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Ask HN: How do we know Bitcoin is not in a bubble?

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Re: Ask HN: How do we know Bitcoin is not in a bubble?

#41

Post by ericb »

rmah wrote: post #37
captainmuon wrote: post #31

You can't know. For those who are saying it is obviously a bubble: If bitcoin "succeeds" and becomes widely used as money, then its value will grow a lot more, since there can only ever be 21 million bitcoins. It is inherently deflationary. One bitcoin is worth, roughly (and circularly) speaking, the total valuation of bitcoin divided by the number of coins. Another way of looking at it: imagine bitcoins become as wi…

Bitcoin cannot become "widely used money". It is technically impossible. It is transaction rate limited to 6 txn/sec. Worldwide. Even band-aids such as increasing the block size won't help enough. I'm not saying bitcoin prices will crash anytime soon. Simply that the dream of bitcoin replacing fiat currencies in daily commerce is just that: a dream.

It was once impossible to stream movies over the internet because modem technology was limited to 1200 bits per second. Even band-aids like doubling capacity wouldn't help enough.

Technically. Impossible.

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#42

Post by scrumper »

akhatri_aus wrote: post #36
captainmuon wrote: post #32

Earlier quoted context omitted.

> Nothing can grow at such an insane rate and be a stable, long-lasting thing. That sounds like common sense, but common sense is not neccessarily right. Imagine a German in the 1920s looking at the price of US dollars in Reichsmark. That can't be true, $1 for 1000 RM? Now 10000 RM? Nothing can grow at such an insane rate. Surely there is a dollar bubble, and it is going to crash. What our German friend didn't realiz…

Why aren't scarce resources like gold and oil going up the same way? I think gold made a low this week. Your theory doesn't align with what happened in Germany.

Exactly.

That German person could have bought a loaf of bread in the morning for RM1,000 then sold it to his neighbor in the afternoon for RM10,000. There are no citizens in Bitcoinland dealing with inflationary prices in virtual bread. Anything you can buy with Bitcoin is priced in fiat, denominated in BTC at whatever the spot rate of the moment happens to be.

EDIT:

> What our German friend didn't realize was that his own currency was (hyper-)inflatory.

He absolutely did. Just like Zimbabweans did more recently.

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#43

Post by chrdlu »

mancerayder wrote: post #21
soneca wrote: post #9

Earlier quoted context omitted.

What financial mechanisms exist to short Bitcoin?

Here's an idea. Ethereum smart contracts to short bitcoin. You borrow my BTC for 30 days, with a 5% fee. Someone could make a killing off of that idea.

https://medium.com/dydxderivatives/introducing-dydx-2d0f0f32...

Note: I'm not affiliated with that project, but I did see them present yesterday at Token Summit and it looked very interesting!

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#44

Post by age_bronze »

The question should be, what should happen so that it stabilizes. If Bitcoin and cryptocurrency marker were to stabilize, the competition between different cryptocurrencies should mean the trade off between their different features will be directly reflected in the cost to their user. The possible features are: - Transaction time (Bitcoin is relatively bad here) - Transaction fee (Bitcoin is also one of the worst options here) - Smart contacts / other integration features (Bitcoin is going nowhere here) - Anonymity (Bitcoin isn't in the best spot here, might have the advantage of being the most commonly used BUT this is a matter of momentum only). - Resistance to attacks from large groups of people (Bitcoin's biggest advantage, but again only a result of it's initial momentum, which might not hold forever).

Now you can also notice that all these features are composite. If you really want to pay for anonymity, you can tumble though the most anonymous currency. If you need smart contacts, go through eth. Resistance to nation state attack is a noble ideological concept, but has low demand, and a cheaper but weaker coin will be dominant in most scenarios.

You will also know a market is stabilized when there no incentives to create competition without innovating. There's nothing stopping you from creating yet another crypto coin, which will have better transaction fee and will still be as decent as others.

Anyway you can clearly tell the market is clueless when the talk isn't about which coins gives you the best features for the most cheap price, but instead about which coin rises the most (which is usually exactly the opposite).

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#46

Post by captainmuon »

akhatri_aus wrote: post #36
captainmuon wrote: post #32

Earlier quoted context omitted.

> Nothing can grow at such an insane rate and be a stable, long-lasting thing. That sounds like common sense, but common sense is not neccessarily right. Imagine a German in the 1920s looking at the price of US dollars in Reichsmark. That can't be true, $1 for 1000 RM? Now 10000 RM? Nothing can grow at such an insane rate. Surely there is a dollar bubble, and it is going to crash. What our German friend didn't realiz…

Why aren't scarce resources like gold and oil going up the same way? I think gold made a low this week. Your theory doesn't align with what happened in Germany.

