

Why Bitcoin is Volatile aka I Told You So - marcfawzi
http://evolvingtrends.wordpress.com/2013/12/01/why-bitcoin-is-volatile/

======
ashray
The article makes decent points but these things are known to most people who
understand anything about money, whether that money is Bitcoin or USD.

I have to say though that the opening line of the article is absolutely
_terrible_ :

    
    
        Bitcoin is based on the idea that money gets its intrinsic value from its scarcity..
    

That is a terrible thing to say. Bitcoin is not based on that. Bitcoin is
currently overvalued due to speculation. It's current value far surpasses it's
utility (because we don't need $15 Billion transactions in BTC right now..).
This is due to speculation, and yes, that is helped along due to it's
scarcity.

But even with greater speculation, if the value starts going up, it becomes
much harder to swing the market. Studying history is important. Bitcoin went
from $30 to $2, then from $266 to $70. $1200 to $600 isn't even close. (there
is of course the chance that it will go lower, much lower, but we'll see
if/when it does..)

Volatility decreases with adoption. Adoption may decrease with volatility but
so far, the crazy volatility has favored adoption and awareness. Volatility
will truly become a problem if mainstream adoption takes place and it
continues. However, it's harder to swing a bigger market, mainstream adoption
is what will protect bitcoin from volatility (speculative, or otherwse). It's
much easier for a person or a group of people to swing a $1MM market, vs. a
$15 Billion, vs. a $1 Trillion market.

So far, every huge volatility event has helped bitcoin become less volatile
and gain value/adoption/mindshare.

I can see how someone who just found out about bitcoin is going to focus on
it's volatility. This has been true of every single media agency on the planet
in the last few weeks. However, anyone who has been in this long enough or has
studied it will recognize that volatility is actually decreasing as the market
expands (an expected result). Somehow the other HN post about people not
liking creativity/alternate solutions seems to come to mind [1]. (not an
attack on the author but on the general sentiment, "BITCOIN WILL FAIL EVEN
THOUGH I HAVEN'T STUDIED IT AND KNOW NOTHING ABOUT IT!!!! IT'S PONZI, OR
ILLEGAL, OR DRUGS, OR SOMETHING!")

TLDR; Bitcoin is way less volatile than it used to be. Bigger numbers ($1000
vs $10) don't mean more volatility.

[1] -
[http://www.slate.com/articles/health_and_science/science/201...](http://www.slate.com/articles/health_and_science/science/2013/12/creativity_is_rejected_teachers_and_bosses_don_t_value_out_of_the_box_thinking.html)

~~~
drawkbox
Bitcoin is maturing from a small stock to a growth stock then a value stock.
But in comparison with other currencies, simply retaining its value is better
than some fiat currency holdings and it is a wonderful hedge against it as
long as it can hold its value. It could even go down but at a slower rate than
nation currencies and still be useful as a hedge.

Some people are treating it as a stock currently expecting huge upsides,
adoption will bring that but eventually it will calm down and if it just
retains value over time it will beat out most fiat currencies.

There is obvious value to fiat currencies and inflation for fueling investment
(I need to grow my shrinking dollars) but it is always nice to hedge in case.

------
vectorpush
Damn, can we get a break in this infinite loop of blog posts where the author
confidently sets us straight about the inevitable fate of bitcoin? Bitcoin
market activity is a Rorschach test for your own personal biases, be you an
economist or a cryptographer, you're just going to rationalize the current
state of the market with your own future expectations.

The rumor of a butteryfly fart can send shockwaves through the bitcoin
markets, everybody knows this, we're not getting any new information by
exclaiming how volatile the market is every time the price shifts as if it's
somehow surprising.

------
wsxcde
Here's something I've never seen addressed by bitcoin apologists. Tell me why
I should "adopt" BTC if I'm not:

(a) speculating (b) interesting in buying drugs or circumventing regulations
around international money transfers.

I see no utility in paying for software or coffee in BTC. Getting hold of
bitcoin is not a straightforward process, and even once you acquire them, your
coins are fluctuating in value all the time. What am I gaining in return for
all this trouble? It simply doesn't make any sense to me.

~~~
ashray
You're doing well with your credit card because your bank allows you to do so.

Just a few days ago my debit card was blocked because I was traveling
internationally and the bank suspected that it was stolen. That's great,
they're trying to protect me. But then, the only way to get it unblocked was
to visit the bank in person.. but I was 10,000 miles away! I tried to reason
with them over the phone but they wouldn't listen. So here I was, far away
from home, without access to my money because my bank was trying to protect me
but had a retarded system in place for that. Eventually, I spent a few hours
on the phone, got someone to pull some local stunts in my city (went to speak
to the manager in person, etc.) and then got my card unblocked. You see the
problem ? I don't own my money. I can't pay for my coffee with my debit card
_unless my bank lets me_. I couldn't pay for anything, I had to apologize to
my hotel and ask them to wait until this got sorted out.

