is - only it's weighted by people who have lots of money. having lots of money is hard to do, so we put more stock in the sense of those people. combine that with "it's hard to have lots of money if your sense of well being is shit and you try to fix that by buying things" and it starts to make sense. one guy with an outlandish prediction is crazy. a hundred thousand people with the exact same outlandish prediction are either a cult - believing in something impossible - or a corporation - believing in something unlikely but doable with enough effort. a computer on every desk? impossible, unless you have enough people trusting that this will happen because they've seen the numbers and the math checks out. [1] current reward rate is ~ 7200 coins per day. if 100,000 people put 100/month into the coins, that gets you a price of 46.29 per newly created coin. [2] http://bitcoin.stackexchange.com/questions/2828/how-many-bitcoin-addresses-are-have-been-carrying-a-balance http://bitcoin.stackexchange.com/questions/2828/how-many-bit...
Aqueous 12y ago
We're talking about something that was worth less than $200 a a year ago, and $0 5 years ago. So if you believe that BitCoin is following an uneven adoption cycle, where there is a boom period followed by a pullback, which is what has been the case so far, then we're still at the beginning of its adoption curve. Additionally when mainstream markets for trading BitCoin open up - like Second Market's planned BitCoin exchange - you'll see a lot more money flow into BitCoin speculation from actual investment institutions, which could cause buy pressure. I think probably the most important - and maybe only - indicator of whether BitCoin can actually sustain its price is how many merchants are accepting it as a payment option. If this is still going up (as I believe it is) then BitCoin has a promising future. If it starts declining then I start to worry.
- deleted 12y ago
  [deleted]
- sanswork 12y ago
  Merchant adoption is a bad indicator since almost all of the benefits of using bitcoin in a commercial transaction are on the merchants side. So while they can do it for free adoption will go up even if actual usage by customers stays at or near 0.
vbuterin 12y ago
The Bitcoin price is falling because the Google Trends search volume is going down. That's it. All of the technical analysis and China news is just a mirage that makes a few jolts in the short term. http://www.google.com/trends/explore#q=bitcoin&date=today%203-m&cmpt=q http://www.google.com/trends/explore#q=bitcoin&date=today%20... And it will keep going down until the search volume stops going down, at which point it will stabilize, and then start to go up once again. Of course, this says nothing about whether the recovery will be $7 to $30 or $450 to $4000, but it's a pattern that has been quite consistently highly correlated with Bitcoin price movements in the past and I see no reason why it should not continue to be in the future. Edit: the turnaround may be quite soon. We can already see that the price has actually moved by pretty much exactly 0% in total over the past 30 days: http://bitcoinity.org/markets/bitstamp/usd http://bitcoinity.org/markets/bitstamp/usd
- zorpner 12y ago
  > The Bitcoin price is falling because the Google Trends search volume is going down. This is some serious correlation/causation confusion. What do you think is causing the Google search volume to decrease?
baby 12y ago
> This will continue to be the case until the US government takes bitcoin for taxes. I like how this is only about the US and the world around doesn't exist.
- MadManE 12y ago
  Like it or not, the US has a very heavy influence in essentially all financial markets. If they do it, it sets the precedent for the rest of the world.
pcmonk 12y ago
Using bitcoin for transactions won't help if the merchants immediately sell them (all the buying pressure just got cancelled out). Right now, bitcoin is only held in large quantities for speculation. Speculation, as he notes, has only worked for temporary bubbles. He says that bitcoin isn't failing, but I don't see how it can succeed. It doesn't make short-term economic sense for individuals to either mine or buy bitcoins, so it seems like the only people buying bitcoin will be those who are either speculating or who simply want it to succeed. That doesn't seem sustainable. Can anyone explain why he is still optimistic about bitcoin?
- sama 12y ago
  I think, especially in emerging markets, merchants will eventually hold bitcoin.
  - pcmonk 12y ago
    Why? Why wouldn't they just sell it immediately, for all the reasons why merchants sell it now?
    - natrius 12y ago
      Because if you're in Argentina, you can only sell them for Argentine pesos, which aren't a clear winner over bitcoins.
      - pcmonk 12y ago
        So, we're going to try to stabilize our currency by tying it to every failing currency across the world? If bitcoin gets mainly used as a replacement for hyper-inflationary currencies, then it's never going to be a viable alternative to an even marginally strong currency. Tying all the world's currencies together isn't going to create a stronger currency than, e.g., the dollar or the euro. Thus, those who work in dollars or euros have economic reasons not to use bitcoins.
        12y ago
logician76 12y ago
Mt.Gox is going to liquidate all their bitcoins for the bankruptcy proceedings. So factor that in, and creditors of Mt.Gox (especially bitcoin creditors) will get even less than the value today. I'd say get ready for a big bubble burst.
- pmorici 12y ago
  No they aren't. A plan to buy out the exchange settle the pending fraud lawsuits and divide the remaining Bitcoin among the creditors as well as give them a % stake in the new business was announced a couple days ago. No Mt.Gox Bitcoin is getting liquidated by the bankruptcy court. http://www.reuters.com/article/2014/04/29/us-bitcoin-mtgox-settlement-idUSBREA3S02W20140429 http://www.reuters.com/article/2014/04/29/us-bitcoin-mtgox-s...
  - logician76 12y ago
    No mention of this on the Mt.Gox website, where the last article was talking about liquidation. But thanks for the heads up, as I am also one of the creditors I should look into it.
dnautics 12y ago
"This spurs occasional bubbles..." Actually, no. Bubbles have very clear and consistent price patterns which (so far) has not characterized any of the elevations in bitcoin price. One not mentioned in this chart is that for bubbles, the post-mania drop tends to be 2x faster than the rise, which has never been true for any of the bitcoin corrections. http://www.theeestory.com/files/price_bubble_chart.jpg http://www.theeestory.com/files/price_bubble_chart.jpg It is certainly possible that bitcoin will at some point exhibit the characteristics of a bubble, which may even destroy bitcoin, but it has not so far.
- sanswork 12y ago
  http://imgur.com/D9rrl0g http://imgur.com/D9rrl0g
  - dnautics 12y ago
    Firstly the graph isn't logarithmic, which is important because popularity of viral phenomena is a locally exponential phenomenon, which is why there's a baseline drawn in the reference chart. Secondly the downward slope is steeper than the upward slope (usually by 2x).
applecore 12y ago
There's no such thing as "default price pressure" (up or down) in financial markets. Every trade has both a buyer and a seller—for someone to have sold bitcoins, someone else has to have bought them.
- natrius 12y ago
  This sounds true, but it's not. First of all, the supply of bitcoins increases every day when they are created out of thin air. Even without that factor, having a buyer and a seller doesn't mean that prices can't have a tendency towards a trend. People who purchase goods and services with bitcoins usually aren't making a calculated decision to sell bitcoins for dollars, but that's what they're doing when they pay with bitcoins. Humans aren't rational actors, especially when you try to judge their actions in a single market without considering other motivations.
- logicallee 12y ago
  Imagine if any two people who reside in the Bay Area would receive $3M at a $10M valuation within three weeks of asking for it (no questions asked) as long as they have incorporated and one of them can program. What do you think would happen to the Bay Area housing market in this situation? How can you not call it "buy pressure"? Note: interestingly this is an extreme an unrealistic example, but it's not far from relaity!
- joosters 12y ago
  Not at all. 'Real money' currencies are inflationary, for lots of reasons, including the fact that we keep printing more money. If I stash my $millions under my mattress for a decade, do you reckon they'll be worth less or more after that time? Bitcoin however has deflationary pressures, because there's a fixed upper limit on the coins (21 million) and they become harder and slower to mine. With a price of (say) $1000/BTC, that means there can only be 21 billion dollars worth of bitcoins out there. But if you expect bitcoin usage to explode and account for trillions of dollars of wealth, then the bitcoin price has to increase.
- joosters 12y ago
  'More buyers than sellers' is a perfectly reasonable statement, and v-v. If one side competes more for trade, then it will have a price pressure. Say you ran an auction of goods (paintings, junk, whatever) with 10 potential buyers in attendance, do you think you'd get higher or lower prices than if you ran an auction with 1000 buyers in attendance?
jonny_eh 12y ago
Sounds like he's moving the goal post. When did the conversation change from "Bitcoin is going to change everything!" to "Bitcoin itself doesn't matter, it's the blockhain idea that does!"
- ThomPete 12y ago
  For quite a long time actually. In fact go back to when bitcoin craze was on it's highest and you will see people pointing out that it's not the currency but the technology that's important. Bicoin the technology has already changed everything.
- mkempe 12y ago
  Probably while he interviewed 7 bitcoin startups for YC-S14.
pdq 12y ago
When most merchants take bitcoin for a purchase, they immediately sell for dollars. This is ignoring the other side of the equation. For someone to spend bitcoins, they had to have bought them for cash. Bitcoin has declined lately because of 3 main reasons: 1. There was a massive 10x price increase in the past year or so. (You could call this a bubble.) Now a 50% drop from the high just means a 5x increase in the past year. 2. Much of this growth was due to China speculation, and with the Chinese government cracking down on bitcoin ownership and exchanges, this pops much of the speculation. 3. Mt. Gox going insolvent.
- diego 12y ago
  |This is ignoring the other side of the equation. For someone to spend bitcoins, |they had to have bought them for cash. This is not true. 3600 coins are mined every day. The people with the most incentive to spend coins are early miners who have a significant chunk of their net worth in Bitcoin.
VMG 12y ago
> And even if bitcoin itself fails, I think the blockchain will be one of key technical innovations of this time period. A blockchain is only useful if it is heavily secured by hashing power. This is only the case if there is significant mining equipment devoted to validating blocks. That in turn only happens if there is a reward for validating a block. Long story short, it's currently very difficult to use a secure blockchain that is not based on Bitcoin, which puts the quote into perspective. Those who want to use blockchain technology have an incentive to use the Bitcoin blockchain because it has the greatest security.
- dragontamer 12y ago
  Or not? Proof-of-stake is arguably better than Proof-of-work. Peercoin, NXTCoin and so forth have fundamentally moved forward from the "waste more energy than the next guy" approach that is innate to Proof-of-work.
  - nullc 12y ago
    Unfortunately, this doesn't appear to be true. So far all proposed proof of stake systems suffer from problem that miners don't consume a resource to attempt to contribute to the consensis. In other words, the problem of proof-of-statke is that there is nothing at stake. There is no reason for a miner to not attempt to extend every chain that they can— or at least every that they don't hate— and, in fact, doing so is the solution maximizing behavior. In proof of work, by comparison, miners must choose to expend a resource for every attempt and so an effort to try to mine on one fork requires a choice to not spend that resource on other ones. The best strategy then becomes putting all your effort on one chain which you think most likely to survive. Optimal POS strategy is to mine all forks you can, just in case any survive. This issue seems fundamental, but perhaps someone someday will find a clever way around it be changing assumptions. Peercoin was attacked this way— a miner grinding out alternative histories and finding ones where they were awarded almost every block— _immediately_ when POS mining became possible on it. The attack was thwarted because PPC has a central control mechanism where its developer cryptographically signs blocks to force the network to accept them over longer, otherwise better, chains... and it was later closed off by requiring POW blocks to select the POS blocks that can mine. (But now, the security of that coin reduces to the security of POW and the security of the signing key controlled by its pseudonymous developer). See also section 5 of https://download.wpsoftware.net/bitcoin/asic-faq.pdf https://download.wpsoftware.net/bitcoin/asic-faq.pdf
sillysaurus3 12y ago
