There are 12.5 Million BTC in circulation. I don't doubt that Bitcoin will become a revolutionary system of payments and money storage down the track, but the price of coins is outrageously inflated at the moment.
130 BTC is 0.001% (130/12.5M) of all Bitcoin spent in one day at Overstock. Does Overstock typically receive 0.001% of all the USD money supply in one day (~30M$)? My math is probably a bit off but my point is that before calling 130 BTC ridiculous, you have to put it in perspective with regards to other currencies.
The M1 supply of all USD is $2.1 Trillion . Overstock has $1.1 Billion in revenue per year . So they pull in .05% of US currency per year, or 0.00014% per day.
The bitcoin money supply is $12.5 Billion . Overstock pulled in $130,000 in a day, which is .001% of the bitcoin money supply.
So they got 7 times the proportion of bitcoin than they get of USD.
But there has never been a day where excited dollar enthusiasts spent easy money on Overstock to help the dollar look better.
Yes, I'm insinuating that at least some of that volume is bitcoin millionaires having a laugh.
Prices rise immediately in anticipation of positive future events.
If that was the case the bust of DPR and the downfall of SR should drive the price of BTC down, to it's knees - since it was the only market where BTC was treated like a curency. This fact shows that either BTC is not as rational as one might think or that big players (or a small team of players) are trying to keep the price as high as possible (by not selling in bulk).
Note that if A. Shamir's paper is correct, and we don't have proof of the opposite, than 98% of BTC is owned by 2% of portfolios. IF that's the case, then it's no wonder it's over-inflated.
The sad thing is some people believe, that somehow this is more liberal while might complete driven, by a small team of unknown/anonymous players.
NOTE: I'm not stating that this scenario is real, but to me seems not far fetched at all.
That's elementary: Since SR was the only place where owning BitCoin was actually useful since you couldn't buy using dollars and was a big market (in turn-over), it's seizure by the FBI should driven BTC price down because the largest btc-related goods trader closed, so all those people buying illegal products, would stop searching/buying for bitcoins. Simple as that.
So losing 40% to 50% of it's value should be expected/rational, IIRC lost from 10 to 20% for a couple of hours. The senate thing you're referring happened later on and it's still NOT clear how will end.
Then you go making an assertion... Like if anyone really cares if you buy drugs, guns or chocolate with your currency. The world doesn't work like that, no one bought/used BTC because suddenly became ethical to own one since the good BFI caught the bad Silk Road guys. If that was the case, the USD wouldn't be so widely used.
Out of curiosity, you think that Adi Shamir is wrong?
I would love to listen to you justify this statement, or rather, explain how any store of value without intrinsic value can be over/undervalued.
In attempting to do this, you will find that there are gaps in your understanding of how currencies work.
Bitpay alone is seeing an exponential growth of Bitcoin transactions: they appear to be doing about $20-30 million/month at their current rate: http://blog.bitpay.com/2013/12/bitpay-drives-explosive-growt... and http://blog.bitpay.com/2013/12/bitpay-exceeds-100000000-in-b...
[Ctrl-F keyword: "velocity of money"]
In reality, there are many more payment processors other than Bitpay, and many economic transactions happen outside of payment processor networks. It is hard to estimate money velocity in Bitcoin: http://blockchain.info/charts/estimated-transaction-volume-u... shows approximately $3 billion/month ($100 million/day) but this is an upper bound, because some of these transactions are just people moving coins around their wallets. The real figure is probably $100+ million/month to give an order of magnitude. And $100 million/month is not bad at all considering that it started from zero merely five years ago!
So we are completely in agreement on the numbers. I used $30 million as my anchor point: the same power of 10. Either way it's 2.5-3 orders of magnitude from $30 billion (B), which is what you'd predict if money was moving around as fluidly as the rest of the economy.
Emphasis: you're fiddling with a factor of 3, within an uncertainty of a factor of 10 and a shortfall of a factor of 1,000.
They estimated a transaction volume of 82,659.87740705 BTC for the previous 24 hour period. Multiply that by 365 and divide by 12.5 million, and you get 2.4x. 2.4x is less than half 7x, but it really ain't bad.
Of course, if you take the same stats, and divide the money which went to miners -- 4,811.59892633 BTC -- by the transaction volume, you get an effective transaction fee of 5.8% for that same period...
EDIT: Whoops, mixed up quarters and years. BTC goes through its money supply 0.6x per quarter. I'm not sure if that's good -- "only" an order a magnitude off from USD -- or bad -- a "full" order of magnitude off from USD.
"They estimated a transaction volume of 82,659.87740705 BTC for the previous 24 hour period. Multiply that by 365 and divide by 12.5 million, and you get 2.4x. 2.4x is less than half 7x, but it really ain't bad."
I think that's off by a factor of four: the Fed uses financial quarters (3 months) as the time interval.
2. Spending bitcoin helps the ecosystem, thereby increasing the value of your other coins in the long run.
3. Having things now is often more desirable than slightly more later.
(You can't eat bitcoin. If bitcoin is all you have to spend, you will spend it on food, because food now is worth more than more valuable bitcoin later. If you also have dollars, then you'd just spend the dollars. If you have dollars and bitcoin, you can spend the bitcoin to help support the system, and replenish it immediately with your dollars.)
Some more reasons:
4. Lower transaction cost (especially for international transactions)
5. If you want to help out the merchant, he may get a lower transaction cost out of it too (if the alternative is credit card, for instance).
Edit: Oh, and let's not forget the spend-and-replenish BTC strategy to keep your BTC holdings fixed.
