
Bitcoin Price Pressure - arnauddri
http://blog.samaltman.com/bitcoin-price-pressure
======
diogenescynic
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
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
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.

------
panarky
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
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.

~~~
nostrademons
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.

------
IvyMike
> 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.

~~~
gnaritas
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.

~~~
Goronmon
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?

~~~
atom-morgan
> 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.

Keep in mind that you're comparing two different markets in terms of maturity.
One day, there may be a number I can call too when my bitcoin goes missing.

I'm sure people made similar arguments before e-commerce. Surely it had to
seem easier to just buy a product in a physical store, with cash, with
absolutely no risk of stolen credit card information on this new thing known
as Internet. No issues with shipping and you can actually _see_ the product in
store. Things have changed and people are no longer as reluctant to shop
online.

As interest in new areas grow, so do opportunities for business. You may not
be an early adopter of Bitcoin in the way many weren't with e-commerce in the
early days, but it doesn't mean it can't happen because one is easier today.

~~~
IvyMike
> One day, there may be a number I can call to when my bitcoin goes missing.

Genuinely curious--how would this work?

~~~
wmf
It would probably be insurance, so you'd have to pay for it and they could
deny your claim if you didn't use a Trezor.

There may also be bounty hunters who try to recover stolen BTC on contingency,
but that doesn't sound like a good business.

------
Aqueous
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.

~~~
sanswork
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.

------
VMG
> 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.

~~~
bdcs
With merged-mining[1], any alt-coin can hijack Bitcoin's security via PoW
without any additional mining, see, e.g., Namecoin (which is unfortunately
defunct for unrelated reasons).

[1] [http://bitcoin.stackexchange.com/questions/273/how-does-
merg...](http://bitcoin.stackexchange.com/questions/273/how-does-merged-
mining-work)

~~~
vertex-four
Namecoin isn't defunct. In fact, it has several developers. The blockchain has
been secured since the incident I assume you are talking about, and there's
work on numerous things ongoing - a lite client, an implementation of Namecoin
as a library, a proxy allowing any program to connect to Namecoin domains.

There is an IRC channel at [0], a mailing list, and a website with a wiki and
forums at [1].

[0] irc.freenode.net#namecoin [1]
[http://namecoin.info/](http://namecoin.info/)

------
vijayboyapati
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...](http://unqualified-
reservations.blogspot.com/2013/04/bitcoin-is-money-bitcoin-is-bubble.html)

[http://unqualified-reservations.blogspot.com/2011/04/on-
mone...](http://unqualified-reservations.blogspot.com/2011/04/on-monetary-
restandardization.html)

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
"...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
Gold's use value is much, much lower than the current price reflects. Most of
the price of gold is explained by its reservation demand - i.e., monetary
demand, both by individuals and central banks.

And you're incorrect that bitcoin has no "intrisic value". As this author
explains: [http://blog.oleganza.com/post/42262765318/direct-use-
value-o...](http://blog.oleganza.com/post/42262765318/direct-use-value-of-
bitcoin) \------ Bitcoin network has very interesting properties that allow
you to use it not only as a currency. For example, the block chain
(decentralized transaction history) is designed to be extremely hard to forge
and very easy to verify. This, with some crypto features, allows it to be used
for secure time-stamping, proving ownership of tangible property,
decentralized DNS and new ways to sign contracts without having to fully trust
any one party. Some of these things are already possible using existing
software, some require already planned and compatible modifications. \--------

There are a great many things that are now possible with the creation of
bitcoin and the solving of the Byzantine Generals' problem that were
previously impossible. If that's not "intrinsic value" then nothing is.

~~~
a_c_s
If somebody has a single bitcoin they can't sell, there is nothing else they
can do with it. Therefore, the bitcoin itself has zero intrinsic value.

The value of the idea of the blockchain is not relevant to the value of an
individual bitcoin, just as the value of the patents behind autonomous mining
trucks (these really exist) has no bearing on the price of an ounce of gold.

------
anigbrowl
_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
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.

------
pcmonk
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
I think, especially in emerging markets, merchants will eventually hold
bitcoin.

~~~
jbondeson
I see only three good reasons for a merchant to hold reserve in bitcoin: 1)
pay their employees, 2) pay their suppliers, or 3) good old speculation.

When you start to see large suppliers get into the market then you'll start to
see a decrease in immediate conversions.