In a moment of some depression, reflecting back on sinking so much money into Bitcoin at close to the peak of its price history, I made this: http://i.imgur.com/f3tIJwK.png http://i.imgur.com/f3tIJwK.png It's important to understand that Bitcoin is dangerous to you, and you need to respect its danger if you decide to buy some. You need to be using a secure cold storage wallet. You need to not trust services like Coinbase to hold onto your coins for you. Growing up, I'd always heard stories about people who kept cash under their mattress because they didn't trust banks to not lose their money, which made me laugh. Now I get to laugh at myself for trusting anyone but myself to not lose my money. Usually, when you lose money, you get something in return. Even if it's just an opportunity. A risky investment isn't necessarily a bad thing if it fails, because you may have stood to earn a lot if it turned out well. The key thing to understand about Bitcoin is that you can lose all your money in the blink of an eye for a multitude of reasons. I've written in detail about why Bitcoin is dangerous to its users: https://news.ycombinator.com/item?id=7521906 https://news.ycombinator.com/item?id=7521906 Until there are good and convenient solutions to these problems, it's hard to imagine Bitcoin as anything but a vehicle for speculation. And it's a fine one, too. If you feel like gambling, there's nothing like the rush of seeing whether you're about to gain $50 or lose $250 in the next two minutes. And waking up at 3AM to check the price. (Most of the heavy moving seems to happen in the US off-hours, unless a big news story impacts the price.) The reason I say it's a vehicle for speculation right now is because right now the most sensible course of action for people who are risk-averse yet still want to accept Bitcoin is to immediately convert Bitcoins into dollars. Indeed, that's exactly what Tarsnap does, and probably many other merchants as well. And about the price: it seems mostly determined by a small group of people (probably fewer than 100) who have a lot of coin and who actively try to move the market in their favor. They've been following a rather simple scheme: dump a lot of money into bitcoin to jump the price up $50 or so, then sit back while everyone else reacts by jumping it up another $50, then sell off your newly-acquired bitcoin. Presto, you've earned some money. Possibly quite a lot of money. I don't know whether that strategy has paid off for the movers, but nonetheless it seems to be what they're doing. The long-term price is anyone's guess. I'd say the most valuable insight I learned throughout this whole ordeal is that the market isn't logical, or if it is, you aren't going to be privy to the information it's acting on. The most obvious example of this was when people sold off thousands of bitcoins an hour or two before Mt. Gox published their update with bad news. At face value, it seemed to be a clear example of insider trading. When it happened, no one knew why the market suddenly dropped so much; it was as if the market suddenly went insane and lost faith in bitcoin. In reality, it was probably someone with a ton of coins who caught wind that hard times were about to happen. Bitcoin is an interesting experiment. I like it a lot. I think it has a lot of potential, and that we need to figure out solutions to the fundamental problems like making it easy for people to manage their own wallets without risk of loss or robbery.
joelhaus 12y ago
Can anyone make the case that Bitcoin has the three primary characteristics of money [1]: medium of exchange, unit of account, and store of value? Ignoring the blockchain, this is why Bitcoin will fail. Bitcoin as a currency is inherently inflationary because as demand increases (which is the state of a healthy currency), the supply is relatively stationary. Therefore, a drop in Bitcoin value is indicative of a disproportionate drop in demand. [1] https://en.wikipedia.org/wiki/Money#Functions https://en.wikipedia.org/wiki/Money#Functions
mangeletti 12y ago
tl;dr BitCoin is taking a breather on its upward speculative bubble phase, and is being used primarily as a transactional currency at the time, while downward pressures remain the same as they were before the bubble days started.
thisiswrong 12y ago
Yes. We hear this each time. All that i can respond to this is: log chart, log chart, log chart [1]! By looking at a simple log chart one can notice a repetitive cycle. One may even notice that now is actually the best time to buy. Following the pattern, the next boom is only 2-6 weeks away. Who knows what could cause the next boom? Russia pump, Ukraine banking shutdown, E.C.B. Quantitative Easing, USD weakening ? ... [1] https://blockchain.info/charts/market-cap?timespan=2year&showDataPoints=false&daysAverageString=1&show_header=true&scale=1&address= https://blockchain.info/charts/market-cap?timespan=2year&sho...
tethis 12y ago
But if the currency is deflationary with a coin limit, over the long term the only way more people can enter the market / make use the currency is for, as an example, $1 USD to be represented by smaller and smaller subdivisions of BTC. This necessarily increases the value of 1 BTC. Why is there ever any incentive to do anything with BTC besides hoarding?
- gnaritas 12y ago
  Hoarding creates the value necessary per unit to make large funds transfers possible. Hoarding is good.
  - tethis 12y ago
    But to succeed as a currency, it needs to encourage people to spend.
    - gnaritas 12y ago
      It doesn't need to succeed as a currency to succeed.
      - logicallee 12y ago
        bingo. It can succeed the way beanie babies did, which were never used as a unit of account or medium of exchange. /s
        gnaritas 12y ago
        Don't be so simple minded. It can succeed as a remittance mechanism without succeeding as a currency. If it does nothing more than eliminate Western Union for international wire transfers it'll be massively successful.
        logicallee 12y ago
        I think by definition it is a currency if it succeeds as a remittance mechanism - because you can really only send BTC using the bitcoin network, it can't track USD values directly (as a network.) Using the Western Union network you can literally "send dollars" (or euros or pounds) but the same isn't true of bitcoin. It's a remittance network tied to a currency, and that currency is bitcoin. In this sense its use as a remittance network implies its success as a currency. For this reason, I had no idea this is what you meant - I thought you meant it can succeed as an investment, without succeeding as a currency.
robot 12y ago
"It still makes sense to mine if you’re living in a dorm and don’t pay for electricity" it will be nitpicking on a whole post, but I don't find it ethical to make such gains. The fact that you don't legally need to pay does not entitle you to use resources of someone else this way (in this case the educational institution). I guess he meant "it theoretically makes sense if you don't pay for electricity"
mhluongo 12y ago
In my (admittedly short) experience accepting bitcoin, our customers keep coming back. It's not much data, but we've had 25% retention these 3 weeks. I think being able to spend bitcoin places people actually visit every day is going to be huge for adoption / stability. How often do I spend at Overstock.com? Now what about the corner coffee shop, or the grocery store?
panarky 12y ago
It's not worth much to speculate about upward or downward price pressure. People made the same arguments when the exchange rate was $5, $25, $50 on up to $1,150, and now back down to $440/BTC. These arguments have zero predictive value. What's interesting to me is the repeating boom-bust pattern that we see as more people learn about cryptocurrencies, and as the Bitcoin protocol holds its own against an onslaught of attacks. In the summer of 2010, the exchange rate was $0.05/BTC. Over the next year the price increased by 60000%, then proceeded to decline 90%. Even after losing 90% of its value, it was still up 4500% from the summer of 2010. By the spring of 2013, the exchange rate spiked to $250/BTC, up 10000% ... then crashed and lost 80% of its value. Its post-peak minimum was still twice as high as the previous peak. Again in late 2013, the price zoomed up nearly 3000% ... and it's now lost 60% of its peak value, still twice as high as the previous peak. The past doesn't necessarily predict the future, but we're not seeing anything today that we haven't experienced at least three times already.
- sillysaurus3 12y ago
  The way to combat this is with arithmetic. Calculate out "if Bitcoin reaches $2000, what would its market cap be? How many people are actually using it? Can it possibly be worth that much per user?" It paints a pretty grim picture for Bitcoin achieving even a 5x boost over the past peak, at least for years to come.
  - driverdan 12y ago
    There are far too many unknown variables to calculate that. You don't know how many people would be using it to push it to $2000. You won't know what the market cap would be until that price is reached.
  - nostrademons 12y ago
    That was my reasoning for not getting into Bitcoin in a big way during the hype cycle. It's incorrect, though. The best case for Bitcoin is that it becomes the global reserve currency, in which case your dollars are worthless and it makes sense to exchange any number of dollars for Bitcoins now before the dollars become worthless. IMHO this scenario is pretty unlikely, but it shows the difficulty of doing fundamental analysis on currencies. Currencies are based entirely on confidence; they are, by design, intrinsically worthless. (Gresham's Law dictates that any currencies with intrinsic value tend to get driven out of circulation and cease to become usable currencies.) So the only facts that matter when evaluating them are the attitudes of the population towards them. This is why ForEx speculation is usually likened towards gambling; it's pretty much impossible to make a sane rational analysis of their value.
Ologn 12y ago
> The other way to get enough buy pressure would be if many people started deciding they want to hold bitcoin as a hedge or a speculation. This spurs occasional bubbles, but we haven’t yet seen it work long term. Bitcoin is doomed because it has no value. Commodities have value. Modern trade began by people trading commodities for each other. Some commodities had attributes which made them good currencies - they were portable, fungible, divisible etc. Gold is an example of a commodity which makes a good currency, other precious metals like silver are good as well. Bitcoins are worthless. They are hashes, that's it. Gold can be used to fill teeth, to conduct electricity and so forth. Bitcoins can do nothing. It's funny to see his discussion of bubbles. If anything is a sign of a tech bubble, it's these worthless Bitcoins having a market cap of $5+ billion. For people who are saying its value is that it is a currency, you have no understanding of the value of commodities and currencies. Bitcoin's inevitable collapse will be a sign of this. My argument is falsifiable - if Bitcoins retain value, I'm wrong (of course Keynes said markets seemed to remain irrational longer than he himself could remain solvent). The Bitcoin's advocates are making an argument that is not falsifiable. "It's worth something because it's worth something" or "it's worth something because people think it's worth something". So if it goes to zero, their theories for why it had value still hold. Scientific arguments are falsifiable (mine is), there's are not. Also the rise of Dogecoin, Litecoin, Peercoin or whatnot point to the lack of value of Bitcoins. Anyone can create these valueless currencies - even joke ones like Dogecoin reach market caps in the tens of millions. The only semi-rational argument for Bitcoin is the one that goes "1971 paper currencies like the dollar, yen etc. have not been backed by gold (or some other commodity) since 1971, so why can't Bitcoins have value"? That argument is a rather long thing to go into. Also, not to make a big thing of it, but that posts like this questioning the value of Bitcoin are regularly downvoted on HN are instructive. I guess I'll have to live with losing some worthless HN karma to point out that Bitcoin hashes are ultimately even more worthless.
- gnaritas 12y ago
  You have no idea what you're talking about. Bitcoin has value as a remittance network, especially internationally, your argument is trivially invalid.
mrb 12y ago
"as far as I can tell, mining is currently unprofitable with any reasonable cost of electricity." I have been mining for 3.5 years. This statement is utterly false. Current mining hardware, such as the KnC Jupiter, can mine at about 500 Ghash/s at less than 600 Watt at the wall. Over a month it mines: 500e9 (hash/sec) * 3600 (sec/hour) * 731 (hour/month) / (2^32 * 8.0e9 (current difficulty)) * 25 (btc/block) * 400 ($/btc) = $383 And assuming worldwide average electricity costs of $0.10/kWh, it costs less than $44 to run over a month: .6 (kW) * 731 (hour/month) * .10 ($/kWh) = $44 Even assuming higher prices (eg. highest-tier electricity prices in SoCal of ~$0.30/kWh), and even adding overhead like cooling, etc, it is still clearly profitable to mine with the Jupiter. (However difficulty is rising pretty quickly, so it will certainly not remain that profitable, if at all, in the near future.)
- wmf 12y ago
  That's marginally profitable, but if it never pays back the capex it's not actually profitable.
- driverdan 12y ago
  You're completely ignoring the capital cost of buying the miner.
  - mrb 12y ago
    True, but this is not Altman's point. He clearly refers to operating costs, not capital costs. (This is why he later talks about free electricity, not free hardware.)
  - LyndsySimon 12y ago
    That's a sunk cost. The question wasn't "is it profitable to begin mining Bitcoin?", it was "is it profitable to mine Bitcoin?" Miners already have the equipment - as long as proceeds don't drop below energy costs, mining will continue at current levels.
    - dragonwriter 12y ago
deleted 12y ago
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anigbrowl 12y ago
It’s important to understand that the default price pressure of the bitcoin ecosystem is down. Only if you assume demand is static. With a mathematically-fixed supply, expanding global population, and the supposed inherently inflationary nature of fiat currencies, the default price pressure should arguably be upward. Let's face it, a great number of the early adopters are digital goldbugs with a jaundiced view of central banking. Like many quasi-political demographics, I think they overestimated the popularity of their viewpoint. I do agree about the significance of the blockchain as a technical innovation...up to a point. Last time I looked at the dogecoin blockchain it was some multi-gigabyte monsters that I need to move off my boot drive sooner rather than later.