I run a website that is sustained by online advertising. I usually have two
options to get paid by advertisers. Paypal or Bank Wire. Paypal charges huge
fees, so I opt for wire. Bank Wires take 5 days to clear (2 if I'm lucky..)
and due to multiple different advertisers I end up paying over $200 in wire
fees each month. I think of that as the 'cost of doing business' but really,
it shouldn't be.

I used to live in Dubai two years ago and send money back home. Every time I
transferred money, I would get hit with huge fees. This is a reality for
immigrant workers all over the world. Western Union caters to this audience
right now.

Yes, banks are good at what they do - to a certain extent. We all know them
and use them. But that doesn't mean that I want to be at their mercy all the
time. Things are always fine, until they are not. That's what happens to me
with banks all the time.

Volatility isn't a feature of bitcoin, it's a market reality - for now. You
don't have to pay for your coffee using bitcoin right now, you are right,
bitcoin isn't ready for that yet.

But when it is, you'll be able to pay for your coffee, and no single 3rd party
in the world (bank, western union, visa, mastercard, federal reserve, etc.)
will have a say in it. Not a single entity in the world will stand between you
and that delicious brew.

~~~
drakaal
>Not a single entity in the world will stand between you and that delicious
brew.

Except the exchange rate. Your 1/300th of a coin might buy you coffee if it is
a good day, but the next day it might cost 1/100th of a coin.

I just bought in because I'm hoping that what I can buy with 1/100th of a coin
will only cost 1/300th by Christmas.

Bitcoin is having a bad day and I hope to capitalize on it. Having bought at
$650 I will be sad if it turns out that the new price is $500, and happy if
BAML was right and we are off to $1300.

But All of your arguments fall down in that you are either using an exchange
to get from currency to BTC. Or you are keeping coins in a wallet and they
could swing 50% in value in a day.

~~~
ashray
No, my arguments do not fall down. You are making the terribly flawed
assumption that bitcoin will always be this volatile. Bitcoin is less volatile
than it used to be, and with greater adoption will continue to decrease in
volatility.

The volatility in bitcoin today is nothing compared to 2011. Is it still bad ?
Yes. Will it continue being bad ? Probably not. The long term trend supports
the assumption that volatility will decrease with greater adoption.

Furthermore volatility has little effect on the 'money transmission' element
of bitcoin as long as transfers and conversions take place immediately. It's
still a viable way to legally move USD from the USA to Singapore with very low
fees.

Another example, I'd like to add is that I had a large part of my savings in
Indian Rupees. They depreciated by 30% over the past 2 years. That's
definitely pretty bad but it didn't prevent me from buying coffee. Euros have
also swung around by 15-20% over the past 2-3 years. The Brazilian Real lost
25% of it's value last year. Does that make them as bad as bitcoin ?

Your motivation for getting into bitcoin is your personal choice and I
certainly hope that you profit from it. However, don't forget that bitcoin is
an emerging technology going through fairly rapid adoption, as such,
volatility, crashing exchanges, bubbles, bubble pops, etc. will be a part of
it. And of course, I have to convert money from USD to BTC. Or from Marks to
Euros. Or from escudos to Euros. That's just how it works.

~~~
anonymouz
> Euros have also swung around by 15-20% over the past 2-3 years.

In relation to the dollar. Which is totally irrelevant for day to day
transactions inside the Euro zone. I still pay the same price for a coffee I
did 2-3 years ago.

But at the moment Bitcoin volatility is still huge: It's currently not
reasonable to offer coffee for a fixed number of Bitcoins, that, say, stay
stable over a year.

Your analogy between debit cards and Bitcoins seems a bit flawed too: For the
purposes of international transfers it might be apt, but for small day to day
business like buying coffee, it may be better to compare it to cash. And then
there's no bank stopping you from transacting in cash.

~~~
ashray
You pay the same price for coffee but you will certainly pay more for coffee
beans, the market will only absorb the difference for a while.

I wasn't drawing an analogy between bitcoins and debit cards. I was taking
about how a bank lets me access my money vs me having direct access to it. I
cannot get cash in a foreign country without my bank cooperating unless I
carry a world recognized currency (USD, Euro) in cash and try to exchange it
somewhere.

The problem is that you read a comparison as an analogy. It's a comparison of
our current dependency on the banking system vs bitcoins relative independence
from the same.

------
dnautics
I correctly called the peak at 1200 (although I did not think it would peak
there twice), and I'm calling the bottom at 300. This article has a very poor
opening:

 _Bitcoin is based on the idea that money gets its intrinsic value from its
scarcity, which is a misconception since money gets its intrinsic value from
the volume of transactions involving goods and services that use it_

No, bitcoin is based on the idea that money gets its intrinsic value from its
trust model. That's why it has advanced crypto-mathematics to establish
verifability, and so forth. Now. Bitcoin _promoters_ think that the scarcity
can drive the value up to the point where it becomes widely adopted. Criticism
of this model to spur adoption may be totally fair.

~~~
hmsimha
Are you predicting it will bottom at 300 before launching into another growth
phase, or that it will remain closer to 300 thereafter?

I think the latter is naive. I think bitcoin is the first currency whose
perpetual deflation is ensured by the contract that defines it.

