
What if the Bitcoin bubble bursts? - antouank
http://www.economist.com/news/leaders/21722841-latest-frenzy-tulip-mania-gold-rush-or-dotcom-boom-what-if-bitcoin-bubble
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frgtpsswrdlame
A bunch of people will learn a very good lesson on gambling. One thing I do
enjoy about bitcoin is that it's complicated/technological enough that
traditional media doesn't have good language to speak about it. With stocks,
there's this huge vocabulary which is used to obscur the fact that most people
have no clue why it's moving, they just throw out some jargon. Seeing that
stripped bare for altcoins is really refreshing.

~~~
1001101
Gambling is a 0 sum game, but Bitcoin is creating value. The lesson I've
learned is back up the truck. The media doesn't have a good language to talk
about it, and even analysts seem a bit perplexed. There are no earnings to
discount to, no cash flow, no coupon, no dividends. The value is what the
highest bidder at t0 thinks it is. It could be a rational speculative bubble
or it could be the Internet of money. I've really liked the work that the
analysts at Needham & Co have done, and their research is worth a read.

~~~
RealityVoid
What value is that? I don't see it yet. It's promising a whole lot but
delivering very little. I guess in this area it's similar with a couple of SF
unicorns.

I think the concept is sane, I think the potential is there, I think Satoshi
was brilliant, but I don't see BTC adoption for the things it promises.

~~~
erikpukinskis
It is a web application that settles transactions, and works in every
jurisdiction. That's worth something.

It can also generate a bank account for you, allow you to store it in your
brain, then delete all record that it ever existed, and then at some later
date recreate the account from memory.

It can maintain its value during a default of the U.S. federal government.

Money has value to the extent it can do things. Dollars can do things Bitcoins
can't. Bitcoin can do things dollars can't. These define their relative value.

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smitherfield
But hasn't it at least 3 times already?

~~~
jephir
BTC trades like an accelerated stock market. Instead of crashing every few
decades, it "crashes" every few months.

~~~
fudged71
WHY does it operate like that? Simply because there are no opening hours? It's
24/7?

~~~
matt4077
All currencies trade 24/7 (if they are traded).

The volatility has quite a few causes, among them:

\- Other currencies are used for all sorts of things that don't involve
trading them–i.e. when have you last thought about exchanging those USD in
your pocket for Euro? That creates stability. Compare to bitcoin, where almost
everyone owning any keeps an eye on the market and is principally willing to
buy or sell when they think they see an opportunity.

\- Markets for real currencies operate under government supervision and
regulation, and the facts that influence their value, such as employment
numbers or GDP growth, are public, and reliable. For bitcoin, some rumour from
China can move the market because nobody knows which information to trust.

~~~
yamaneko
In another thread I was commenting about the volatility of the currency and
how it could be a vanity metric how we give value to it based on its USD
conversion rate.

I think this issue will be solved when there are more places accepting BTC.
Then you wouldn't need to keep an eye for when to buy/sell it. You would be
able to spend it.

I read on /r/btc/ someone saying that "currently, BitCoin are like Magic The
Gathering cards". And it really does!

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pdog
The much more interesting question: what if it doesn't?

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IanDrake
The article states that bitcoin transactions take hours. Is that true?

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CydeWeys
It's ... very complicated. In most situations, as long as the transaction has
a reasonable fee attached to it, you can proceed immediately (this is called a
0-conf transaction), as you can be pretty sure that it will be confirmed
eventually. Of course, there are some transaction malleability edge cases that
allow double-spends that are fixed with a new feature called segwit that
hasn't rolled out yet, so if you are dealing with a potentially malicious
party then 0-conf isn't good enough.

In theory, you should wait for a transaction to have at least six
confirmations on it before truly trusting it. That has always taken an average
of an hour from the transaction first going into a block. It's the "first
going into a block" part that takes longer now, unless you attach a higher fee
to ensure that it goes in quickly.

~~~
fmax30
Doesn't taking an hour or more to confirm a transaction basically make bitcoin
useless for any real-time transactions ( buying something at a shopping mall,
buying fast food/coffee etc)

This makes bitcoin much less useful in my personal opinion.

~~~
dmix
In practice this is not really a problem.

This is assuming retail stores will wait for 6 confirmations to get 100%
assurance in the blockchain. Many retail stores take a certain level of risk
with all plastic/digital transactions currently with credit/debit cards. I
doubt many would see much utility in waiting for more than 1 confirmation,
considering the difficulty involved in faking one and the lack of real stories
of this 'scam' actually happening.

Especially for low-margin sales like coffee, food, or other sub-$100
transactions.

As with any scam of this nature it will likely involve side-step the crypto
system somehow (ie, target the mobile apps used for PoS) rather than breaking
the blockchain confirmation scheme directly.

~~~
CydeWeys
It is really a problem. Because of the stochastic nature of block finding,
assuming that the transaction is slated to go into the next block (which
likely isn't true anymore unless it has high fees), it can still sometimes
take an hour or more for the next block to be found. The _average_ is 10
minutes, but it's a Poisson distribution, with a long tail to the right.

We really need Lightning Network, which segwit enables. That allows near-
instantaneous (with only network propagation delays) transactions.

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mark_l_watson
Even at the current high price, I tried to buy more BC a few days ago but my
vendor wasn't selling.

I agree with the notion that BC is similar to gold because it is an
alternative to fiat currencies.