- joelhaus 12y ago
  Tried making this exact point here too, but the true-believers don't seem to respond to legitimate critiques. What's really hard to comprehend is the all of the "smart" VC money funding related startups -- this is pretty basic economics. Although, I suppose a Coinbase investment does provide some hedge against Bitcoin.
logicallee 12y ago
>This doesn’t mean bitcoin is doomed. It just means that for it to succeed, we’ll need significant external buy pressure. As I wrote awhile ago, I think the key thing we need for this is people actually using bitcoin for transactions instead of speculation (and merchants willing to hold bitcoin balances). [3] Unfortunately, transaction volume still appears to be trending down. Let's look at this. Yes, one easy way in which bitcoin can "succeed" is by becoming a worldwide currency in actual use. In fact, this is probably a design objective. However, its extremely limited supply dooms it from the start in this endeavor. We can reason about this by counterexample (reductio ad absurdum). First, let's take for a given that within ten years bitcoin will have a role in the world money supply similar to gold (cap of $7.2 trillion on all gold ever mined) or the M2 money supply of USD. (http://money.howstuffworks.com/how-much-money-is-in-the-world.htm http://money.howstuffworks.com/how-much-money-is-in-the-worl...) This doesn't count other currencies and is not "most" of the world money supply. There is a limit on the number of bitcoins that can ever be mined, at 21 million. (More than half have been mined, so let's use that upper limit - you may want to multiply by two to account for the current supply instead). If were to divide $7 trillion by 21 million we would get a bit over $330,000 per bitcoin. Since we started with the assumption that bitcoin would become a world currency or money supply, and the bitcoin protocol limits supply to 21 million ever, we are forced to continue our argument with a target price of $330K/bitcoin over 10 years. This does, however, pose a problem. We started with the assumption that bitcoin succeeds as a currency. That means people have to get their hands on it and use it. But if we go from today's price ($445) to our logically mandated target price ($330K) in ten years, that means the value of bitcoins increases by a factor of 741 (330 000/445) over 10 years, i.e. a compound average of 94% per year. (1.94^10 = 741). Do we have a contradiction yet? I think we do. --> Is it possible for the price of bitcoin to rise an average of 94% per year, for ten years, while: --> it is also being adopted as a world currency? I believe the answer is "no". Let's look at some of the behavior that's necessary in order for it to count as a "world currency": 1. Borrowing BTC for productive purposes. One of the major reasons, if not the major reason that USD is a currency of business and gold is not, is that you can borrow USD for productive purposes. Indeed, this can happen directly by increasing the money supply centrally in a way that gets to people for loan purposes, but also happens implicitly due to systemic inflation. Inflation mandates that some USD will always be lent. This is because inflation is a hidden taxes on keeping USD qua USD. If you come to possess $1M in cash, you would be insane to keep it as cash for 20 years. Inflation would just eat a large chunk of it. Not so with currencies that do not experience inflation. 2. This deflation is toxic to using bitcoins by people who have them. If bitcoins are going to increase in value by 91% if you keep them for a year, then if you possess bitcoins, you would be crazy to spend them on anything that does not produce a 91% return for you within a shorter time period. This is going to seriously hinder spending, and adoption. Certainly, some people may be "forced" to sell some of their bitcoins. But that is not the way in which a currency succeeds. By people preferring not to spend it, but having to do so in some extraordinary cases. 3. Fees on exchanges may be higher. If btc has a high price, and is considered an investment, you may be leery of buying some from somebody (which may cost you percentages) to buy goods that are not actually denominated in BTC. The volatility may also put you off. In this sense bitcoin would behave more like Picassos than like USD or any other world currency. People are just going to hang on to it. 4. So what if people need money? Wouldn't they still just get some BTC at the current spot price? The thing is, if most people are hoarding BTC with very little spending of it, when it can be at all avoided, there will NOT be a price set by deep markets of goods and services. There is no "floor" on the price. That is dangerous for bitcoin. It is still possible to buy and transfer "just in time" to be sold back into fiat by the merchant. But people are not going to print menus, catalogues, ads, or other more than transient pegs to price, just as nobody prints prices in ounces of gold. You will therefore have a case in which there is no built-in usage or acceptance of bitcoins, denomination in bitcoins of goods and services, or large transactions such as investments being built against bitcoin. Since nobody uses bitcoins as an actual currency, there is no floor to its adoption. Essentially actual users of the currency are priced out of it. This is contrary to our initial assumpion! You may say - well, so what if it is hard to get. People will still get it at a spot price, to pay for goods, even if nothing is denominated in BTC. But then we must ask - well, why in BTC then? Why not another alt currency? If only the spot price matters... So any POSSIBLE floor on the price will drop out, since btc does not have a unique position. Will it take on a role that Gold has over thousands of years - that people recognize its value implicitly, even after it has long since not been used as currency, and there is no obvious substitute (like silver and platinum)? Well, here's the thing. Gold has several unique properties that most other precious metals don't have. It's easy to essay, very dense, can be recognized and verified, and has a long history of acceptance all over the world. Bitcoin does not have a long history of acceptance all over the world, the software can break, but, if the software is not broken, if its verifiability is in tact - THEN IT IS NOT UNIQUE IN THIS REGARD! Indeed, anyone can use litecoins, doegecoins, or other currency. As bitcoin becomes too valuable to spend (unless you can get a 91% return), it would simply make sense to use the spot price of another currency to trade with instead. So by the very fact that its properties are not totally unique, it does not have actual usage as a unit of account, it is failing in its bid to become the default online currency. At best, it can end up like gold compared to USD, and fail to be an online currency. At worst, it can tank. So while it is certainly possible for BTC to maintain their value - as a currency it can never reach much use. Moreover there is a large risk that the speculation will cease - i.e. that the hoarding behavior was a "bubble". Look at the volumes of litecoin and dogecoin versus BTC. This may easily happen. - I believe that an online currency could be created that is more like USD than like Gold. Here is how the USD has been treated since 1913: "The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act: Maximum employment, stable prices, and moderate long-term interest rates"." Today, bitcoin fails at all three. (It will not create employment from people spending it to whom it is lent; the price of goods denominated in BTC is extremely unstable; and it would have extremely high interest rates.) I believe that there is a way to do far more in a digital currency. But BTC is not it. It simply, logically, cannot succeed as a currency or world money supply. Its behavior as an investment is also completely uncertain - nothing makes it unique versus other alt currencies, not the technology, not acceptance, and its price fights against real adoption. This sets up a dangerous tulip-like situation. I personally would not invest in BTC holdings, nor do I think it is a good candidate for Internet money.
diogenescynic 12y ago
Warren Buffet said this about gold, but it's still relevant to Bitcoin: >“If you put your money into gold or other non-income- producing assets [read: Bitcoin] that are dependent on what someone else values that in the future, you’re in speculation,” he said. “You’re not into investing....” >To illustrate the point, he asked readers to picture the world’s entire gold stock melded together into a cube 68 feet (21 meters) on each side valued at $9.6 trillion at then- prevailing prices. For the same amount, an investor could have purchased all the farmland in the U.S., 16 replicas of Exxon Mobil Corp., and still have about $1 trillion of “walking- around money.” >A century later, the farmland will be producing valuable crops no matter the currency, and dividends from the companies would probably added up to trillions of dollars, Buffett wrote. >The 170,000 metric tons of gold “will be unchanged in size and still incapable of producing anything,” he wrote. “You can fondle the cube, but it will not respond.”
- dwaltrip 12y ago
  Bitcoin has many extremely strong advantages compared to gold that make it a far more pragmatic monetary asset/neutral currency. I would list them out but I'm sure you know them (very fast transfer anywhere in the world, maximum portability, etc).
  - logicallee 12y ago
    As you can see in my other comments the basic things it lacks are a worldwide history of acceptance as currency (going back millennia in the case of gold) as well as uniqueness (the non-existence of equivalent substitutes). Whatever the technical characteristics of bitcoin, an alt coin can have the same technical characteristics. So we are riding a thin uniqueness, in terms of level of acceptance, that is not going to be driven deeper due to limits on adoption as a currency. (That I mention elsewhere.) The uniqueness is a special lock-in for gold, and as gold becomes inconvenient due to price or scarcity, you can't just transfer it to Pt (platinum) or Ag (silver) in 10 minutes times however many confirmations you need. Gold has several layers of stickiness or lock-in, including historical and technical/physical. Not so for bitcoin. It has self-limiting on adoption (due to the lack of anyone minting it by fiat, and its low total numbers), but moving away from it takes just minutes. The most interesting chart is seeing the fall of bitcoin market cap against the rise of all other alt coins market cap - and to see if that is on the fall or on the rise. Especially when things aren't denominated in BTC, but it is just used transiently, really, any other currency with a spot price will do just as well. There is no reason to believe bitcoin will have any greater use as a currency in the future than it does now. And unlike gold, it has no historical lock-in as a long-term store of value. No one is "stuck" with it, it is easy to verify transfer, and it is a totally liquid market (even at 3 AM on bank holidays) that is not held up by any printed prices or industrial uses. It doesn't even have basic exchange mechanisms such as halting trading. The spot price of Bitcoin can collapse overnight. Unlike gold, there is just anything holding it up long-term. It's a bit like pokemon cards, beanie babies, or pogs. Sure it can have value for a while, but as it doesn't see adoption as a currency, has no alternative or basic uses (less than these three examples in fact), and is very easy to move away from - there is no reason to suppose this will not happen. Bitcoin for a while was the only currency with its particular properties. But that is far from true anymore.
vijayboyapati 12y ago
Sam writes: "It just means that for it to succeed, we’ll need significant external buy pressure. As I wrote awhile ago, I think the key thing we need for this is people actually using bitcoin for transactions instead of speculation (and merchants willing to hold bitcoin balances). " I think this is a very common meme about what success means for bitcoin and it's tied up with a misunderstanding of what money is; most people think money is valuable because it's used transactionally. Rather, money is valuable because it has reservation demand. An increasing level of transactional usage might increase reservation demand but it doesn't need to. On the other hand increasing reservation demand can occur even without any new transactional demand. Moldbug explained this best in his discussions on bitcoin and how money is a bubble phenomenon: http://unqualified-reservations.blogspot.com/2013/04/bitcoin-is-money-bitcoin-is-bubble.html http://unqualified-reservations.blogspot.com/2013/04/bitcoin... http://unqualified-reservations.blogspot.com/2011/04/on-monetary-restandardization.html http://unqualified-reservations.blogspot.com/2011/04/on-mone... Bitcoin can be "successful" even if it's not the preferred medium of exchange for most, or even many transactions. It can act as a store of value just as gold does. Except it is superior to gold is almost every way - more fungible, more verifiable, more divisible, easier to transport (especially across borders) and easier to transmit. A success case for bitcoin is that it becomes Gold 2.0. Gold's market cap is approximately 7 trillion. Bitcoin's market cap is approximately 6 billion. If Bitcoin were to replace gold as an alternatively medium of savings (say, in 50 years), its price could be hundreds or thousands of times higher than it is now without needed much, if any, increase in transactional use. Gold has almost no transactional use but it has a great deal of reservation demand.
- a_c_s 12y ago
  "...it is superior to gold is almost every way" Except for the part where you can actually make things with gold: it is shiny, easy to work with and highly conductive. So worst case, if the value of gold plummeted you could still make some awesome jewelry, electronics, dental fillings, etc. While it may not be proportional to the current price, gold does have intrinsic value: Bitcoin has none.
  - vijayboyapati 12y ago
deleted 12y ago
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110 points by arnauddri 12y ago