~~~
natrius
In emerging markets, holding bitcoins can be less about speculation and more
about preventing one's savings from losing value. It's all relative.

~~~
philrapo
Holding USD is the standard way people in emerging markets prevent savings
from losing value.

------
pdq

      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

      |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.

------
sillysaurus3
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.

~~~
boyaka
Can you provide reasons/evidence for why I should not trust Coinbase?

~~~
mdemare
Not trusting is the default. It is up to Coinbase to prove that they can be
trusted.

~~~
boyaka
Yeah, and a clean record up until now is at least a theory? I'm wondering if
there is any evidence to back up the untrustworthiness OP is accusing Coinbase
of.

------
logician76
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
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-s...](http://www.reuters.com/article/2014/04/29/us-bitcoin-mtgox-
settlement-idUSBREA3S02W20140429)

~~~
logician76
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
"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
[http://imgur.com/D9rrl0g](http://imgur.com/D9rrl0g)

~~~
dnautics
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).

------
jonny_eh
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!"

~~~
mkempe
Probably while he interviewed 7 bitcoin startups for YC-S14.

------
mrb
_" 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.)

~~~
driverdan
You're completely ignoring the capital cost of buying the miner.

~~~
LyndsySimon
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
> Miners already have the equipment - as long as proceeds don't drop below
> energy costs, mining will continue at current levels.

Doesn't that assume that mining equipment has infinite useful life?

------
applecore
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
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.

------
robot
"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"

------
baby
> 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
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.

------
mhluongo
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?

------
tethis
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
Hoarding creates the value necessary per unit to make large funds transfers
possible. Hoarding is good.

~~~
tethis
But to succeed as a currency, it needs to encourage people to _spend_.

~~~
gnaritas
It doesn't need to succeed as a currency to succeed.

~~~
logicallee
bingo. It can succeed the way beanie babies did, which were never used as a
unit of account or medium of exchange. /s

~~~
gnaritas
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
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.

~~~
gnaritas
No, IMHO it can fail as a currency and succeed as a remittance mechanism. It
can fail as a stable currency and thus not be a valid unit of account while
still succeeding for remittance.

------
thisiswrong
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&sho...](https://blockchain.info/charts/market-
cap?timespan=2year&showDataPoints=false&daysAverageString=1&show_header=true&scale=1&address=)

------
joelhaus
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)

------
logicallee
>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-worl...](http://money.howstuffworks.com/how-much-money-
is-in-the-world.htm))

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.

~~~
VLM
Where does the base assumption that it has to take over in a decade come from?
If you give it a century then its starting to look much less inflationary than
holding USD.

You could play a spreadsheet game of finding a length of time to take over
such that its always just a little more stable, just a little stronger, than
the USD.

Finally another base assumption is that "being a major player" is the only
success condition. Would it be an utter failure if instead of becoming as big
as the USA economy it never became larger than the Australian economy?
Australia isn't all that awful of a place, you know.

~~~
logicallee
Why would anything on the Internet take a century? If you look at a
spreadsheet it actually turns out that there is _no_ length of time it could
"take over" such that it is a little more stable, and a little stronger, than
the USD.

For this to happen, for the reasons I mentioned it would have to inflate at
between 0-10% per year. If we go with the ultimate limit of 21 million
bitcoins, this means that the price has to move down over time.

That cap is at $5.6 billion. If we assume no mining and a 6% inflation, that
would have to move down $5.6, $5.26, $4.94, $4.65, $4.37, $4.10, $3.86 over
seven years (in real terms). That is just a very low market cap for an
Internet currency.

And if it's NOT an internet currency?

Then what keeps anyone tied in to bitcoin? Gold at least has the lock-in of
millennia of world-wide acceptance, as well as an absolute scarcity in the
sense that no other element has quite the same characteristics, including
verifiability. Further, Gold has significant costs to move and exchange
(including transportation, theft prevention, insurance, further verifiability,
and so on.) So even if someone thought Gold was on the decline, it is not
nearly so simple to move to something different.

Bitcoin has nothing that makes it unique on the Internet - except adoption. So
if it is NOT getting adopted, anyone can move away very easily. If it IS
getting adopted, deflation (scarcity of its supply) is a natural check to
that, and people will stop adopting it for the purposes listed.

You say I claim "being a major player is the only success condition". Not
exactly, though that is the situation I analyzed. Why?

Because on the Internet, you can't normally play second fiddle to someone's
leading technology. There is first fiddle (violin) followed by fourth viola.