The author James Richards has the good idea of putting the dollar about 10% on
the gold standard to loosely tie the dollar to gold so when money is "printed"
at least part would need to be backed by a physical gold purchase.

~~~
RealityVoid
Gold is inflated in of itself. The industrial value is way smaller than the
trading value. Just because you can touch something and it's not a bunch of
numbers on a PC, it doesn't mean it has value.

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grandalf
Of course there will be corrections. There are a small number of people who
own a large enough percentage of BTC that when they cash out the market will
correct significantly.

There are some forces acting against this:

\- The general usefulness of BTC, which reduces the incentive to move wealth
out of BTC

\- The incentive for these large holders to transact slowly, preventing an
abrupt correction.

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awkwarddaturtle
If it bursts, it bursts. A few get wealthy, a lot get poor. But everyone gets
educated for a time. Then another bitcoin bubble or another bubble in another
crptocurrency or another asset get blown up. Rinse repeat.

~~~
Twisell
Just hope than no real retirements funds have invested in this shit gambling
with other people saving...

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midnitewarrior
I've heard rumblings of this from some big players who are trying to sell some
of their bitcoin, but network transactions are so backlogged that it's an
illiquid market for them at the volumes they are looking to trade.

They are worried that they won't be able to move in time if the market drops
because they are sitting on such huge sums. Any market panic is only going to
compound the transaction volume problem, leading to greater panic like people
experience when there's a bank run.

It's kind of a self-fulfilling prophecy until the block size / transaction
volume issue is resolved, but the community's inability to address this
problem could be the death of it.

~~~
xorcist
That doesn't make sense. Transactions aren't slower if you move more Bitcoins.
In fact, if you move a big stash then the transaction fees probably doesn't
matter much and your transaction can be first in line.

Most exchanges still need those six confirmations however, so any bank run
would be limited by that. If you need instant sells you have to keep that
stash with an exchange at all times. That requires a fair bit of trust in
them, which I wouldn't recommend for regular users, but for an institutional
investor that's probably how they would do it anyway. Those guys don't exactly
walk around with an USB stick carrying their private keys.

~~~
KingMob
You're technically correct, but people trying to sell off millions of dollars
worth of bitcoins can almost never do that in a single sale. What happens in a
market is, if a large enough bid order hits the market, people freak that a
large player is selling off the asset (Do they know something we don't? Maybe
we should sell now, too, just in case!). Bitcoin, with its small size
(relative to fiat currencies) and slow confirmation rate, exacerbates that.

So to actually sell off a million in BTC, you have to do it in regular, steady
small sales that won't spook anyone. This takes time, which is not your friend
if you expect the value to go down.

~~~
xorcist
What you're saying is that Bitcoin markets is illiquid. That's something I can
understand and perhaps even try to give a reasonable answer to.

That "network transactions are so backlogged that it's an illiquid market" is
not. (Backlogs doesn't make for illuquid markets, and even if it did it
doesn't affect the "big players" at all.) Trading on exchanges is off-chain in
the sense that no transactions takes place on the public blockchain.

Bitcoin markets used to be rather thin, but volumes haven't dropped in
proportion to rising value. Which is to be expected with a more mature market.
Your specific example of a million (US dollars, I presume) would hardly be
noticable on any of the big exchanges today. That's just 500 bitcoins. I
wouldn't worry about it.

Keep in mind that Bitcoin is still inflationary and four times that amount is
mined every day, most of which is sold. That's just what's visible, and who
knows what's going on off the order books.

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Entangled
Not if, but when, and I'd say real soon. It will burst back to $500 and then
slowly up to current levels. Rinse, repeat.

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0x4f3759df
Won't Bitcoin go to zero when quantum computers can break elliptic curve
cryptography?

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canpan
Actually no.

Long answer: Yes, the outgoing transaction from a ledger to another one is
done using crypto that can be broken by quantum computers. But a ledger that
has never been used to send money is only visible by it's hash value. So it's
security is based on sha256 which is quantum secure (There is Grover's
algorithm, but it should be OK for a while). BC would just need to change the
signing algorithm. So unless quantum computers pop up just over night
everything should be fine.

There are many threats to Bitcoin, IMO QC is one of the smallest.

~~~
fooker
What is the largest threat in your opinion?

Someone capturing >= 50% of the mining computation power?

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bitmapbrother
I'm hoping it does so that I can buy in.

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jlebrech
when credible finance media start warning of a bubble, causes a bubble to
burst. buy afterwards.

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TYPE_FASTER
Is it possible to short BTC?

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danmaz74
Yes, but the counterparty risk - in case of a real crash - is pretty high
IMHO.

Anyway, a couple of ways to do so:

You can short BTC using "USDT" on poloniex:
[https://poloniex.com](https://poloniex.com) (USDT is a cryptocurrency
theoretically pegged to the USD, but their peg hasn't be very stable lately)

Another way, which could in theory be better (or not) is using options:
[https://www.deribit.com/](https://www.deribit.com/)

~~~
icpmacdo
How does one currency peg its self to another?

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jlebrech
invest when it does. it's gonna keep going up and down.

~~~
gr3yh47
bitcoin has been rising to 400% and then falling to 50% in a pretty solid
rhythm for a long time, and i'm kicking myself hard for not buying back when
it was at 100 and then crashed to 50

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hackcasual
Might have lost it all due to an exchange going belly up.

~~~
koolba
I was thinking the same thing. Short of DIY cold storage, there's quite a bit
of holding risk.

Even cold storage has the risk of being held at gunpoint to transfer it over.
It's akin to having a bunch of cash/gold buried under your basement. If
anybody knows it's there, you better be ready!

~~~
hackcasual
Or you just have a HD die on you. Or it gets lost in a move.

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sgspace
TLDR: "If there is such a thing as a healthy bubble, this is it. To be sure,
regulators should watch out that cryptocurrencies do not become even more of a
conduit for criminal activity, such as drug dealing. But they should think
twice before coming down hard, particularly on ICOs. Being too spiky would not
just prick a bubble, but also prevent a lot of the useful innovation that is
likely to come about at the same time."