One person spending Bitcoin has a negligible impact on helping the ecosystem, so the incentive for doing this is pretty small. You would likely gain a bigger benefit holding on to your BTC and letting other people help the ecosystem.
What you would want to do is invest your dollars, either in assets or in a savings/checking account, to get some return above the rate of inflation.
This is partly why the Fed is trying to raise inflation: a low, steady level of inflation encourages people to spend and invest in the economy, rather than simply sitting on dollars.
The tone I get from your comment makes me wonder if you really understood what GP meant. You could be both right, as in BTC being very useful to a lot of people, but still overinflated.
Most of my wealth is in USD, and yet in my entire life I've never bought anything from Overstock. I suspect there are millions of USD holders that can say the same. I don't think that says anything bad about the USD.
There was another discussion on hacker news, where I commented on the fact that bitcoins should have a higher value due to lost coins: https://news.ycombinator.com/item?id=6859991
In that thread, @nl provides the most interesting look at bitcoins from the perspective of bitcoins as a part of GDP: https://news.ycombinator.com/item?id=6860024
Anywho, the value is largely speculative, but most indications seem to point to a long term growth.
Plus Overstock isn't exactly a hot retailer. If Amazon does this, it will be HUGE.
What would be better (from a branding point of view), Paypal to use PPC as "Paypal Coin". The masses wouldn't have a clue that it was actually named something else.
I'm not a bitcoin booster or super believer or whatever the term is (even though I have some), but even if we are to follow your arguments, and assume that Chinese traders got the price that high, we can say that with a market cap as low as $10B, China hadn't likely injected as much money as Wall Street would if they entered the market. My point is that even if the price crashes because of some bad news in China, it still has a chance to rise again when Wall Street comes (if we are to believe that those companies still want to enter).
It really looks like speculation is what keeps the btc/usd pair rising, but with such good news coming, I can't think of a lot of reasons why people would stop speculating. Keep in mind that there is no short supply of people who want to get rich with little work.
People were saying this in 2010 when it reached dollar parity, in 2011 when it was $20 a pop and they keep saying it now. It really means nothing.
Also, you're getting downvoted because you're making these hard and fast predictions without substantiating them with anything but pure speculation. If you really believe BTC is about to drop then why don't you put your money where your mouth is and short it? There's a fortune to be made if your predictions turn out to be correct.
At this point I am not comfortable investing more in BTC but I would also be very reluctant to bet against it. I currently believe that the chance that BTC will reach the levels the Winklevii are talking about is minuscule, otherwise I would've already dumped all my savings into it.
I have a dislike for people who keep preaching either about BTC completely failing or overtaking the entire world economy. Both belong to the same camp of irrational thinking and simply hoping their preferred outcome happens. There is a certain probability distribution associated with the future price and the chance that the price will be at the either end of the curve (0 or max) is tiny. This is why I always tell people who make black and white "predictions" about price to simply invest according to their beliefs and certainty levels. It usually reveals real quick what they really believe (more often than not, they're full of shit).
For comparison, overstock sold 1.1B in 2012.. which is 2.6M in 21 hours vs 124K in 21 hours
Because I seriously doubt you get market top or even average price in BTC for something.
Domestic JPY withdrawals seem to happen smoothly so some people use that route to get fiat out.
In a perfect world the newspapers would use the combined weighted price for the last few weeks shared by all of the exchanges, but we're dealing with reporters here.
There must be a typo there. The word "not" should be removed. MtGox is a mess. It doesn't matter if MtGox values bitcoin at $999,999 each. You'll never see a dime. I'm curious to know who is using that exchange and how well it's working for them. Maybe they're daytraders who don't actually feel like getting fiat yet. I know I've been trading coins<--->fiat on btc-e.com but haven't actually requested the USD of my profits yet. When that time comes, I plan to buy bitcoin ---> coinbase.com ---> bank account. And in this way I pay the rate coinbase.com will give me.
If you try to go MtGox--->BankAccount, failure. So the fiat/BTC rate on MtGox is meaningless unless you're lucky enough that it actually worked for you.
The headline is misleading. I would expect CoinDesk to use their own Bitcoin Price Index or at least a regular exchange like Bitstamp as a reference rather than an exchange from which no one can withdraw money in a reasonable time.
I think the real issue is that in a disproportionate number of the big cases of Bitcoin being used in actual transactions, one or the other of the participants is a crackpot who thinks the Federal Reserve is destroying our money, despite the dollar's impressive record of price stability.
So there is a buy and a sell for each transaction which creates no net demand for bitcoins. And if you consider the alternative where I already have bitcoins because I mined them, then I have bitcoins and I send them to Overstock who sells them for dollars. In that case you actually create downward pressure on the bitcoin price (against the dollar) since there is no buy on my part to net against Overstock's sale of bitcoins.
But it may bring new users who buy/hold BTC, if they see it as a useful store of value or just for convenience sake to make future purchases. Overstock's CEO said they may start holding it for longer if they can pay their vendors in BTC or have derivatives that allow them to hedge against decline in value.
Also, because the exchanges charge a fee to convert to/from fiat (e.g. 1% in coinbase's case), that creates some incentive to stay as BTC.
(Of course, given the current volatility and volumes, it would make no sense for Overstock to do this yet.)
as soon as there's enough money, well funded organizations will start attacking, and robbing a bitcoin wallet is probably less risky than a bank...
They are probably one of the groups with the best BTC storage security (while maintaining usability). So yes, if they WERE to be robbed, then that would basically mean that no one is able to properly secure BTC.