> Anecdotally, I hear from merchants who start taking bitcoin that after an initial spike they see almost no volume. To me, this is one of the biggest problems with adoption--bitcoin doesn't offer much benefit to the typical consumer for mundane transactions. I'm about to buy a coffee machine on Overstock.com. There's no practical reason that bitcoins are better than what I'm going to do which is put it on my mastercard. And there's a lot of reasons that getting my money into bitcoin in the first place is a giant pain in the ass. Yeah, there are some potential situations that could change this, and if I lived in a country with massive inflation I might feel differently, but as it stands, I don't see any compelling reason to use bitcoin to make purchases.

loopdoend 12y ago
It doesn't benefit consumers for any transaction. Unless you consider the deed itself to be a benefit, outweighing all the negative. I don't. As a consumer, I don't like getting fucked by the spread on exchange rates on the buy AND sell sides when I try to pay in bitcoin. Want to buy some bitcoin? Unless you're doing it face-to-face you're going to get jacked a few percent. Want to spend them? Unless it's at a bitcoin-only merchant, jacked again. Add in the fact that I'm not getting whatever points my credit card would have given me, that I've got absolutely no recourse against the merchant, and that I have to worry about hackers stealing my money... there's no reason for me to use it.
- driverdan 12y ago
  Two words: money transfers. Bitcoin works very well for low friction P2P transfers. This may be considered a solved problem in Europe where bank transfers are easy and the norm but in the US and other parts of the world it's unsolved and a pain in the ass. There is no easy way for me to transfer money to a friend other than handing them cash. You might suggest an awful centralized service like PayPal but there are plenty of problems with them too. What if I want to send money to a friend who lives in another country? Even harder. Bitcoin solves this problem.
  - smm2000 12y ago
    You can mail him a check - zero transaction fee and works every single time. No easy way to do it electronically though. Also you could not really do it with random strangers - risk of fraud is fairly high.
gnaritas 12y ago
Keeping your credit card number out of their database where it can't be hacked is a practical reason to use bitcoin. It reduces your risk of merchant's getting hacked, which happens all the time.
- miros 12y ago
  Yeah but my credit card company protects me from that sort of fraud so it really isn't a practical concern.
  - gnaritas 12y ago
    Only if you notice and report it, people get skimmed all the time and never notice.
    - IvyMike 12y ago
      > people get skimmed all the time and never notice. Insert Mt.Gox joke here.
    - pbreit 12y ago
      There's an app for that: https://www.billguard.com/ https://www.billguard.com/
      - gnaritas 12y ago
        Ha, why of course there is, I should have figured.
- Goronmon 12y ago
  So, a merchant gets hacked and your credit card info is stolen. You notice fraudulent charges, call your credit card company and they reverse the charges and send you a new card. If someone gets access to your bitcoin wallet or whatever storage mechanism you are using fails, then that money is gone forever with no way to recover it. If you are a regular user with no need to make a political statement with the use of a non-traditional currency, what exactly about the second scenario sounds safer?
sanderjd 12y ago
I think it could (or maybe "should") be totally great for tiny payments. Less like 0.5BTC for a coffee machine, more like 0.001BTC for a single API request. It seems uniquely suited for tiny, frequent, low-risk payments. That doesn't seem like a very widespread business model, but maybe that's because it's been tough to do without something like bitcoin.
miros 12y ago
It's also worth pointing out that you are probably incurring significant fees when converting from your native currency into bitcoin. In addition, if you are holding bitcoins with the expectation that they will actually appreciate (i.e. the currency will deflate rather than inflate) you are effectively losing money by spending it, further discouraging you from engaging in the transaction. Krugman has enjoyed making this point a few times: http://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/ http://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/ http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfetters/ http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfett...
acomjean 12y ago
Odd because one of the benefits of Bit Coin is lower transaction fees that what credit card companies charge. One would think businesses would really like this and promote it.
- a_c_s 12y ago
  The huge variations in price mean that a company could very easily lose more than the few, entirely predictable, percent the credit card companies charge.
  - mpyne 12y ago
    And adding the cost of insurance to account for the risk of having your hot wallet wiped out could ruin the transaction fee advantage all by itself.
endeavor 12y ago
When you say "the typical consumer", I think you are really saying "the typical, relatively wealthy consumer living in the first world". For the some billions of people on the Earth who don't have a stable currency, credit/debit cards, mortgages and other financial products Bitcoin has more benefits. Think of the WhatsApp demographic without a smart-phone.
- mpyne 12y ago
  Honestly I think it would be the opposite; Bitcoin would be yet another way that the developed world has screwed over the developing world, once malicious actors realize that perfectly good wallet.dats exist on the cellphones of people who think that having sex with virgins cures AIDS.