Gold is not growing in demand, and is not in the process of being "established". Almost everybody who wants gold already has enough, and people entering the gold market are approximately balanced by people selling gold. People who use gold (e.g. in industry) are supplying themselves at the same rate as they are using it. There is no reason it should continuously go up.

Of course my argument doesn't align with what happened in Germany, that is my point. What I am trying to say is what seems at first glance like an overvaluation or a bubble could actually be in-/deflation, or in other words: currency supply and demand.

If you assume bitcoin eventually becomes as big as a typical national currency, it is currently even undervalued.

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#47

Post by captainmuon »

saalweachter wrote: post #38
captainmuon wrote: post #31

You can't know. For those who are saying it is obviously a bubble: If bitcoin "succeeds" and becomes widely used as money, then its value will grow a lot more, since there can only ever be 21 million bitcoins. It is inherently deflationary. One bitcoin is worth, roughly (and circularly) speaking, the total valuation of bitcoin divided by the number of coins. Another way of looking at it: imagine bitcoins become as wi…

So the US money supply is about $3.5 trillion. If you had 21 million BTC worth the same, your exchange rate would be about $170,000 / BTC. Now I'll admit that I never expected BTC to break 5 figures, but even if your argument is "BTC should be worth as much as USD", 7 figures is still absurd.

Why would that be absurd? "Bitcoin" is an arbitrary unit, you can rescale it. For example, 1 satoshi = a hundred millionth BTC. In your example, the rate would be 1 kilosatoshi = $1.70. A nice and imaginable rate if it was a regular currency.

The thing is: you can either call current (and possibly future) bitcoin absurdly overvalued (with its real value close to zero), or the early-stage bitcoin absurdly undervalued (with its real value close to the "asymptotic" value). I personally prefer the latter, or better: acknowledge that the "value" is determined by the market, and the "real" value is dynamic in time.

The only question is: is the current exchange rate rational, or a craze? I believe, assuming nothing catastrophic happens (bitcoin outlawed, or it is abandoned because the network cannot handle the number of transactions anymore), the current rate is rational (close to the instantaneous "real" value), and will continue to rise (and approach the asymptotic "real" value) in future.

Full disclosure: I am not 100% convinced (and thus stupidly sold quite some BTC before the current hike), but I'm betting some coffee money that BTC - if it is staying with us - will go "to the moon".

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#48

Post by muzani »

Avalaxy wrote: post #6

It very obviously is. Nothing can grow at such an insane rate and be a stable, long-lasting thing. No one knows how high it will go, but that it will collapse hard soon is 100% sure.

It's technology and it's revolutionary. Both of those things tend to break all known patterns. Look at when corporations were invented or any other major tech revolution.

It could well be the first example of something going so high. It's unlikely but I wouldn't say it's 100% sure to crash.

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#49

Post by saalweachter »

captainmuon wrote: post #47
saalweachter wrote: post #38

Earlier quoted context omitted.

So the US money supply is about $3.5 trillion. If you had 21 million BTC worth the same, your exchange rate would be about $170,000 / BTC. Now I'll admit that I never expected BTC to break 5 figures, but even if your argument is "BTC should be worth as much as USD", 7 figures is still absurd.

Why would that be absurd? "Bitcoin" is an arbitrary unit, you can rescale it. For example, 1 satoshi = a hundred millionth BTC. In your example, the rate would be 1 kilosatoshi = $1.70. A nice and imaginable rate if it was a regular currency. The thing is: you can either call current (and possibly future) bitcoin absurdly overvalued (with its real value close to zero), or the early-stage bitcoin absurdly undervalued…

"imagine bitcoins become as widespread, and as desired, as USD. Now think about how many USD are in circulation compared to BTC."

The US money supply (M1) is $3.5 trillion. The maximum Bitcoin supply is 21 million BTC. $3.5 trillion / 21 million BTC = $166,000 / BTC.

1 BTC being worth seven figures USD would mean that the "Bitcoin money supply" was 10x the "USD money supply".

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#50

Post by take4 »

ericb wrote: post #41
rmah wrote: post #37

Earlier quoted context omitted.

Bitcoin cannot become "widely used money". It is technically impossible. It is transaction rate limited to 6 txn/sec. Worldwide. Even band-aids such as increasing the block size won't help enough. I'm not saying bitcoin prices will crash anytime soon. Simply that the dream of bitcoin replacing fiat currencies in daily commerce is just that: a dream.

It was once impossible to stream movies over the internet because modem technology was limited to 1200 bits per second. Even band-aids like doubling capacity wouldn't help enough. Technically. Impossible.

Streaming movies was impossible over dial-up, and still is. But you can if you have different internet connections like DSL, Cable, Fiber, etc.

For the original bitcoin that is currently being priced at $13,000 it is indeed technically impossible to exceed 6 transactions per second. Sure you could make a new crypto protocol, but it's not "bitcoin".

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