

Ask HN: Is Bitcoin in a bubble? - Jackmc1047

The exponential shape of the price curve makes it appear that it is.<p>http:&#x2F;&#x2F;bitcoincharts.com&#x2F;charts&#x2F;mtgoxUSD#tgTzm1g10zm2g25zv
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Houshalter
It _looks_ to me like a bubble. Much of the people investing in bitcoin are
doing so because of hype, or at least it looks that way. Also there is no real
way to short sell on bitcoins, so the market is entirely controlled by the
people who are into the hype. People who are skeptical don't have much affect
over the price.

However that doesn't mean bitcoins are in a bubble, for that the true value
would have to be lower than what it is. And I don't know how to even roughly
estimate bitcoin's true value. That is, what the price will turn out to be in
the long run, what the supply and demand will be. That depends on how big the
bitcoin economy will grow, and the hype, while irrational, might actually
bring enough people to it to make it work. Or it might just die as people get
disappointed or move onto the next thing.

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yen223
Exponential curves are to be expected for any value whose growth rate is
positively correlated with its value - essentially, when you have positive
feedback loops where the more you have of x, the faster x grows, which causes
you to have more of x, and so on.

In this case, Bitcoin price growth made it more popular, which caused more
people to start investing in Bitcoin, which further increased its price. The
exponential shape of Bitcoin's price curve is entirely normal.

The real question is, does Bitcoin's current price match its "true" value? I
personally believe the answer is "no", but that's like, my opinion, man.

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Jackmc1047
You say that "Bitcoin['s] price growth made it more popular."

I guess my issue is what you mean by that. When people see Bitcoin's price
shoot through the ceiling, I totally agree that it attracts them to
speculating on the currency, further exacerbating the increase in price,
causing an exponential shape.

It is not clear that its price increase would attract people to using Bitcoin
as a currency and not speculation though. I consistently hear about the
importance of a currency having a relatively stable value so I wonder if
large, rapid price changes actually discourage using Bitcoin as an actual
currency while encouraging its use for speculation (or at least not
encouraging its use as a currency).

It would not make sense for anything that has independent utilitarian value to
have anything but a growth rate that is correlated with that value. It would
seem that exponential deviations from such a growth rate could only be due to
speculative mania. If people are only or mostly buying Bitcoin because its
price has increased, hoping for a further price increase, then there is only
so high the price can go before collapsing.

Rereading your comment, maybe we're actually saying the same thing here.

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yen223
I definitely agree with you. In a nutshell, Bitcoin's exponential growth is a
result of hype. This isn't necessarily a bad thing - Facebook's initial user
growth was also exponential, and that eventually stabilized. The question is,
what happens when the hype behind Bitcoin dies.

I believe that, like you mentioned, it depends on Bitcoin's utilitarian value
as a currency. If it turns out Bitcoin is more useful than, say, Paypal for
facilitating actual transactions (as opposed to being a pure investment
vehicle like it's being used now), then its price should encounter steady
growth. If not, then things will get interesting.

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jordanbaucke
I think Bitcoin's price is dictated less on "fundamentals" in the traditional
sense.

And more on it's market irregularities (take for example the inability to
withdraw USD via the SWIFT banking system without a 6 month delay from MtGOX)

It makes "price discovery" in the sense of a true currency valuation very hard
to estimate, and the illiquidity makes the instrument very prone to HUGE run-
ups and sell-offs. I actively trade it, and believe that a price target of
over $1000 is a strong technical possibility. Though what it "resets" to after
this run-up is anyone's guess.

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rrich
It certainly appears so. If you take into account how governments may react to
its use in the long run, it would seem rather risky at these lofty levels. But
then again that may be the real value, and thus what really supports the price
level, its inability to be controlled.

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creativeone
Yes and maybe. Yes, just like there was a bubble when it broke $200 in April
2013 and it came back down. Maybe, just like there was a bubble when it broke
$200 in April 2013, came back down and continued rising beyond the $200 point.

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reiz
Still not sure about that. If you have to pay tax for it it's just another
currency. A currency with cool features! But I'm not sure if this is the end.
I think something better will come after bitcoin.

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Jackmc1047
What is it that you don't like about Bitcoin? What do you want to do with
Bitcoin that you're currently not able to do? Or do you simply have concerns
with its security?

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Avalaxy
Nope.