MarkPNeyer 12y ago

> The other way to get enough buy pressure would be if many people started deciding they want to hold bitcoin as a hedge or a speculation. ding ding ding. that's all i'm doing. i've had a bunch for a while. i don't need the liquidity, so i figure i might as well hang on to them. i think a lot of us are in the same boat. if a group of 100,000 'crazy' and 'irrational' people all decided to put $100 USD a month into bitcoin, you'd create upward pressure on BTC, with a price floor of $43 usd [1] at current reward rates, rising as the reward rate drops. The rising floor would case the price of BTC to rise, even if the _only_ volume was 'crazy bitcoin believers putting $100 a month into it'. the fixed supply of coins and large supply of 'crazy people who think they'll make money because the price keeps going up' and make the 'crazy' belief that bitcoin will be worth more in the future become a self-fullfilling prophecy. the REAL thing that would cause it to flop is if these 'crazy' people all decided they wanted dollars instead of bitcoins. that would tank the price. but if they 'maintain the insanity' of holding onto a thing with a dollar price that flucauates wildly, their insanity becomes our reality. since most of these people think the dollar is a fucked up currency, they probably see the _dollar_ as being the thing that fluctuates wildly. anything looks crooked if you use a crazy straw as a ruler. possible objections: Q: how is this worth anything if it's just crazy people convinced that this thing will be worth something' A: 'it's because there is value in trust.' people that hold onto something they can't eat, live in or use because they think it's valuable will be right - IF they have their eating, living and other needs taken care of. that's it. that's all you need to understand. if you think a group of people who 1) have their basic needs met and 2) choose to hold onto something that could let them buy big houses, cars, fame, parties, drugs, sex, and elections because they think this other thing is' worth more, i'd suggest you're wrong to call them crazy. Q: there aren't 100,000 people in the world stupid enough to do this. A: in 2011 there were over 100k bitcoin addresses holding a balance [2]. i don't have stats on how many of them still do, but i'd suggest that these people would be 'stupid enough' to qualify. Q: those stupid people would all have to have $100 bucks extra a month, and not cash out any BTCs' A: $100 a month isn't that much, and if the 'stupid people' haven't cashed out at BTC being 100 or 1000 times what they paid for it, my guess is they don't really need the money. Q: if all they're doing is buying it, and they never sell, that makes no sense - why are they buying something they don't plan to use? A: because it makes them feel safe. all money is - all the financial markets and stock markets - all they are is a measure of how much people trust the world and think things will be ok. the use of numbers is also becuase people find that comfortable. a subjective measure of well being would never be taken seriously by the world as a 'measure of value' and yet that's essentially what the market is - only it's weighted by people who have lots of money. having lots of money is hard to do, so we put more stock in the sense of those people. combine that with "it's hard to have lots of money if your sense of well being is shit and you try to fix that by buying things" and it starts to make sense. one guy with an outlandish prediction is crazy. a hundred thousand people with the exact same outlandish prediction are either a cult - believing in something impossible - or a corporation - believing in something unlikely but doable with enough effort. a computer on every desk? impossible, unless you have enough people trusting that this will happen because they've seen the numbers and the math checks out. [1] current reward rate is ~ 7200 coins per day. if 100,000 people put 100/month into the coins, that gets you a price of 46.29 per newly created coin. [2] http://bitcoin.stackexchange.com/questions/2828/how-many-bitcoin-addresses-are-have-been-carrying-a-balance http://bitcoin.stackexchange.com/questions/2828/how-many-bit...

Aqueous 12y ago

We're talking about something that was worth less than $200 a a year ago, and $0 5 years ago. So if you believe that BitCoin is following an uneven adoption cycle, where there is a boom period followed by a pullback, which is what has been the case so far, then we're still at the beginning of its adoption curve. Additionally when mainstream markets for trading BitCoin open up - like Second Market's planned BitCoin exchange - you'll see a lot more money flow into BitCoin speculation from actual investment institutions, which could cause buy pressure. I think probably the most important - and maybe only - indicator of whether BitCoin can actually sustain its price is how many merchants are accepting it as a payment option. If this is still going up (as I believe it is) then BitCoin has a promising future. If it starts declining then I start to worry.

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sanswork 12y ago
Merchant adoption is a bad indicator since almost all of the benefits of using bitcoin in a commercial transaction are on the merchants side. So while they can do it for free adoption will go up even if actual usage by customers stays at or near 0.

vbuterin 12y ago

The Bitcoin price is falling because the Google Trends search volume is going down. That's it. All of the technical analysis and China news is just a mirage that makes a few jolts in the short term. http://www.google.com/trends/explore#q=bitcoin&date=today%203-m&cmpt=q http://www.google.com/trends/explore#q=bitcoin&date=today%20... And it will keep going down until the search volume stops going down, at which point it will stabilize, and then start to go up once again. Of course, this says nothing about whether the recovery will be $7 to $30 or $450 to $4000, but it's a pattern that has been quite consistently highly correlated with Bitcoin price movements in the past and I see no reason why it should not continue to be in the future. Edit: the turnaround may be quite soon. We can already see that the price has actually moved by pretty much exactly 0% in total over the past 30 days: http://bitcoinity.org/markets/bitstamp/usd http://bitcoinity.org/markets/bitstamp/usd

zorpner 12y ago
> The Bitcoin price is falling because the Google Trends search volume is going down. This is some serious correlation/causation confusion. What do you think is causing the Google search volume to decrease?

baby 12y ago

> This will continue to be the case until the US government takes bitcoin for taxes. I like how this is only about the US and the world around doesn't exist.

MadManE 12y ago
Like it or not, the US has a very heavy influence in essentially all financial markets. If they do it, it sets the precedent for the rest of the world.

pcmonk 12y ago

Using bitcoin for transactions won't help if the merchants immediately sell them (all the buying pressure just got cancelled out). Right now, bitcoin is only held in large quantities for speculation. Speculation, as he notes, has only worked for temporary bubbles. He says that bitcoin isn't failing, but I don't see how it can succeed. It doesn't make short-term economic sense for individuals to either mine or buy bitcoins, so it seems like the only people buying bitcoin will be those who are either speculating or who simply want it to succeed. That doesn't seem sustainable. Can anyone explain why he is still optimistic about bitcoin?

sama 12y ago
I think, especially in emerging markets, merchants will eventually hold bitcoin.
- pcmonk 12y ago
  Why? Why wouldn't they just sell it immediately, for all the reasons why merchants sell it now?
  - natrius 12y ago
    Because if you're in Argentina, you can only sell them for Argentine pesos, which aren't a clear winner over bitcoins.
    - pcmonk 12y ago
      So, we're going to try to stabilize our currency by tying it to every failing currency across the world? If bitcoin gets mainly used as a replacement for hyper-inflationary currencies, then it's never going to be a viable alternative to an even marginally strong currency. Tying all the world's currencies together isn't going to create a stronger currency than, e.g., the dollar or the euro. Thus, those who work in dollars or euros have economic reasons not to use bitcoins.
      - 12y ago

logician76 12y ago

Mt.Gox is going to liquidate all their bitcoins for the bankruptcy proceedings. So factor that in, and creditors of Mt.Gox (especially bitcoin creditors) will get even less than the value today. I'd say get ready for a big bubble burst.

pmorici 12y ago
No they aren't. A plan to buy out the exchange settle the pending fraud lawsuits and divide the remaining Bitcoin among the creditors as well as give them a % stake in the new business was announced a couple days ago. No Mt.Gox Bitcoin is getting liquidated by the bankruptcy court. http://www.reuters.com/article/2014/04/29/us-bitcoin-mtgox-settlement-idUSBREA3S02W20140429 http://www.reuters.com/article/2014/04/29/us-bitcoin-mtgox-s...
- logician76 12y ago
  No mention of this on the Mt.Gox website, where the last article was talking about liquidation. But thanks for the heads up, as I am also one of the creditors I should look into it.

dnautics 12y ago

"This spurs occasional bubbles..." Actually, no. Bubbles have very clear and consistent price patterns which (so far) has not characterized any of the elevations in bitcoin price. One not mentioned in this chart is that for bubbles, the post-mania drop tends to be 2x faster than the rise, which has never been true for any of the bitcoin corrections. http://www.theeestory.com/files/price_bubble_chart.jpg http://www.theeestory.com/files/price_bubble_chart.jpg It is certainly possible that bitcoin will at some point exhibit the characteristics of a bubble, which may even destroy bitcoin, but it has not so far.

sanswork 12y ago
http://imgur.com/D9rrl0g http://imgur.com/D9rrl0g
- dnautics 12y ago
  Firstly the graph isn't logarithmic, which is important because popularity of viral phenomena is a locally exponential phenomenon, which is why there's a baseline drawn in the reference chart. Secondly the downward slope is steeper than the upward slope (usually by 2x).