~~~
dnautics
it is entirely possible that the bitcoin proprietors will change the protocol
to no longer be deflationary; although that would cause some large-scale
flight. I am not convinced of the keynsian model that inflation is exactly
supply divided by velocity; nor of the 'crude austrian' model that inflation
is function of supply only... If the demand goes to zero, so will the value.

While I think that bitcoin will recover, perpetual deflation is not
guaranteed. Indeed, in general deflation of bitcoin depends on an increase in
demand that outstrips the increase in supply.

------
erikpukinskis
If you and your whole family live in the U.S. and you have a couple credit
cards, a debit card, and a bank account, Bitcoin is going to seem pretty
useless. For you, the US dollar does just fine.

But the rest of the world isn't like the U.S. I visited Latvia recently, and
my bank refused to let me withdraw money. Florida is full of Cuban Americans
who want to send money to Cuba. Many people are imprisoned. The world is
_full_ of borders that make moving money difficult.

Bitcoin's market cap is moving towards where it needs to be to float all of
those transactions. Even if no one uses it to store value, and no one uses it
to buy groceries, it is still immensely valuable just as a means to move value
from one location to another. Even if no one holds Bitcoin for more than two
weeks, it will still have a market cap far north of a billion dollars.

~~~
psn
I'm cautious about your Latvia story - its sounds to me like the bike was
worried about fraud. Thats pretty common - about half the times I go to the
US, I have to ring up the bank and get the card unblocked.

That being said, there are countries attempting to control the flow of money.
Argentina wants to enforce its price for the dollar. Cyprus wants to prevent
everyone taking their money and running. and so on. However, most of these
countries see attempts to circumvent their controls as illegal. I feel its
unwise to get my hopes up about bitcoin for this sort of transaction for that
reason.

------
JamesArgo
It's far too early for I-told-you-sos.

~~~
fragsworth
Every bitcoin badmouther is using the price crash to tell everyone how right
they were. Not really unexpected.

Speculative price swings are largely irrelevant, and bitcoin has value as a
service regardless of the current price.

------
warfangle
Bitcoin only gets its value from scarcity if you look at it from the context
of a traditional currency.

It's volatile because there is a lot of speculation going on; there is a lot
of speculation going on because nobody has figured out how to value it against
a traditional currency yet (in other words: speculation transactions outweigh
productive transactions e.g. the proverbial alpaca sock).

While there is scarcity - and said scarcity is driving speculation - the
intrinsic value of btc derives from the cryptographic trust in the validation
of the Bitcoin blockchain, and the promise that a btc will always be accepted
as a bounty on the validation of a btc transaction.

It's fundamentally different than the promise inherent in traditional
currency: that a unit of currency must be accepted for the repayment of debt.
Instead, a unit of currency must be accepted as a bounty on the cryptographic
assurance that a transaction is not fraudulent.

What defines trust in a system, and when does that come in to play in the
valuation a system?

With a satoshi sent to an address that cannot spend its balance along with the
cryptographic signature of a document, you can execute a proof of existence.
Distributed, mathematically validated notary.

It can also be used as a decentralized, trust-based escrow system.

The value inherent in a single btc is more abstract than a brick of gold, and
has more to do with Bitcoin itself.

------
drawkbox
Bitcoin is a hedge on currencies, where you can turn it into other currencies
there is value in it. Currencies always move in different directions and there
will always be demand there. The generation is also created by the bitcoin
network so there will always be activity for some time.

When you can't trade it for the USD then it is over. In fact maybe it will
evolve nation currencies. I love what it is shaking up.

But just like currencies of countries there will be currencies now not bound
to countries, that live well beyond the country maybe. It actually prevents
gaming a country's currency too much (no artificially low currencies).

It is like gold in that you can't take a coin of gold down to the store but it
has more chance to be a mainstream currency because it is digital. All money
is digital, it can fit in much nicer than gold as well as having gold like
properties. Bitcoin is actually better placed for hedging currencies and
everyday usage than gold.

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kanzure
Marc, are you aware that Satoshi referenced you by name? I always found that
unexpected and hilarious.

[http://diyhpl.us/~bryan/irc/bitcoin-
satoshi/email-p2presearc...](http://diyhpl.us/~bryan/irc/bitcoin-
satoshi/email-p2presearch-2009-02-13-023120.txt)

~~~
marcfawzi
Thanks for letting me know Bryan. How have you been? Still hatin' on me after
all these years? :) I always found you fascinating.

So is the mailing list p2presearch@listcultures.org?

------
adamnemecek
Well, you sure showed me. I'll think twice before contradicting you ever
again.

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afterburner
Bitcoin is more like gold than the dollar, except even less useful.

------
bonbon
First they ignore you, then they laugh at you, then they fight you, then you
win..-Mahatma Gandhi (China fights bitcoin..)