If people don't find bitcoin the _most_ useful Internet currency, they can
liquidate their holdings in it in 10 minutes * the number of confirmations
they'd like. That's it. If they want, they can never use bitcoin again and not
lose out on anything.

Coupled with the natural mechanism keeping it from reaching large adoption as
a leading currency, this is a dangerous formula that results in a shallow
market driven by speculation, based on bitcoin's historical performance and
its unique properties. As there is no general acceptance of it as a currency,
and very good reasons to think that such general acceptance can _never_
materialize, bitcoin simply is in an extremely precarious situation.

(Finally a small quibble. I actually didn't compare with the U.S. economy,
whose GDP is $16.8 trillion in a year. In terms of wealth, "The financial
position of the United States as of Q4 2012 included ... a total of $91.72
trillion" [1]. That is _net_ worth, obviously some entities will have both
debts and assets, all of which is of some value to someone. So I really was
talking about a very small portion of the economy, just the active money
supply and nothing else. 7 trillion barely is enough to denominate just 5
months of GDP in just the United States alone, and is comparable to the market
cap of all gold ever mined - which sees fairly low usage as a currency. If we
imagine that the whole worldwide Internet is using some currency, it is quite
a reasonable number on its market cap, in my opinion.)

[1]
[http://en.wikipedia.org/wiki/Financial_position_of_the_Unite...](http://en.wikipedia.org/wiki/Financial_position_of_the_United_States)
lead

------
Ologn
> 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
You have no idea what you're talking about. Bitcoin has value as a remittance
network, especially internationally, your argument is trivially invalid.

~~~
Ologn
Can you tell me of any currencies or commodities, from antiquity to 1971, that
had any price or value associated with them due to "value as a remittance
network"?

Bitcoin's market cap was $13.9 billion four months ago. Now it is less than $6
billion. Bitcoin has only _grown_ as a remittance network over the past four
months, so if it derives its value from being a remittance network, why is its
price sinking?

You say my argument is "trivially invalid", but people realizing Bitcoins are
worthless has made Bitcoins worth half what they were four months ago.

~~~
gnaritas
> Can you tell me of any currencies or commodities, from antiquity to 1971,
> that had any price or value associated with them due to "value as a
> remittance network"?

Can you tell me any currency or commodity, from antiquity to 2009, that is a
trust-less distributed payment network? No, that's the point, Bitcoin is
something new to the world; your trying to compare it to those things is
invalid.

You don't seem to realize Bitcoin is a new asset class that's never before
existed, it's simultaniously a stock, a currency, and a commodity because it's
a distributed decentralized corporation providing a trustless distributed
decentralized service that is of extreme value to anyone on the planet who
wants to move money around. Your thinking is stuck in the past and thus
blinding you to something new.

> You say my argument is "trivially invalid", but people realizing Bitcoins
> are worthless has made Bitcoins worth half what they were four months ago.

No, markets generally retrace sudden gains, that's simply the nature of
markets and it says nothing about Bitcoin other than that people are
speculating on it which was both known, planned for, and has been occurring
since it launched. Speculation and hoarding are necessary to create a market
cap large enough to function as a payment network.

------
mangeletti
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.

------
MarkPNeyer
> 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-
bit...](http://bitcoin.stackexchange.com/questions/2828/how-many-bitcoin-
addresses-are-have-been-carrying-a-balance)

~~~
dragontamer
The only "outs" therefore are the greater fool theory
([http://en.wikipedia.org/wiki/Greater_fool_theory](http://en.wikipedia.org/wiki/Greater_fool_theory))
or a pyramid scheme structure.

Or, perhaps all of this price-mongering is the wrong way to look at things.
Consider this: BTC success should instead be measured in _transactions / day_.
The only people who care about BTC per $$$ are speculators.

~~~
pmorici
In order to facilitate transactions BTC has to have value greater than $0 You
can't transfer value via Bitcoin if the value of a Bitcoin is zero.

~~~
wmf
Even if it's only used for transactions there will be nonzero value as long as
the velocity of money isn't infinite, which it won't be because various
latencies (like escrow or waiting for 6 confirmations) takes BTC out of
circulation temporarily. [http://falkvinge.net/2013/09/13/bitcoins-vast-
overvaluation-...](http://falkvinge.net/2013/09/13/bitcoins-vast-
overvaluation-seems-to-be-caused-by-usually-illegal-price-fixing/)

------
vbuterin
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%20...](http://www.google.com/trends/explore#q=bitcoin&date=today%203-m&cmpt=q)

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
> 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?