applecore 12y ago

There's no such thing as "default price pressure" (up or down) in financial markets. Every trade has both a buyer and a seller—for someone to have sold bitcoins, someone else has to have bought them.

natrius 12y ago
This sounds true, but it's not. First of all, the supply of bitcoins increases every day when they are created out of thin air. Even without that factor, having a buyer and a seller doesn't mean that prices can't have a tendency towards a trend. People who purchase goods and services with bitcoins usually aren't making a calculated decision to sell bitcoins for dollars, but that's what they're doing when they pay with bitcoins. Humans aren't rational actors, especially when you try to judge their actions in a single market without considering other motivations.
logicallee 12y ago
Imagine if any two people who reside in the Bay Area would receive $3M at a $10M valuation within three weeks of asking for it (no questions asked) as long as they have incorporated and one of them can program. What do you think would happen to the Bay Area housing market in this situation? How can you not call it "buy pressure"? Note: interestingly this is an extreme an unrealistic example, but it's not far from relaity!
joosters 12y ago
Not at all. 'Real money' currencies are inflationary, for lots of reasons, including the fact that we keep printing more money. If I stash my $millions under my mattress for a decade, do you reckon they'll be worth less or more after that time? Bitcoin however has deflationary pressures, because there's a fixed upper limit on the coins (21 million) and they become harder and slower to mine. With a price of (say) $1000/BTC, that means there can only be 21 billion dollars worth of bitcoins out there. But if you expect bitcoin usage to explode and account for trillions of dollars of wealth, then the bitcoin price has to increase.
joosters 12y ago
'More buyers than sellers' is a perfectly reasonable statement, and v-v. If one side competes more for trade, then it will have a price pressure. Say you ran an auction of goods (paintings, junk, whatever) with 10 potential buyers in attendance, do you think you'd get higher or lower prices than if you ran an auction with 1000 buyers in attendance?

jonny_eh 12y ago

Sounds like he's moving the goal post. When did the conversation change from "Bitcoin is going to change everything!" to "Bitcoin itself doesn't matter, it's the blockhain idea that does!"

ThomPete 12y ago
For quite a long time actually. In fact go back to when bitcoin craze was on it's highest and you will see people pointing out that it's not the currency but the technology that's important. Bicoin the technology has already changed everything.
mkempe 12y ago
Probably while he interviewed 7 bitcoin startups for YC-S14.

pdq 12y ago

When most merchants take bitcoin for a purchase, they immediately sell for dollars. This is ignoring the other side of the equation. For someone to spend bitcoins, they had to have bought them for cash. Bitcoin has declined lately because of 3 main reasons: 1. There was a massive 10x price increase in the past year or so. (You could call this a bubble.) Now a 50% drop from the high just means a 5x increase in the past year. 2. Much of this growth was due to China speculation, and with the Chinese government cracking down on bitcoin ownership and exchanges, this pops much of the speculation. 3. Mt. Gox going insolvent.

diego 12y ago
|This is ignoring the other side of the equation. For someone to spend bitcoins, |they had to have bought them for cash. This is not true. 3600 coins are mined every day. The people with the most incentive to spend coins are early miners who have a significant chunk of their net worth in Bitcoin.

VMG 12y ago

> And even if bitcoin itself fails, I think the blockchain will be one of key technical innovations of this time period. A blockchain is only useful if it is heavily secured by hashing power. This is only the case if there is significant mining equipment devoted to validating blocks. That in turn only happens if there is a reward for validating a block. Long story short, it's currently very difficult to use a secure blockchain that is not based on Bitcoin, which puts the quote into perspective. Those who want to use blockchain technology have an incentive to use the Bitcoin blockchain because it has the greatest security.

dragontamer 12y ago
Or not? Proof-of-stake is arguably better than Proof-of-work. Peercoin, NXTCoin and so forth have fundamentally moved forward from the "waste more energy than the next guy" approach that is innate to Proof-of-work.
- nullc 12y ago
  Unfortunately, this doesn't appear to be true. So far all proposed proof of stake systems suffer from problem that miners don't consume a resource to attempt to contribute to the consensis. In other words, the problem of proof-of-statke is that there is nothing at stake. There is no reason for a miner to not attempt to extend every chain that they can— or at least every that they don't hate— and, in fact, doing so is the solution maximizing behavior. In proof of work, by comparison, miners must choose to expend a resource for every attempt and so an effort to try to mine on one fork requires a choice to not spend that resource on other ones. The best strategy then becomes putting all your effort on one chain which you think most likely to survive. Optimal POS strategy is to mine all forks you can, just in case any survive. This issue seems fundamental, but perhaps someone someday will find a clever way around it be changing assumptions. Peercoin was attacked this way— a miner grinding out alternative histories and finding ones where they were awarded almost every block— _immediately_ when POS mining became possible on it. The attack was thwarted because PPC has a central control mechanism where its developer cryptographically signs blocks to force the network to accept them over longer, otherwise better, chains... and it was later closed off by requiring POW blocks to select the POS blocks that can mine. (But now, the security of that coin reduces to the security of POW and the security of the signing key controlled by its pseudonymous developer). See also section 5 of https://download.wpsoftware.net/bitcoin/asic-faq.pdf https://download.wpsoftware.net/bitcoin/asic-faq.pdf

sillysaurus3 12y ago

In a moment of some depression, reflecting back on sinking so much money into Bitcoin at close to the peak of its price history, I made this: http://i.imgur.com/f3tIJwK.png http://i.imgur.com/f3tIJwK.png It's important to understand that Bitcoin is dangerous to you, and you need to respect its danger if you decide to buy some. You need to be using a secure cold storage wallet. You need to not trust services like Coinbase to hold onto your coins for you. Growing up, I'd always heard stories about people who kept cash under their mattress because they didn't trust banks to not lose their money, which made me laugh. Now I get to laugh at myself for trusting anyone but myself to not lose my money. Usually, when you lose money, you get something in return. Even if it's just an opportunity. A risky investment isn't necessarily a bad thing if it fails, because you may have stood to earn a lot if it turned out well. The key thing to understand about Bitcoin is that you can lose all your money in the blink of an eye for a multitude of reasons. I've written in detail about why Bitcoin is dangerous to its users: https://news.ycombinator.com/item?id=7521906 https://news.ycombinator.com/item?id=7521906 Until there are good and convenient solutions to these problems, it's hard to imagine Bitcoin as anything but a vehicle for speculation. And it's a fine one, too. If you feel like gambling, there's nothing like the rush of seeing whether you're about to gain $50 or lose $250 in the next two minutes. And waking up at 3AM to check the price. (Most of the heavy moving seems to happen in the US off-hours, unless a big news story impacts the price.) The reason I say it's a vehicle for speculation right now is because right now the most sensible course of action for people who are risk-averse yet still want to accept Bitcoin is to immediately convert Bitcoins into dollars. Indeed, that's exactly what Tarsnap does, and probably many other merchants as well. And about the price: it seems mostly determined by a small group of people (probably fewer than 100) who have a lot of coin and who actively try to move the market in their favor. They've been following a rather simple scheme: dump a lot of money into bitcoin to jump the price up $50 or so, then sit back while everyone else reacts by jumping it up another $50, then sell off your newly-acquired bitcoin. Presto, you've earned some money. Possibly quite a lot of money. I don't know whether that strategy has paid off for the movers, but nonetheless it seems to be what they're doing. The long-term price is anyone's guess. I'd say the most valuable insight I learned throughout this whole ordeal is that the market isn't logical, or if it is, you aren't going to be privy to the information it's acting on. The most obvious example of this was when people sold off thousands of bitcoins an hour or two before Mt. Gox published their update with bad news. At face value, it seemed to be a clear example of insider trading. When it happened, no one knew why the market suddenly dropped so much; it was as if the market suddenly went insane and lost faith in bitcoin. In reality, it was probably someone with a ton of coins who caught wind that hard times were about to happen. Bitcoin is an interesting experiment. I like it a lot. I think it has a lot of potential, and that we need to figure out solutions to the fundamental problems like making it easy for people to manage their own wallets without risk of loss or robbery.

joelhaus 12y ago

Can anyone make the case that Bitcoin has the three primary characteristics of money [1]: medium of exchange, unit of account, and store of value? Ignoring the blockchain, this is why Bitcoin will fail. Bitcoin as a currency is inherently inflationary because as demand increases (which is the state of a healthy currency), the supply is relatively stationary. Therefore, a drop in Bitcoin value is indicative of a disproportionate drop in demand. [1] https://en.wikipedia.org/wiki/Money#Functions https://en.wikipedia.org/wiki/Money#Functions

mangeletti 12y ago

tl;dr BitCoin is taking a breather on its upward speculative bubble phase, and is being used primarily as a transactional currency at the time, while downward pressures remain the same as they were before the bubble days started.

thisiswrong 12y ago

Yes. We hear this each time. All that i can respond to this is: log chart, log chart, log chart [1]! By looking at a simple log chart one can notice a repetitive cycle. One may even notice that now is actually the best time to buy. Following the pattern, the next boom is only 2-6 weeks away. Who knows what could cause the next boom? Russia pump, Ukraine banking shutdown, E.C.B. Quantitative Easing, USD weakening ? ... [1] https://blockchain.info/charts/market-cap?timespan=2year&showDataPoints=false&daysAverageString=1&show_header=true&scale=1&address= https://blockchain.info/charts/market-cap?timespan=2year&sho...

tethis 12y ago

But if the currency is deflationary with a coin limit, over the long term the only way more people can enter the market / make use the currency is for, as an example, $1 USD to be represented by smaller and smaller subdivisions of BTC. This necessarily increases the value of 1 BTC. Why is there ever any incentive to do anything with BTC besides hoarding?

gnaritas 12y ago
Hoarding creates the value necessary per unit to make large funds transfers possible. Hoarding is good.
- tethis 12y ago
  But to succeed as a currency, it needs to encourage people to spend.
  - gnaritas 12y ago
    It doesn't need to succeed as a currency to succeed.
    - logicallee 12y ago
      bingo. It can succeed the way beanie babies did, which were never used as a unit of account or medium of exchange. /s
      - gnaritas 12y ago
        Don't be so simple minded. It can succeed as a remittance mechanism without succeeding as a currency. If it does nothing more than eliminate Western Union for international wire transfers it'll be massively successful.
        logicallee 12y ago
        I think by definition it is a currency if it succeeds as a remittance mechanism - because you can really only send BTC using the bitcoin network, it can't track USD values directly (as a network.) Using the Western Union network you can literally "send dollars" (or euros or pounds) but the same isn't true of bitcoin. It's a remittance network tied to a currency, and that currency is bitcoin. In this sense its use as a remittance network implies its success as a currency. For this reason, I had no idea this is what you meant - I thought you meant it can succeed as an investment, without succeeding as a currency.

robot 12y ago

"It still makes sense to mine if you’re living in a dorm and don’t pay for electricity" it will be nitpicking on a whole post, but I don't find it ethical to make such gains. The fact that you don't legally need to pay does not entitle you to use resources of someone else this way (in this case the educational institution). I guess he meant "it theoretically makes sense if you don't pay for electricity"

mhluongo 12y ago

In my (admittedly short) experience accepting bitcoin, our customers keep coming back. It's not much data, but we've had 25% retention these 3 weeks. I think being able to spend bitcoin places people actually visit every day is going to be huge for adoption / stability. How often do I spend at Overstock.com? Now what about the corner coffee shop, or the grocery store?

panarky 12y ago

It's not worth much to speculate about upward or downward price pressure. People made the same arguments when the exchange rate was $5, $25, $50 on up to $1,150, and now back down to $440/BTC. These arguments have zero predictive value. What's interesting to me is the repeating boom-bust pattern that we see as more people learn about cryptocurrencies, and as the Bitcoin protocol holds its own against an onslaught of attacks. In the summer of 2010, the exchange rate was $0.05/BTC. Over the next year the price increased by 60000%, then proceeded to decline 90%. Even after losing 90% of its value, it was still up 4500% from the summer of 2010. By the spring of 2013, the exchange rate spiked to $250/BTC, up 10000% ... then crashed and lost 80% of its value. Its post-peak minimum was still twice as high as the previous peak. Again in late 2013, the price zoomed up nearly 3000% ... and it's now lost 60% of its peak value, still twice as high as the previous peak. The past doesn't necessarily predict the future, but we're not seeing anything today that we haven't experienced at least three times already.

sillysaurus3 12y ago
The way to combat this is with arithmetic. Calculate out "if Bitcoin reaches $2000, what would its market cap be? How many people are actually using it? Can it possibly be worth that much per user?" It paints a pretty grim picture for Bitcoin achieving even a 5x boost over the past peak, at least for years to come.
- driverdan 12y ago
  There are far too many unknown variables to calculate that. You don't know how many people would be using it to push it to $2000. You won't know what the market cap would be until that price is reached.
- nostrademons 12y ago
  That was my reasoning for not getting into Bitcoin in a big way during the hype cycle. It's incorrect, though. The best case for Bitcoin is that it becomes the global reserve currency, in which case your dollars are worthless and it makes sense to exchange any number of dollars for Bitcoins now before the dollars become worthless. IMHO this scenario is pretty unlikely, but it shows the difficulty of doing fundamental analysis on currencies. Currencies are based entirely on confidence; they are, by design, intrinsically worthless. (Gresham's Law dictates that any currencies with intrinsic value tend to get driven out of circulation and cease to become usable currencies.) So the only facts that matter when evaluating them are the attitudes of the population towards them. This is why ForEx speculation is usually likened towards gambling; it's pretty much impossible to make a sane rational analysis of their value.

Ologn 12y ago

> The other way to get enough buy pressure would be if many people started deciding they want to hold bitcoin as a hedge or a speculation. This spurs occasional bubbles, but we haven’t yet seen it work long term. Bitcoin is doomed because it has no value. Commodities have value. Modern trade began by people trading commodities for each other. Some commodities had attributes which made them good currencies - they were portable, fungible, divisible etc. Gold is an example of a commodity which makes a good currency, other precious metals like silver are good as well. Bitcoins are worthless. They are hashes, that's it. Gold can be used to fill teeth, to conduct electricity and so forth. Bitcoins can do nothing. It's funny to see his discussion of bubbles. If anything is a sign of a tech bubble, it's these worthless Bitcoins having a market cap of $5+ billion. For people who are saying its value is that it is a currency, you have no understanding of the value of commodities and currencies. Bitcoin's inevitable collapse will be a sign of this. My argument is falsifiable - if Bitcoins retain value, I'm wrong (of course Keynes said markets seemed to remain irrational longer than he himself could remain solvent). The Bitcoin's advocates are making an argument that is not falsifiable. "It's worth something because it's worth something" or "it's worth something because people think it's worth something". So if it goes to zero, their theories for why it had value still hold. Scientific arguments are falsifiable (mine is), there's are not. Also the rise of Dogecoin, Litecoin, Peercoin or whatnot point to the lack of value of Bitcoins. Anyone can create these valueless currencies - even joke ones like Dogecoin reach market caps in the tens of millions. The only semi-rational argument for Bitcoin is the one that goes "1971 paper currencies like the dollar, yen etc. have not been backed by gold (or some other commodity) since 1971, so why can't Bitcoins have value"? That argument is a rather long thing to go into. Also, not to make a big thing of it, but that posts like this questioning the value of Bitcoin are regularly downvoted on HN are instructive. I guess I'll have to live with losing some worthless HN karma to point out that Bitcoin hashes are ultimately even more worthless.

gnaritas 12y ago
You have no idea what you're talking about. Bitcoin has value as a remittance network, especially internationally, your argument is trivially invalid.

mrb 12y ago

"as far as I can tell, mining is currently unprofitable with any reasonable cost of electricity." I have been mining for 3.5 years. This statement is utterly false. Current mining hardware, such as the KnC Jupiter, can mine at about 500 Ghash/s at less than 600 Watt at the wall. Over a month it mines: 500e9 (hash/sec) * 3600 (sec/hour) * 731 (hour/month) / (2^32 * 8.0e9 (current difficulty)) * 25 (btc/block) * 400 ($/btc) = $383 And assuming worldwide average electricity costs of $0.10/kWh, it costs less than $44 to run over a month: .6 (kW) * 731 (hour/month) * .10 ($/kWh) = $44 Even assuming higher prices (eg. highest-tier electricity prices in SoCal of ~$0.30/kWh), and even adding overhead like cooling, etc, it is still clearly profitable to mine with the Jupiter. (However difficulty is rising pretty quickly, so it will certainly not remain that profitable, if at all, in the near future.)

wmf 12y ago
That's marginally profitable, but if it never pays back the capex it's not actually profitable.
driverdan 12y ago
You're completely ignoring the capital cost of buying the miner.
- mrb 12y ago
  True, but this is not Altman's point. He clearly refers to operating costs, not capital costs. (This is why he later talks about free electricity, not free hardware.)
- LyndsySimon 12y ago
  That's a sunk cost. The question wasn't "is it profitable to begin mining Bitcoin?", it was "is it profitable to mine Bitcoin?" Miners already have the equipment - as long as proceeds don't drop below energy costs, mining will continue at current levels.
  - dragonwriter 12y ago

deleted 12y ago

[deleted]

anigbrowl 12y ago

It’s important to understand that the default price pressure of the bitcoin ecosystem is down. Only if you assume demand is static. With a mathematically-fixed supply, expanding global population, and the supposed inherently inflationary nature of fiat currencies, the default price pressure should arguably be upward. Let's face it, a great number of the early adopters are digital goldbugs with a jaundiced view of central banking. Like many quasi-political demographics, I think they overestimated the popularity of their viewpoint. I do agree about the significance of the blockchain as a technical innovation...up to a point. Last time I looked at the dogecoin blockchain it was some multi-gigabyte monsters that I need to move off my boot drive sooner rather than later.

joelhaus 12y ago
Tried making this exact point here too, but the true-believers don't seem to respond to legitimate critiques. What's really hard to comprehend is the all of the "smart" VC money funding related startups -- this is pretty basic economics. Although, I suppose a Coinbase investment does provide some hedge against Bitcoin.

logicallee 12y ago

>This doesn’t mean bitcoin is doomed. It just means that for it to succeed, we’ll need significant external buy pressure. As I wrote awhile ago, I think the key thing we need for this is people actually using bitcoin for transactions instead of speculation (and merchants willing to hold bitcoin balances). [3] Unfortunately, transaction volume still appears to be trending down. Let's look at this. Yes, one easy way in which bitcoin can "succeed" is by becoming a worldwide currency in actual use. In fact, this is probably a design objective. However, its extremely limited supply dooms it from the start in this endeavor. We can reason about this by counterexample (reductio ad absurdum). First, let's take for a given that within ten years bitcoin will have a role in the world money supply similar to gold (cap of $7.2 trillion on all gold ever mined) or the M2 money supply of USD. (http://money.howstuffworks.com/how-much-money-is-in-the-world.htm http://money.howstuffworks.com/how-much-money-is-in-the-worl...) This doesn't count other currencies and is not "most" of the world money supply. There is a limit on the number of bitcoins that can ever be mined, at 21 million. (More than half have been mined, so let's use that upper limit - you may want to multiply by two to account for the current supply instead). If were to divide $7 trillion by 21 million we would get a bit over $330,000 per bitcoin. Since we started with the assumption that bitcoin would become a world currency or money supply, and the bitcoin protocol limits supply to 21 million ever, we are forced to continue our argument with a target price of $330K/bitcoin over 10 years. This does, however, pose a problem. We started with the assumption that bitcoin succeeds as a currency. That means people have to get their hands on it and use it. But if we go from today's price ($445) to our logically mandated target price ($330K) in ten years, that means the value of bitcoins increases by a factor of 741 (330 000/445) over 10 years, i.e. a compound average of 94% per year. (1.94^10 = 741). Do we have a contradiction yet? I think we do. --> Is it possible for the price of bitcoin to rise an average of 94% per year, for ten years, while: --> it is also being adopted as a world currency? I believe the answer is "no". Let's look at some of the behavior that's necessary in order for it to count as a "world currency": 1. Borrowing BTC for productive purposes. One of the major reasons, if not the major reason that USD is a currency of business and gold is not, is that you can borrow USD for productive purposes. Indeed, this can happen directly by increasing the money supply centrally in a way that gets to people for loan purposes, but also happens implicitly due to systemic inflation. Inflation mandates that some USD will always be lent. This is because inflation is a hidden taxes on keeping USD qua USD. If you come to possess $1M in cash, you would be insane to keep it as cash for 20 years. Inflation would just eat a large chunk of it. Not so with currencies that do not experience inflation. 2. This deflation is toxic to using bitcoins by people who have them. If bitcoins are going to increase in value by 91% if you keep them for a year, then if you possess bitcoins, you would be crazy to spend them on anything that does not produce a 91% return for you within a shorter time period. This is going to seriously hinder spending, and adoption. Certainly, some people may be "forced" to sell some of their bitcoins. But that is not the way in which a currency succeeds. By people preferring not to spend it, but having to do so in some extraordinary cases. 3. Fees on exchanges may be higher. If btc has a high price, and is considered an investment, you may be leery of buying some from somebody (which may cost you percentages) to buy goods that are not actually denominated in BTC. The volatility may also put you off. In this sense bitcoin would behave more like Picassos than like USD or any other world currency. People are just going to hang on to it. 4. So what if people need money? Wouldn't they still just get some BTC at the current spot price? The thing is, if most people are hoarding BTC with very little spending of it, when it can be at all avoided, there will NOT be a price set by deep markets of goods and services. There is no "floor" on the price. That is dangerous for bitcoin. It is still possible to buy and transfer "just in time" to be sold back into fiat by the merchant. But people are not going to print menus, catalogues, ads, or other more than transient pegs to price, just as nobody prints prices in ounces of gold. You will therefore have a case in which there is no built-in usage or acceptance of bitcoins, denomination in bitcoins of goods and services, or large transactions such as investments being built against bitcoin. Since nobody uses bitcoins as an actual currency, there is no floor to its adoption. Essentially actual users of the currency are priced out of it. This is contrary to our initial assumpion! You may say - well, so what if it is hard to get. People will still get it at a spot price, to pay for goods, even if nothing is denominated in BTC. But then we must ask - well, why in BTC then? Why not another alt currency? If only the spot price matters... So any POSSIBLE floor on the price will drop out, since btc does not have a unique position. Will it take on a role that Gold has over thousands of years - that people recognize its value implicitly, even after it has long since not been used as currency, and there is no obvious substitute (like silver and platinum)? Well, here's the thing. Gold has several unique properties that most other precious metals don't have. It's easy to essay, very dense, can be recognized and verified, and has a long history of acceptance all over the world. Bitcoin does not have a long history of acceptance all over the world, the software can break, but, if the software is not broken, if its verifiability is in tact - THEN IT IS NOT UNIQUE IN THIS REGARD! Indeed, anyone can use litecoins, doegecoins, or other currency. As bitcoin becomes too valuable to spend (unless you can get a 91% return), it would simply make sense to use the spot price of another currency to trade with instead. So by the very fact that its properties are not totally unique, it does not have actual usage as a unit of account, it is failing in its bid to become the default online currency. At best, it can end up like gold compared to USD, and fail to be an online currency. At worst, it can tank. So while it is certainly possible for BTC to maintain their value - as a currency it can never reach much use. Moreover there is a large risk that the speculation will cease - i.e. that the hoarding behavior was a "bubble". Look at the volumes of litecoin and dogecoin versus BTC. This may easily happen. - I believe that an online currency could be created that is more like USD than like Gold. Here is how the USD has been treated since 1913: "The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act: Maximum employment, stable prices, and moderate long-term interest rates"." Today, bitcoin fails at all three. (It will not create employment from people spending it to whom it is lent; the price of goods denominated in BTC is extremely unstable; and it would have extremely high interest rates.) I believe that there is a way to do far more in a digital currency. But BTC is not it. It simply, logically, cannot succeed as a currency or world money supply. Its behavior as an investment is also completely uncertain - nothing makes it unique versus other alt currencies, not the technology, not acceptance, and its price fights against real adoption. This sets up a dangerous tulip-like situation. I personally would not invest in BTC holdings, nor do I think it is a good candidate for Internet money.

diogenescynic 12y ago

Warren Buffet said this about gold, but it's still relevant to Bitcoin: >“If you put your money into gold or other non-income- producing assets [read: Bitcoin] that are dependent on what someone else values that in the future, you’re in speculation,” he said. “You’re not into investing....” >To illustrate the point, he asked readers to picture the world’s entire gold stock melded together into a cube 68 feet (21 meters) on each side valued at $9.6 trillion at then- prevailing prices. For the same amount, an investor could have purchased all the farmland in the U.S., 16 replicas of Exxon Mobil Corp., and still have about $1 trillion of “walking- around money.” >A century later, the farmland will be producing valuable crops no matter the currency, and dividends from the companies would probably added up to trillions of dollars, Buffett wrote. >The 170,000 metric tons of gold “will be unchanged in size and still incapable of producing anything,” he wrote. “You can fondle the cube, but it will not respond.”

dwaltrip 12y ago
Bitcoin has many extremely strong advantages compared to gold that make it a far more pragmatic monetary asset/neutral currency. I would list them out but I'm sure you know them (very fast transfer anywhere in the world, maximum portability, etc).
- logicallee 12y ago
  As you can see in my other comments the basic things it lacks are a worldwide history of acceptance as currency (going back millennia in the case of gold) as well as uniqueness (the non-existence of equivalent substitutes). Whatever the technical characteristics of bitcoin, an alt coin can have the same technical characteristics. So we are riding a thin uniqueness, in terms of level of acceptance, that is not going to be driven deeper due to limits on adoption as a currency. (That I mention elsewhere.) The uniqueness is a special lock-in for gold, and as gold becomes inconvenient due to price or scarcity, you can't just transfer it to Pt (platinum) or Ag (silver) in 10 minutes times however many confirmations you need. Gold has several layers of stickiness or lock-in, including historical and technical/physical. Not so for bitcoin. It has self-limiting on adoption (due to the lack of anyone minting it by fiat, and its low total numbers), but moving away from it takes just minutes. The most interesting chart is seeing the fall of bitcoin market cap against the rise of all other alt coins market cap - and to see if that is on the fall or on the rise. Especially when things aren't denominated in BTC, but it is just used transiently, really, any other currency with a spot price will do just as well. There is no reason to believe bitcoin will have any greater use as a currency in the future than it does now. And unlike gold, it has no historical lock-in as a long-term store of value. No one is "stuck" with it, it is easy to verify transfer, and it is a totally liquid market (even at 3 AM on bank holidays) that is not held up by any printed prices or industrial uses. It doesn't even have basic exchange mechanisms such as halting trading. The spot price of Bitcoin can collapse overnight. Unlike gold, there is just anything holding it up long-term. It's a bit like pokemon cards, beanie babies, or pogs. Sure it can have value for a while, but as it doesn't see adoption as a currency, has no alternative or basic uses (less than these three examples in fact), and is very easy to move away from - there is no reason to suppose this will not happen. Bitcoin for a while was the only currency with its particular properties. But that is far from true anymore.

vijayboyapati 12y ago

Sam writes: "It just means that for it to succeed, we’ll need significant external buy pressure. As I wrote awhile ago, I think the key thing we need for this is people actually using bitcoin for transactions instead of speculation (and merchants willing to hold bitcoin balances). " I think this is a very common meme about what success means for bitcoin and it's tied up with a misunderstanding of what money is; most people think money is valuable because it's used transactionally. Rather, money is valuable because it has reservation demand. An increasing level of transactional usage might increase reservation demand but it doesn't need to. On the other hand increasing reservation demand can occur even without any new transactional demand. Moldbug explained this best in his discussions on bitcoin and how money is a bubble phenomenon: http://unqualified-reservations.blogspot.com/2013/04/bitcoin-is-money-bitcoin-is-bubble.html http://unqualified-reservations.blogspot.com/2013/04/bitcoin... http://unqualified-reservations.blogspot.com/2011/04/on-monetary-restandardization.html http://unqualified-reservations.blogspot.com/2011/04/on-mone... Bitcoin can be "successful" even if it's not the preferred medium of exchange for most, or even many transactions. It can act as a store of value just as gold does. Except it is superior to gold is almost every way - more fungible, more verifiable, more divisible, easier to transport (especially across borders) and easier to transmit. A success case for bitcoin is that it becomes Gold 2.0. Gold's market cap is approximately 7 trillion. Bitcoin's market cap is approximately 6 billion. If Bitcoin were to replace gold as an alternatively medium of savings (say, in 50 years), its price could be hundreds or thousands of times higher than it is now without needed much, if any, increase in transactional use. Gold has almost no transactional use but it has a great deal of reservation demand.

a_c_s 12y ago
"...it is superior to gold is almost every way" Except for the part where you can actually make things with gold: it is shiny, easy to work with and highly conductive. So worst case, if the value of gold plummeted you could still make some awesome jewelry, electronics, dental fillings, etc. While it may not be proportional to the current price, gold does have intrinsic value: Bitcoin has none.
- vijayboyapati 12y ago

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